▶ 0:18:27e e
▶ 0:19:06good the committee will come to order without objection the chair is authorized to declare a recess of the committee at any time this hearing is entitled making Community banking great again without objection all members will have five legislative days within which to submit extraneous materials to the chair for inclusion in the record I now recognize myself for a 4minute opening statement welcome to the house Financial Services committee's first hearing for the 119th Congress I'm delighted to serve as chair and I look forward to working
▶ 0:19:36with my subcommittee chairs ranking member Waters and all the members of the committee to bring Common Sense back to financial and economic policy that will both Foster prosperity and growth for all of our citizens that's the change that President Trump ran on and that's what we're going to do in this committee it's been nearly a hundred years since the house Financial Service committee was chaired by somebody that had Financial experience before their time in Congress many of you know that I was a community Banker before being elected to congress and I want to bring being
▶ 0:20:07a banker and business Vision to the committee and one of the key uh pillars of that vision is indeed to try to make Community banking great again it's no coincidence that this is the theme for my first hearing of the chairmanship most countries have just a handful of large National Banks but the United States has a large and diverse banking system with thousands of Banks from small and Regional institutions to Global Money Center banks that all coexist and work together with each other to meet
▶ 0:20:37the Capital Access needs and depository needs of our Americans it's one of our great competitive advantages Alexander Hamilton our first treasury secretary himself said banks are the nurseries of the national wealth when faced with unprecedented uncertainty during the time of the pandemic it was our community banks that made an outside share of the pat check protection loans to small businesses keeping millions of Americans employed Community Banks know their communities best and research
▶ 0:21:07shows that when they close their doors Americans suffer right now our community banks are disappearing across the country back in 1999 when I first founded my arkansas-based company Delta trust and banking Corp the United States had over 8,500 FDIC insured Bank including 190 new Charters that year fast forward to today the United States has 4,000 Banks while only 82 denovo Charters
▶ 0:21:37uh have been issued since 2010 small Community Banks and Credit Unions have suffered immensely under the regulatory requirements forcing them to devote more and more resources to lawyers and check the box compliance programs instead of serving their customers back in 199 five Arkansas had 251 Banks today it's 77 however our local Community Banks and Credit Unions did not contribute
▶ 0:22:08to the financial crisis they've continued to serve the critical engines for local economies despite being subjected to much of the same regulatory burden and regime as the largest most complex institutions to form a new bank today Americans must submit a multi-year high-cost Endeavor with several different federal agencies just before they can be considered to open their doors initial Capital requirements can be as high as $30 million in practice making it nearly impossible to get started as an entrepreneur
▶ 0:22:38Banker today one founder in Texas told me that Regulators were asking him to proposed $50 million and paid in capital before he could open his doors over the last year I've met with Bankers from across America including in Arkansas Texas Ohio Florida Oklahoma Louisiana and elsewhere and these visits had reinforced my view that we're not doing enough to ensure that Banks of all sizes remain competitive both in their business model and in their ability to attract growth Capital that's why last
▶ 0:23:09November I released my principles that we're starting to talk about today making Community banking great again 30 plus reform ideas to enhance the ability for financial institutions to serve their customers attract investment and adopt and deploy technology and grow their communities I look forward to working with all my colleagues to in fact bring that to fruition I'd like to first uh have the ranking member and I visit about a a point of
▶ 0:23:39personal privilege I want to acknowledge two staffers for their service on our committee uh first from the majority Kim Betts and Larry cyer SE have done so much work to make this committee strong and outstanding uh over the past few years both are moving on on Friday will be their last day with the committee Kim's been a key staff for here for the past six years she's been general counsel policy director Deputy staff director and staff director
▶ 0:24:09uh and chairman Cole and subcommittee chairman Joyce have enticed her over to the House Appropriations Committee uh so she won't be going far and I consider her a world-class double agent uh in appropriation recommen Rec uh uh absolutely watching out for those of us on the authorizing committee Larry's been served as director of member services and coalitions during the 118th Congress deputy director of coalitions in this Congress his work to make sure our members and their offices get what
▶ 0:24:39they need to be successful has been integral to the success of our committee in the last Congress and this one so we've benefited mightily from Kim and Larry's leadership and hard work and I want to thank you for your service to our committee very much and now I'd like to recognize my friend the ranking member of the committee the Goman from California for a point of personal privilege uh thank you very much Mr chairman
▶ 0:25:10I would like to acknowledge Esther Kong the Democrats Chief Council who will be departing Congress at the end of this week Esther has served ay on my staff for 11 years she first joined the committee in 2014 as a fellow fresh out of Law School she quickly disting distinguished herself with a sharp thinking and Keen sense for public policy and was soon hired fulltime onto the committee staff as a
▶ 0:25:40staffer uh covering housing issues eser worked on a variety of issues including the reauthorization of the Native American housing and self-determination act the enactment of the Housing Opportunity through modernization act and the reforms to the National flood insurance program later she became our director of housing policy leading a team of housing professionals and shepher
▶ 0:26:11the committee's response uh to the housing challenges caused by the co9 pandemic though the house and into law in 2020 Esther was promoted to be the committee's chief counsel and in that role she has refined mind the committee's processes and procedures expanded Our member services operation worked across the io on bipartisan legislation and giving the Republicans
▶ 0:26:41a hard time on every now and then when it comes to enforcing the rules Esther is driven determined and hardworking but also very kind thoughtful and a mentor to current and former staff many of whom and now her close friends outside the office she is a proud wife to her husband Corey who is a teacher at a DC school and she is even prouder godmother to
▶ 0:27:11uh hosiah who we see and hear in the office from time to time we all are going to miss Esther and I will miss her smile her life and our no sense attitude all of us are incredibly proud of her and wish her her the best as she embarks on this next phase of her life and thank her for her service and thank you Mr chairman and now you
▶ 0:27:48back I thank the ranking member I couldn't agree with her more on the incredible wonderful staff we have on both sides of the island how we're grateful for their service uh to the committee and on behalf of the American people I now recognize the ranking member for four minutes for an opening statement good morning everyone today we're here to discuss how to strengthen Community Banks and Credit Unions vital institutions that are lifelines for families and small
▶ 0:28:18businesses all across the country particularly in underserved communities this committee has a long bipartisan track record of supporting all of these Community lenders including during the pandemic by allocating 60 billion for them to deploy Emergency Loans to small businesses and investigate uh investing rather 12 billion to grow minority depository institutions and Community
▶ 0:28:49Development financial institutions many of which are small Banks and Credit Unions if it were in any other day I would say that I hope we can build on these efforts including by passing my bill to expand depository Insurance to protect the payrolls of small businesses and their employees who want to keep their money at their Banks but I cannot do so as
▶ 0:29:20an unelected billionaire Elon Musk seizes control of the American people's money meanwhile president Trump unlawfully blocks sending money rightfully owed to Americans imposes new import taxes on Americans and businesses buying everyday goods and fires the federal cops that go after everyone from Wall Street exe
▶ 0:29:51Executives uh to Violent insurrectionist criminals each of Trump's and co- president musk actions are designed to cut taxes for billionaires and give corporations free reign to rip off workingclass families if the Community Banks listening today if they're listening they should be worried about what's happening to their customers and small business clients um and what they should be doing
▶ 0:30:21Trump is waging a trade War by threatening to tax Americans whenever they buy fruit vegetables gas and even housing and our small businesses uh will indeed feel the pain when they buy and sell their products even the Wall Street Journal has called Trump's import taxes the dumbest trade war in history and frankly I agree Mr chairman I don't have to tell you
▶ 0:30:51who these hardworking people refer to bank with them that's right Community Banks and Credit Unions I know Republicans have noticed several so-called reform bills but Bank exam appeals reporting requirements and even Capital levels completely misses the point when Community Banks customers are being fleeced Trump and his team are found hundreds of federal Regulators hired in the last two years
▶ 0:31:21this was after Trump imposed a hiring free gutted Fair hiring in initiatives mandated by law and suspended all enforcement of consumer laws so that big Banks like Wells Fargo can go right back to their old tricks I know that you are sincere and I know that you have done a lot for Community Banks and you want to continue to do and we want to work with you but it's difficult uh when the president of the United States
▶ 0:31:52is offering initiatives and executive orders that really undermine Community Banks y back the gentlewoman Y's back I now recognize uh the uh chairman of the financial institutions subcommittee for Mr bar of Kentucky for one minute thank you Mr chairman I'm pleased the First full Committee hearing of the 119th Congress is focused on issues I've long cared about and it's a credit to our chairman for focusing and prioritizing issues related to Community
▶ 0:32:22Banks today we're going to discuss how we can unbridle those Community Banks from regul from the regulatory burden of the Biden Administration and The Dodd Frank act and allow them to focus on what they do best serving American families farmers and small businesses throughout my time in Congress I've push for changes to the regulatory landscape that promote competition ensure right sizing and hold Regulators accountable I was proud to reintroduce HR 478 the promoting new bank formation act a bill to reduce burdensome initial Capital requirements and lending restrictions that have made denovo Bank formation
▶ 0:32:52all but non-existent over the last decade in addition to promoting new bank formation we need to repeal the disastrous 1071 rulemaking and Implement an independent appeals process to curtail regulatory overreach I look forward to continuing to lead the financial institution subcommittee and getting to work gentleman heels back chair recognizes the ranking member of the subcommittee for financial institutions Mr Foster of Illinois for one minute thank you chairman Hill and to our Witnesses the state of Illinois
▶ 0:33:22is home to more than 500 Community Banks and Credit Unions employing over 41,000 Illinois residents when I was starting a business with my brother years ago I learned the value of having many banks large and small competing for our business it allowed us to shop around for the interest rates and lending terms that were best fit for our situation and today Community Banks and Credit Unions face many challenges they do not have the scale to compete with mega banks for large accounts and they often do not have the technology or the consumer data to compete with online banks and fintex for
▶ 0:33:52smaller accounts and now they're faced with a spectre of competing against online payment systems like like X money at the same time that ex owners Elon Musk has been given unprecedented access to private payment data on every American Business and every American small Bank customers were hit hard during the Tariff Wars of the first Trump Administration which threw us into a manufacturing recession a full year before covid hit and retaliatory tariffs devastated Farm export markets in small towns Across America requiring a 20 billion
▶ 0:34:23taxed bailout simply to keep us Farmers afloat but small Banks matter and I look forward to working with the chair in this committee to address many of these issues yield back gent's time has expired today we welcome the testimony of Mr Pat Kennedy Jr founding partner of the law firm Kennedy Southerland San Antonio Miss Susanna Marshall who's the bank commissioner from the Arkansas State Bank Department Kathy Owen executive chairman of Eagle Bank and Trust located in Little Rock Arkansas Rebecca Romero Rainey president and CEO of the Independent Community Bankers of America
▶ 0:34:53and Mitra as spera vice president of federal policy for the center for responsible lending we welcome all of you each of you will be recognized for 5 minutes to give an oral presentation your testimony without objection your written testimony will be made part of the record Mr Kennedy we start with you you're recognized for five minutes thank you Mr chairman ranking member Waters and members of the committee thank you very much for inviting me to attend this hearing and submit written testimony I've been a practicing lawyer representing Community
▶ 0:35:24Banks for 45 years they their sharehold olders directors and officers and related entities on a wide range of matters so I've had a lot of exposure to the industry I'm also the principal shareholder of a Texas State Savings Bank with roots in rural West Texas which uh in the last five years uh had during the PPP as chair Waters had commented uh this little small Bank did over 10,000 PPP loans average size of
▶ 0:35:5411,000 we ended up as a little small community Bank being the 10th largest Main Street lender in the country firm called Wells Fargo was number seven when I last had the opportunity to testify before this committee subcommittee on uh financial institutions at the invitation of Congressman lud kamire in 2017 there were 6,300 banks in the United States as of last September uh 30% of those are gone and we have about
▶ 0:36:244500 Banks today this this loss is extremely unfortunate is an and is a trend that I strongly encourage Congress to reverse in my professional career I've witnessed the value of having locally owned and operated Banks particularly in rural communities no other country in the world has anything like this historic uh population it's a unique element of the American economy
▶ 0:36:55and unfortunately in the last 15 years particularly since the enactment of dodf Frank has undergone significant stress and that is the reason for the continual decline prior to 2008 there were approximately as the chairman noted 200 new Charters annually over the prior 20 years today that DWI that number is dwindled to something like seven per year during that same period Capital ratios and the basil
▶ 0:37:25committee the European based basil committee initiatives have been forced designed really for the largest banks in the world but have been trickled down and forced on every Community Bank even the smallest Community Banks and placed enormous burdens on on this unique set of an important uh group of banks despite the laudable attempts of Congress during the first term to during Trump president Trump's first term to lessen that burden
▶ 0:37:55by the establishment of the Comm Bank leverage ratio concept of getting away from the the basil at 9% that still is a is a higher number and really continues to put pressure on profitability of Community Banks and I think discourages uh entrance into the the the business 27 years ago I was involved in uh and thankfully Congress adopted an amendment to the Internal Revenue code that permitted banks for the first time to elect sub chapter
▶ 0:38:26as tax treatment and that has been credited as one of the most important pieces of legislation unknowingly uh that has affected positively Community Banks in the last 50 years about a third of the banks in the United States at that time they were 13,000 I think and today they're as we said 4,500 about a third of the banks in the United States are maintain a sub chapter S election and that was um that was continued in the tax uh tax U
▶ 0:38:56Act of 2017 in section 199a it expires this year and so I I call that to the attention of the committee I know it's in the purview of the Ways and Means Committee but it's extremely important that we make that provision permanent for the benefit of some 1500 Community Banks most of them rural based while there are many other laudable initiatives identified by the chairman in his initiatives I want to underscore the importance of encouraging and allowing responsible Innovation
▶ 0:39:27by Community Banks Financial technology has and will continue to create substantial value for the industry through efficiency and reduction of costs but it's important that we have a regulatory framework that allows that Innovation I would also point that it's it's really important that the we have open And Timely discussion of material determinations public enforcement action should in myew
▶ 0:39:57be reviews rece reserved really for the most egregious situations and cooperative and open dialogue should be the word for the future finally I believe that the appropriate pricing of examination and application fees may need to be adjusted so that the industry is self-funding and the regulatory burden that is on Community Banks uh is lessened thank you very much thank you Mr Kennedy commissioner Marshall you're recognized for five minutes
▶ 0:40:29good morning chairman Hill ranking member Waters and members of the financial services committee my name is Susanna Marshall and I am the commissioner of the Arkansas State Bank Department I also serve as the Arkansas Securities commissioner and on the executive committee of the conference of State Bank supervisors I have dedicated my entire career to the banking and Regulatory industry starting as a Commercial Bank examiner in 1995 as commissioner I regularly travel across Arkansas and spend time at our banks talking with Bankers about their issues and working to understand the challenges facing
▶ 0:40:59the institutions our economy and consumers the Dual banking system and our state supervisors are a fundamental part of our US Financial Services Market that supports varied business models and brings together differing regulatory perspectives to produce better outcomes for our consumers and our local economies States Charter and are the primary regulator of 79% of the nation's Banks most of which are Community Banks in general these Banks have assets under 10 billion traditional
▶ 0:41:29business models limited Geographic Footprints and less complex risk profiles they POS minimal Financial stability risk the 70 Banks my department overseas are all Community Banks in the truest sense regardless of any regulatory or supervisory definition Community Banks are the economic Bedrock of their communities and the solid foundation for the overall US economy yet over the last decade we have lost nearly 2,000 Community Banks one third of their numbers in 2014
▶ 0:41:59and only 62 denovo Community Banks formed over that same period like many of my State's supervisor colleagues my department has a mandate for safety and soundness consumer protection and economic growth we are accountable to the local communities and local institutions a healthy economy means that all consumers no matter where they live have access to a broad array of financial services Community Banks are Central to this Mission they are a core component of a vibrant economy especially in rural
▶ 0:42:30areas in one quarter of us counties a Community Bank is the only physical banking presence and nearly 2third of all rural deposits are held by Community Banks when Community Banks close their neighborhoods suffer and low-income households are often the hardest hit our nation's institutions simply do not reach the areas that depend on Community Banks for their economic support those largest institutions don't reach those areas their business models are not an adequate substitute for the relationship
▶ 0:43:00lending model so crucial to local small businesses and entrepreneurs that is why State supervisors care so deeply about the health vitality and future of the community banking business model unfortunately this model is under tremendous pressure from a multitude of forces from increased competition and funding challenges to high technology and Personnel cost in addition to these headwinds a heavy blanket of ever increasing Federal Regulatory and compliance costs is smothering already severely stressed Community banking sector
▶ 0:43:30to preserve Community Banking and support the communities that rely on these institutions we must act now regulations for Community Banks should be tailored to limit their risk profiles we must Focus Federal supervision on core safety and soundness risk and avoid opposing a process tax on banks this supervisory approach often distracts Bankers from Financial issues that could actually pose significant risk to their institutions one such area in need of fundamental reform is the BSA AML supervision no one in our financial
▶ 0:44:00system wants it to be used by criminals or terrorists but the current BSA AML regime is burdensome its Effectiveness is often unclear and the associated compliance costs are strangling smaller institutions static regulatory thresholds that penalize banks for growing alongside the economy should be indexed or discarded for rules that focus on the relative complexity and business models and risk of the institution Community Banks must also continue to innovate the next generation of cons
▶ 0:44:30customers is demanding more convenient access to services and new and Innovative Financial products Federal Regulators however have responded with vague guidance and ever-increasing supervisory expectations that can stifle new business models a culture shift among our federal counterparts and meaningful coordination with State Regulators can help harness the benefits of new technologies and protect consumers changes to the regulatory framework work and the process for approving denovo applications should encourage
▶ 0:45:01New Market entrance healthy merger applications particular local to local mergers that preserve Community Banks must be considered in a timely transparent and fair process today's hearing comes at a crucial time for the community banking industry and I applaud the chairman and the members of the committee for your focus on this crucial sector without Collective action from Congress and the Federal Banking agencies we will continue to lose Community Banks at alarming rate and the communities that depend on their Financial Services will struggle to find suitable Alternatives working together we can establish
▶ 0:45:31Regulatory and supervisory environment that allows the Cornerstone of this industry to not just survive but Thrive thank you thank you commissioner Miss Owen you're recognized four or five minutes chairman Hill ranking member Waters and members of the committee thank you for this opportunity to testify today's hearing making Community banking great again first I want to thank chairman brch Hill not only is he a dedicated husband father and public servant
▶ 0:46:01he is also a dear friend I have known him for over 50 years his deep understanding of financial services and tenur Bank experience is invaluable as he leads the committee I also want to thank each of you in serving on the house Financial Services committee as you have an exceptionally important job ahead of you I Fear Community banking has never been more difficult than it is today and just as so many Community Bankers are striving to serve their customers and communities
▶ 0:46:32many are also struggling to survive we desperately need your help to address the overwhelming regulatory burden we face I know you are the people we need to get the job done and offer my thanks in advance for your support of the chairman as he works to make Community Banks great again my name is Kathy Owen I'm chair president and CEO of State holding company and exec Ive chair of Eagle Bank and Trust Company a $490 million Community Bank in central
▶ 0:47:02Arkansas with a rich 100 plus year history of serving its customers and communities last year I celebrated 50 years in banking having started my career as a shred clerk when I was a teenager in addition to running our bank I am currently Vice chair of the American Bankers Association I've chaired the aba's government relations Council and the American Bankers assoc excuse me Arkansas Bankers Association and I'm also very involved in advocacy efforts on
▶ 0:47:32behalf of America's Banks I'm also a mother a wife and a grandmother in preparing for this hearing I asked our compliance team to provide real world examples of unnecessary and counterproductive regulatory red tape although well intended the cfpb's final rule on Section 1071 presents both a tremendous compliance burden on lenders and privacy concerns for small business loan applicants and we strongly support congressional action
▶ 0:48:03to overturn it the lack of transparency and accountability at the cfpb is taking a heavy toll on America's banking industry and the millions of customers we serve replacing the sole director with a five member bipartisan commission and placing the cfpb under Congressional Appropriations process would introduce sorely needed account ility to the bureau we want to comply with CRA and serve our communities but there are
▶ 0:48:33vast gray areas left up to interpretation by both regulators and the bankers CRA should be reformed to clearly tell us what we need to do and what format and documentation is required just before the end of 2024 our bank grew suddenly to over 500 million in assets Regulators informed us to comply with the new FDI I see Improvement act requirements by year end meaning we had only two weeks to comply
▶ 0:49:04which was impossible instead we chose to shrink the bank by moving deposits of customers out of the bank if asset thresholds are imposed on the industry they should be indexed to inflation borrowers constantly complain about the required waiting periods for receiving the closing disclosures in truth and lending Acts tread rules when waiting an additional 3 to six days for actually closing and receiving their funds
▶ 0:49:34this un necessary red tape should be eliminated in my written testimony I mentioned several bills that we support one of those bills that I think is important is the pro promoting new bank formation act this would promote increased availability of Banking and Financial Services for local communities by helping to create new Novo Banks finally combating fraud is a critical issue for our banks and customers Congress
▶ 0:50:04and the Regulatory Agencies should pursue an all of government approach to combating fraud to reduce the number of Americans who fall victims to scams in conclusion at Eagle Bank and Trust we have a long history of service to our local communities in Arkansas and our commitment to Community Development loans and Investments is shared by the thousands of Community Banks across the country many of these banks are under pressure to survive due to regulatory overreach and unfair
▶ 0:50:35competition we support your ambitious agenda to provide needed regulatory relief for Community Banks and hope you will consider the many ideas presented in this testimony and aba's blueprint for growth thank you once again thank you Miss Owen uh Miss Rainey you're recognized for five minutes chairman Hill ranking member Waters and members of the committee my name is Rebecca Romero Rainey and I am president and CEO of the Independent Community Bankers of America I testify today
▶ 0:51:05on behalf of thousands of Community Banks across the country in rural urban and Suburban markets before joining icba I was chairman and CEO of Sentinel Bank a $415 million bank and minority depository institution or MDI headquartered in t New Mexico and I'm a proud ther generation community Banker Sentinel was founded by my grandfather elu Ral in 1969 years earlier he had been denied a
▶ 0:51:35loan to finance a new law practice that experience led him to start a bank that would provide credit for all in his community and I'm proud to carry on his legacy first at Sentinel and now at icba thank you so much for convening today's hearing on making Community banking great again I'm delighted that we share a commitment to a future of great Community Banks to promote American prosperity and I would like to say a few words about what makes Community
▶ 0:52:05Banks great we have deep roots in the communities we serve more than a thousand Community Banks are more than a hundred years old and have survived historic systemic shocks standing by their customers and catastrophic times others are denovo Charters poised for growth and we need more of those in a Community Bank local deposits are reinvested back into local credit the business model is the purest form of economic development that there
▶ 0:52:35is we often serve communities overlooked by larger outof market institutions and offer customized products and personalized services to seat the unique suit the unique needs of our customers Community Banks are responsible for a disproportionate number of Main Street small business loans especially in smaller commun commities and some 70% of Bank agricultural loans in one in three us counties Community Banks are the only
▶ 0:53:06on the ground banking option whether historic or denovo Community Banks are modernizing and embracing Innovation and new technologies to reach more customers and small businesses responsible Innovation is our motto I want to thank chairman Hill for crafting a set of banking principles to guide policy making in the new Congress there is strong overlap between those principles and icba's agenda for the new Congress which has been endorsed by all 44 of our state Affiliates
▶ 0:53:36and is attached to my written testimony as we enter 2025 top of mind for Community bankers and small business Borrowers is the impending implementation of section 1071 of the dodf Frank act the intrusive data collection required under 1071 will compromise the privacy of small business applicants and and effectively commoditize small business lending and increase the cost of credit icba strongly supports Congressman Roger Williams 1071 repeal to protect
▶ 0:54:06small business Lending Act short of full statutory repeal the law would be significantly improved by Chairman's Hills small B small lender act which would provide Community Banks and small businesses with critical relief to support ongoing credit and Community growth to enhance the future of community banking we need more denovo formation Congressman Bar's promoting new bank formation act would promote the creation of denovos especially in rural areas by providing more
▶ 0:54:37regulatory capital and lending flexibility for Banks chairman Hill's principles also include changes to resolution policy that would help ensure that failing banks are not purchased by the largest banks thereby exacerbating industry consolidation and waiver of the lease cost resolution if the FDIC finds that a transaction would increase competition and facilitate economic growth an examination reform that would create independent review and better transparency and
▶ 0:55:07accountability the exam cycle would also be increased from 12 to 18 months for more well-rated highly capitalized Community Banks in addition icba's agenda calls for measures to promote and strengthen our cdfi and MDI members curb the sale of trigle leads that compromise consumer privacy and and create a flood of unwanted solicitations and confusion for customers and address the surging problem of check fraud among Provisions I urge you to review my written
▶ 0:55:37statement for our full agenda for a more detailed discussion of these and other important Provisions let me close by again invoking my grandfather L I seriously doubt he could have formed Sentinel in today's excessive Regulatory and denova environment in fact it would have been impossible this should serve as a historical Benchmark for the re forms we made to make Community banking greater gentoman yields Miss sper you're recognized for five minutes and
▶ 0:56:07welcome thank you so much uh good morning chairman Hill ranking member Waters and members of the committee over the weekend I had a a moment to really think about uh the the title of this hearing and ultimately what we were talking about in making Community banking great again again and it occurred to me uh that the way to make Community banking great again if it isn't already great is to put communities first and
▶ 0:56:37so what I'd like to talk to you about today in this short amount of time uh that I have are policies that put communities first and relationship Banking and the people that financial institutions serve and policies that undermine the relationships that Community Bankers are designed to re reinforce and build so let's start with Community relationships or Community policies that actually help Banking and help people those are policies that
▶ 0:57:07level the playing field between banking depository institutions and non-depository institutions because one of the biggest challenges that banks are facing right now is the encroachment of other lenders who are not abiding by the same regulatory obligations by stepping in and holding those institutions accountable making them abide by disclosures to Consumers and allowing consumers the information to make informed decisions
▶ 0:57:38about what is the best product we can Elevate Community Banks and help consumers make strong financial decisions that keep them financially secure another way that we can actually put communities first by developing a community banking agenda is by actually increasing the amount of funding that we allocate to the institutions who are doing that work and that includes cdfis enforcing the work that they do
▶ 0:58:08as well as the technical assistance that they provide to so many small businesses across the United States is essential for us reinforcing the notion that our lending relationships as Community Bankers Drive small business finally another thing that we can do to to uh stimulate Community Banking and put communities first in the process is seriously consider proposals that are designed to increase resources
▶ 0:58:39for small businesses by raising their Deposit Insurance cap and making those institutions feel more comfortable so I would encourage us as a as a as a group to actually think about those types of policies and their direct benefit in not only helping and assisting Community Financial institutions but also assisting the consumers that they serve now there are a number of other policies and unfortunately some of them are being considered in connection with this hearing that I don't think actually put
▶ 0:59:09communities first and one of those policies I have to be very clear about is the overemphasis on deregulation it wasn't that long ago that we can all remember uh the 2008 financial crisis but what we some sometimes don't talk about in the midst of talking about regulatory burden is what led to that crisis and the reality is is that it was a series of deregulation a lack of emphasis on oversight that
▶ 0:59:39in particularly as it relates to larger financial institutions that led to the financial crisis and Community Banks even though they engaged in sound banking practices were forced to feel the consequences due to the economic downturn and impact that it had on consumer so deregulation is the type of policy and practice that leads to harm on a long-term basis for Community Banks the other thing that leads to harm here is policies that undermine the
▶ 1:00:09independence and the effectiveness of the regulator that is charged with ensuring that there is a level and fair playing field for financial institutions and consumers and that regulator is the Consumer Financial Protection Bureau there's been a lot of conversation about what's going to happen with the cfpb and certainly there have been changes in the leadership I think it's true that reasonable Minds can disagree as to the the the full impact or or specific Provisions
▶ 1:00:40uh with respect to the bureau but what reasonable Minds cannot disagree with is the reality that ensuring that consumers are protected in the financial Marketplace stamping out predatory products Mak making sure that consumers have accurate information are all things that are essential for our financial Marketplace to function effectively and for those reasons we need to pursue an agenda a regulatory agenda and a legislative
▶ 1:01:10agenda that puts communities first by ensuring that we have appropriate rules and regulations governing the financial Marketplace thank you so much Jo Jim wman eels thank you so much I recognize myself for five minutes for questions commissioner Marshall it's so good to see you I I told her when I she walked in I tremble a little bit because she used to be my regulator when I was a banker so she still makes me nervous being in the same room but you've served our state for over 30 years and you've we've got a vibrant banking sector we've
▶ 1:01:40got some of the nation's uh most competitive financial institutions and successful and I'll say big small uh investment money management Credit Union Commercial Banking so congratulations for doing a good job both as Securities commissioner and and banking commissioner in the state big responsibility uh uh Miss sper and her testimony I saw on page 13 asserts that there's no there's a lack of data about small business lending in the in the United States and hence her strong support
▶ 1:02:10for Section 1071 and DOD Frank's implementation this this rulemaking that we've been talking about for the last few years are you familiar with the call report data on small business lending commissioner thank you for your comments Mr chairman um when we look at 1071 I can assure you that as a regulator I'm as concerned about that as the banks are I believe that cfpb took an outsized approach to their implementation of this Rule
▶ 1:02:41and I applaud this group and others that and Congress as you're going to look at 1071 in the future of it the amount of data that is going to be required to be collected by the Banks and the reporting of that data will increase and provide a significant burden on our institutions could you see it driving small business lending out of the depository institutions sector to the biggest banks in the country and some automated credit box or even more so out of the regulated financial
▶ 1:03:12sector into the online small business lending sector is that possible you think I agree Mr chairman because the consumer already struggles with providing the amount of information that banks are required to collect from them they don't understand that and the banks are struggling to collect that information and in a small business business setting no two small business loans are alike there's nothing that is going to make a great comparison when looking at one small business loan to the other I grew up in a family with two small businesses and I can assure you they were very different but our Community
▶ 1:03:42Bank served us well I think that's a good point but on this point about data I believe we collect for every depository institution in the country reports on their financial statements loans under $100,000 and Loans between 100 and $250,000 is that right off the top of my head Mr chairman I don't I cannot confirm that but I can assure you the call report data is expansive it's growing every day and the burden that those institutions are required for even additional uh documentation there is significant well because I have
▶ 1:04:12access to chat GPT I can report to you that rc- c part two of the call report requires Banks to report all loans under $100,000 and all loans between1 and $250,000 and clearly that is dat and it's indicative of small small um Kathy Owen uh sometimes I think The Regulators all aren't all on the same page and the bigger the company more the more likely they're not on the same page but in your
▶ 1:04:42experience uh are uh is the fed and the FDIC and the state all on the same page on community reinvestment or whether or not you can have a fintech partnership or uh how they coordinate exams we're a Fed State Bank so I can only comment on the Federal Reserve and the State Bank Department uh for the large part we're very fortunate in that our fed region and our State Bank Department do work very
▶ 1:05:13closely together and coordinate closely thank you what you think Miss Rainey what do you think about that what do you hear from your members on that exam coordination and on they are they on exactly the same page about review doing a fintech investment or uh how the CRA should operate the community reinvestment act operate or any other and coordinating exams particularly for your members that are uh larger and may be subject to direct examination by the cfpb for example
▶ 1:05:43this is something we hear a lot about and I can tell you that there's not a lot of of direct coordination um and and a lot of confusion in terms of what one entity might require and another to what extent they May examine um best practices how they get uh rolled down to Community Banks so there is there is not a lot of coordination today Mr Kennedy uh thinking about uh the I hear a lot of comments and I noted them about how Bank CEOs and Boards of directors are thinking
▶ 1:06:13about the camels rating the transparency of it uh and some bankers have asserted antidotal that you know it's not a fair process as a as a bank director founder lawyer can you comment on how the camels process might be reformed well as a as a lawyer not specifically uh ref reference to our bank but just in my you know 40 plus years of representing Banks and seeing the application of camels I think your suggestions
▶ 1:06:44uh about focusing in on following the definitions and making those definitions clear and I think in my comments um commented on the idea that we really instead of doing an exam on a point in time with a snapshot but thinking more about a dynamic uh trend for the bank in terms of how they apply how The Regulators would apply that Camel rating it's very important those ratings um can lead to a whole lot of positive
▶ 1:07:14or negative uh things so um I think that's a very important matter to to cover thank you very much and thank the panel I now recognize the ranking member the gentoman from California for five minutes of questions thank you very much Mr chairman Miss spotzer welcome back it's so nice to have a former staffer testify before our committee good to see you thank you uh today Democrats will offer the types of bills our committee should be considering you know if we're going to do reform
▶ 1:07:45it's just not about getting rid of regulations uh we um should be considered bills at lower cost for families and small businesses and protect Community Banks and Credit Unions for example I have a bill that would halt all Trump import tax increases and his dumb trade War until we know that small businesses and the Community Banks won't be harmed I have another bill that rejects co-president month's
▶ 1:08:15efforts to end Deposit Insurance and the FDIC these bills will ensure there's a future for Community Banks and so uh Miss sponser as I explained in my opening statement I'm deeply troubled by Trump's and the unelected billionaire musk's early actions including their effort to pause all kinds of federal financial assistance would you discuss you have done that somewhat but would you continue to discuss
▶ 1:08:46how these efforts would hurt individuals and small Banks and how they would undermine the community lenders they prefer to Banks uh to bank with for example if loans back by the federal housing Administration and small business administration were no longer available would that make it harder for banks and Credit Unions to provide mortgage and small business lending it certainly would um and one of the things that I would like to point out is is not too long
▶ 1:09:16ago I I actually received a telephone call from one of our uh uh colleagues at a at another organization who had received a message basically in indicating that they would no longer be able to Pro to to actively work in providing technical assistance to small businesses as a result of the funding free um and a series of executive orders I think these types of policies directly impact our ability uh to to to do what we do best as Community Bankers right which is spur
▶ 1:09:46all businesses give them the resources that they need to scale and so as we go forward we have to think about making a conscious decision to pursue policy IES that Empower businesses rather than hurt them thank you um the Trump Administration even included interest payments on our national debt in a list of programs they may be uh paused before a um a court blocked their freeze if we were to default on our
▶ 1:10:16debt wouldn't that trigger a broad economic crisis that would harm Community Banks credit unions and their customers it certainly sounds like it would yes ma'am thank you and what will happen when Trump's new import taxes are imposed on a uh a bank and this could happen in a month will that raise the cost of groceries and gas for consumers what about farmers who export their crops
▶ 1:10:47will they be harmed when our neighbors respond by taxing American exports would all of this make it harder for immunity Bank customers to repay loans yes ma'am I think the broader question here is is exactly what you're saying all of these decisions have an impact on the wallets of of Americans and as a result of that uh it it creates pressure for them to actually continue to pay their debts and that has an
▶ 1:11:17implication for every financial institution thank you now if we care about Community Banks and Credit Unions Congress must not turned a blind eye to all the harm Trump is trying to inflict on Working Families small businesses Community financial institutions and our economy again uh Mr chairman uh and members we support uh Community Banks in both sides of the aisle do but it's not going to
▶ 1:11:47be simply getting rid of regulations that we've worked so hard uh to put in place so that we could protect uh community Community Banks and so I think it's important for us to look at some of these executive orders and what they're doing uh the possible harm that they may cause our Community Banks and so that's what our members are going to do today we're just going to be very open about what we understand is being done uh because
▶ 1:12:17we all want to protect uh Our Community Banks we don't want to undermine them at this important time in the history of the changes that are being made uh in this country I yield back the balance of my time gentle ladies time has expired I now recognize myself for five minutes um uh Miss R Miss Romero Rainey sorry uh you testified this morning that when Banks fail a speedy resolution is critical which fully agree with and uh
▶ 1:12:47you uh you had said that the FDIC should not quote pick winners and losers uh I would contend and many of us over here who live through what happened with svb and a few other uh recent bank failures uh is that uh they were lacking in that area they they did in fact uh pick winners and losers and we saw that scenario play out and not only was former FDIC chair Marty grunberg slow to react to the failures of Sil Silicon Valley Bank we heard that um as chair of the oversight
▶ 1:13:17and investigations committee we heard that time and time and time again from people who were involved in it uh both Silicon Valley Bank and signature Bank um when it came to the First Republic he allowed their assets to be purchased by a large US Bank rather than um eroding rather than putting it out for bid and really having uh a reinforcement of the competitive nature of the banking landscape and um you I I want to know are there ways that
▶ 1:13:47you think the FDI C specifically could improve the bidding process uh that would include everybody uh in that failed Bank assets when those unfortunate Ur occurrences happen yes and I appreciate the question I think there's many ways for us to examine what is required under lease cost resolution that in time of a failure would ensure that one we're not um simply allowing the largest banks in this country to grow even larger that we're taking into account the unique needs of the communities
▶ 1:14:17and the customers they serve and looking at the concept of lease cost resolution to be defined over a period of time not in just that singular moment so this is something we would welcome engagement with the committee on do do you believe Community Banks have uh the ability and are they in a position to absorb the assets of of banks like this absolutely and I think as we reflect on these situations there were many examples of of smaller banks that were willing to bid that again if there were more flexibility and a willingness to look at least cost over
▶ 1:14:48again an extended period of time multiple banks with unique ties to those communities could have stepped up to the plate and ensured a better resolution for those customers you in 2018 this committee passed uh on a bipartisan basis actually uh some relief to those Community Banks and uh yet we still have some who are saying that we need to regulate you all as we would a large cify bank or other uh you know large Banks uh
▶ 1:15:18can you help the the committee understand how Congress can build on the tailoring requirements that were as part of Senate Bill 2155 uh back uh you know six seven years ago and and help how it helped Revitalize the banking sector tailoring is critical for a viable future where Community Banks Thrive and that's because they're just different risk profiles different risk and and the concept one size fits all is not what we need when it comes to bank regulation the risk model that
▶ 1:15:48is a Community Bank is succinctly different from those of the largest so some want to call that rolling back others would call that maybe Common Sense application right if if you have different type of of animal that we're dealing with it it's appropriate to then have different regulations on them correct that's correct for a smaller Community Bank that's focused on ensuring the success of that Community thrives that risk profile is going to look completely different again from the larger institutions um Miss Marshall
▶ 1:16:18turn to you here uh in a recently released survey at a conference of State banking supervisors Community Banks listed regulations as one of their Chief uh external risks is that what you're seeing in in Arkansas and among your other uh other colleagues yes sir absolutely and I appreciate the point to the uh sentiment index survey that and our Community Bank survey where regulatory burden is highlighted as one of the number one risk facing Institutions and when I go out and visit with my Banks whether it's in Western Arkansas or Eastern Arkansas or my colleagues across this country
▶ 1:16:49I can assure you that is top of mind for them so I think I know the answer to this but um you wouldn't say that Senate Bill 2155 actually caused these previously mentioned Banks to fail no sir okay didn't think so just wanted to make sure we were on the same page here um uh Miss Marshall Miss Owen uh I want to follow up on comments uh from chair Hill about denovo banking my home state of Michigan we currently have 79 chartered Banks which is down from 86 just
▶ 1:17:19a year ago that represents nearly 2,000 branches 50,000 employees and 3 14 billion in customer deposits uh Miss Marshall your testimony highlighted just how hard it is to form a new bank I'm hearing that same message from back home so um what can we do at the consequences uh what's going to be the consequences on my time is expiring but very very quick I think the message around tailoring is is appropriate and uh get away from process driven examinations great thank you and I and I know we have a title
▶ 1:17:49of uh making Community banking great again but ultimately it's all of our goal to make sure that credit credit is available and through access whether it's Credit Unions you all those are those communities that really where the uh rubber hits the road so with that uh I uh recognize a gentleman from California Mr Sherman who was recognized for five minutes and 30 seconds thank you um I want to thank the ranking member for focusing on how disruption disrupts our entire economy and hurts
▶ 1:18:19every private sector decision maker the ranking member points out that this administr was toying with the idea of well maybe we just won't make payments on our national debt how is somebody supposed to do business and take all the risks involved in being in the private sector how we we we have a 25% tariff on Canada then we don't then we might then it depends on whether their prime minister says something nice
▶ 1:18:49about how our president looks um how is a Community Bank and this is just a rhetorical question supposed to decide whether to make a loan to a business um when they don't know whether they're going to lose all their Canadian and Mexican sales next month um it's just throw you know a wrecking ball at everything in the in in our economy gets good ratings
▶ 1:19:20dominates the news cycle I'd uh think it'd be a it's hard hard to say that being a community Banker is great when you have to deal with that uh we got to make banking great not just for the bankers and the community Bankers but for the consumers so for God's sakes we cannot abolish the CFB they they produce $21 billion for consumers they're going to we're going to save 6.1 billion on overdraft fees uh the way to make a banking great is not to
▶ 1:19:50leave consumers without protection another W thing that wasn't so great about banking a couple years ago was the collapse of several Banks instead of including Signature Bank um where uh we're told that one of the factors was that the FDIC was understaffed now we're told that they still underst staffed they don't have enough Bank examiners but 200 Bank examiners who had offers are now seeing those offers pulled
▶ 1:20:21now those that barely qualified might wait around to see but the ones with their most qualifications the ones that are wanted by the private sector they've got other jobs by the end of next week so they're gone but we also see the FDIC being told um if you work for the FDIC hey you can get eight months pay for quitting your job well who's going to quit uh the people who can easily get an even better job in the private
▶ 1:20:51sector um so we lose uh our best and our brightest um I'll ask uh uh M uh sper U is if the FDIC is unable to prevent future bank failures is is that bad for the image of Community Banks and their ability to attract depositors it certainly is
▶ 1:21:21I thought that was an easy question um now Community Banks make mortgage loans they can't uh afford to maintain to hold those loans on their balance sheet they sell them to Fanny and Freddy if we abolish Fanny and Freddy um is that good for Community Banks yes no not at all so that would um okay so then we have a law in Florida
▶ 1:21:52which I hope this committee would see that to U uh to preempt that says anytime you're turned down for a loan in Florida you can say well that's because of my political beliefs and you start a state investigation um is is that good for Banks I'm not familiar with the losser but it doesn't sound like it's good and uh
▶ 1:22:22it it creates a c circumstance where the federal law says that you'd better not um reveal the fact that you filed a suspicious activity report but the Florida law says you have to explain why you didn't want to do business with somebody who was suspicious so you're in a conundrum where you're forced to do something by state law prohibited doing doing something for federal law uh does that make Community banking
▶ 1:22:53great it certainly creates compliance challenges okay um and then we have rules that apply let's just say we still have a cfpp um there are those who say well we'll impose those rules on loans made dollars uh but will exempt crypto uh since banks have their deal with dollars all of them I know uh if they're at a competitive
▶ 1:23:23disadvantage for crypto industry is that make Community banking great no sir and I yeld back gentleman has six seconds gentleman yields back so uh with that gentleman from Oklahoma Mr Lucas is now recognized for five minutes thank you Mr chairman and thank you to all of our Witnesses for testifying today Community Banks are the heartbeat of local communities and my district is agriculture it's energy
▶ 1:23:54it's Main Street and Community Bankers uniquely address the needs of those Capital intensive Industries like the ones in my home state and before Miss Owen before I start my first question to you i' just like to offer an observation uh my first Banker was an older Banker at the time he'd been my father's Banker he'd been both of my grandfather's banker and as a very young Banker he banked two of my great-grandfathers so Community Banking and those relationships
▶ 1:24:24are important to me having lived it firsthand so Miss Owens what does it mean and I know this is just simply say this is a hearing about stressing the importance what does it mean for the local community when Community Banks are able to thrive in communities like mine and many across the country it's huge to the communities customers uh if a Community Bank can't Thrive then we can
▶ 1:24:54serve that Community we can't buy the school uniforms we can't Supply food for the food pantries we can't provide the financial education we can't make the loans that are necessary for those communities turning to you Miss Romero Rainey the chairman and the vice chairman have discussed how in 2018 Congress rolled back some regulatory burdens placed on Community Banks could you expand from your
▶ 1:25:24what other areas of focus does Congress need to consider to build on that progress certainly I think as as we build on that progress of of creating an a again not a one-size fits-all path to regulation whether we're talking about the exam environment in which Community banks operate and and how we allow for more flexibility for well- capitalized and and well managed institutions I think another significant opportunity is how we think about denovo banking again the one siiz fits Charter
▶ 1:25:54for a community in Oklahoma does not look the same like it does um in downtown New York City and we need to think about it differently in terms of what regulation should be required and and how we appropriately give flexibility and that's what what we're looking for is as we serve unique communities of all shapes and sizes across this country we need that flexibility it's it's not about um it's about enforcing and creating more uh approach to safety and soundness but giving us the
▶ 1:26:24flexibility to manage within that M Marshall we've seen a dramatic decrease in the number of new Banks created in the last 20 years as my colleagues have noted uh and I have listened personally to investors talk about it different times in the last 20 years where The Regulators were F so focused on making people take problemed banks that they allow uh wouldn't encourage new Charters to no until that was taken care of what are some of the chall challenges that
▶ 1:26:55you see in entering the market and what should the government do to consider incentivizing new bank formation yes sir and Arkansas is no different we've only seen 20 uh pardon me we have in 20 years we have not seen a new denovo Bank application and that's a trend I'd like to see change not just for my state but across the country but I believe we need to focus on ensuring those interested parties that our industry is open for business we need to focus on and reminding them that the
▶ 1:27:25regulatory burden is manageable and we can do that through the tailoring as I've mentioned before we need to spend this time and take this opportunity to review static thresholds that have quite frankly not been IND indexed or reviewed in quite some time because $10 billion today is not what it was when some of those thresholds were put into place and I allude that to the bank secrecy act or other thresholds within the regulatory environment we also need to ensure that we have healthy entrance into the marketplace and we also have opportunity for exits
▶ 1:27:55through m&a activity and no barriers to that for local to local bank mergers well I just want to say that access to Capital is hugely important topic in districts and with the kind of Industries I have back in Oklahoma and I look forward to working my colleagues on the committee and the new Administration to addressing these issues that we've highlighted today uh I think of my first old Banker who was multi-generation banker and he had his institution open5 and half days a week and on Saturday
▶ 1:28:25afternoon when he closed at noon he get in his pickup and he would drive around the county looking at your farm looking at your field looking at your business doing a personal eye assessment of what was going on uh he survived the Great Depression he survived the drought of the 50s he survived the Meltdown of the 1980s uh I have the greatest of respect for that kind of community Banker you back gentleman's time has expired with that the gentleman from Georgia Mr Scott is now recognized for five minutes
▶ 1:28:56thank you uh chairman Miss sponsor thank you for your excellent and welld delivered testimony uh I learned a lot most importantly put communities first you're absolutely right and our banking system is much like the heart in body it pumps the blood throughout our
▶ 1:29:26banks do the same thing that's what pumps our money are lending out it is the basis now uh Miss sper yesterday the former CEO of Silicon Valley Bank Mr Ken will s warned that President Trump's deregulation agenda could lead to more failures
▶ 1:29:56similar to those experienced by Silicon Valley and others in 2023 and worst of all Mr W WILX said this he said that we could potentially see failures like those seen during the TW uh 2008 financial crisis because of loosen regulatory enforcement
▶ 1:30:27now tell us do agree with Mr will Cox's statement and where do you see President Trump's banking deregulation agenda causing the most damage thank you for that question sir one of the most fascinating things is that we're at a time where Americans across the country are already facing
▶ 1:30:57financial hardship uh we see that because we see that people are more likely to pay just the minimum statement minimum due on their credit cards we see that when we hear consumers talk about the fact that they are struggling to buy groceries uh any act uh that makes it expensive uh to to access Credit um and any act that uh does that by virtue of of quite candidly a policy that pursues deregulation
▶ 1:31:28but allows as a result of deregulation for consumers to experience paying more what we've called in the past junk fees uh is a policy that actually will in a long-term basis hurt us all and uh going to your point about putting the communities first excuse me I have a slight Cod Miss Brer in your opinion what happens when the people
▶ 1:31:58in the community who are advocating for caution who are advocating for soundness are not even involved in the decision making process about such a critical area well I think we all suffer and and I think that we've heard from all of the Witnesses on the panel the thing that makes Community banking so important and relevant is that it is relationship based it involves people actually
▶ 1:32:28listening or institutions actually listening to their customers um and hearing their concerns as well as their desires to build um and if it is relationship based Banking and that is what makes it important uh then obviously it's critical to pay attention to the concerns that are raised by communities and and how is this exasperated specifically speaking about Banks
▶ 1:32:58well I think I mean we've heard a bunch of the the conversations about the challenges uh with larger financial institutions as well as non-banking non-depository institutions not being held accountable to the same standards uh it it creates a situation where Community Banks can be less competitive um and that is one of the biggest challenges here I think that the ways to increase the competitive of competitiveness excuse me of Community Banks has something to do with giving
▶ 1:33:29them opportunities to expand uh their competitiveness by for example uh increasing the amount of deposit cap that relates to small businesses providing increased technical assistance and opportunities allowing them more access to technology as we talked about before and making that affordable to them um it's not to say that we don't believe in the notion that regulation should be tailored what we are saying is that we already acknowledge that regulations have been
▶ 1:33:59tailored and that many of the rules that people have pointed to as creating regulatory burden in fact do not apply to community banks in the United States thank you miss sper apprciate that gentleman's time has expired with that the gentlewoman from uh Missouri Mrs Wagner is now recognized for five minutes I thank the vice chair and I thank the chairman for organizing izing this inaugural hearing of the 119th Congress on Community Banks
▶ 1:34:29local institutions that provide absolutely essential banking services for communities across my home state of Missouri and the nation 90% of the banks in my district are Banks and they are often the main source of funding for small businesses and Farmers throughout Missouri's second district after the passage of Dodd Frank Community Banks were forced to contend with complex overly prescriptive
▶ 1:34:59and burdensome Suite of regulations I don't think there are any junk fees I think there are junk regulations imposed if you want my humble opinion but uh that made basic Financial Services less accessible to small businesses and middle income Americans the bills were we are examining today will give local banks much needed relief from these onesize fitall fits-all regulations allowing them to
▶ 1:35:29better serve and meet the needs of local businesses which will lead to investment and economic growth in Missouri and across the country Miss Rainey the vice chair and others um have touched on this uh you noted that after Dodd Frank passed denovo Charters which allow for the formation of new Banks uh I don't know why we just don't say that denovo I mean whatever dropped uh from an average of 170 per year to just a
▶ 1:36:00handful this sharp drop in New banking opportunities is depriving communities of access to Banking and local credit especially in rural areas um Miss Ry what reforms can Congress and our Regulators make to reverse this trend and encourage more denovo formation new Banks new Community Banks thank you for the question and yes as the chairman noted earlier we've only had 82 new Banks formed
▶ 1:36:30since 2010 and that's just that's not enough and so there's so much that can be done here and I really draw your attention to the minimum Capital requirements especially as you look at smaller more rural areas we need a proportionate connection to how much capital is required to what what is the business that we're going to do and we look at it more again from a one-size fits-all so period of time um in so a base minimum Capital requirements and then a period of time for them to grow that
▶ 1:37:00Capital to again allow for that flexibility and take into account the unique needs within that Community thank you I think there's there's that and uh minimum Capital requirements and much more yes uh that needs to be addressed in 2020 based on robust data collection and Analysis and an extensive public comment period the FDIC crafted a new rule governing broker deposits that allowed financial institutions to access diverse funding sources and gave consumers
▶ 1:37:31more control over their financial decisions yet late in the previous administration chairman Gruenberg attempted to rush through a rule returning broker deposit governance to the pre-2020 status quo without conducting analyses to justify the change and in fact seeking to collect data from banks on the characteristics of their broker deposits are
▶ 1:38:01you ready for this after the proposed rule after many of my colleagues and I joined financial institution subcommittee chair bar uh Andy Bar in urging the FDIC to reverse course I was glad to see FDIC acting chairman uh Travis Hill withdraw this very poorly crafted rule on January 21st Miss Marshall can you discuss how Community Banks use broker deposits
▶ 1:38:31to access funding which allows them to make more loans to small businesses and to families yes ma'am thank you for the question commun uh deposit competition is greater now for our community Banks than ever before they are being uh forced to to look at all of the tools and resources that are available and have a broad Playbook of funding sources to be able to meet those demands and needs needs for their customers and those uh loan opportunities you need to be able for a Community Bank to use broker deposits rely on core funding have
▶ 1:39:01access and utilization of wholesale activities such as Federal homeone bank system or the Federal Reserve discount window and all of those things in measure with appropriate parameters make for a holistic and appropriate funding structure for Community Banks to operate under and Humanity banks have used broker deposits successfully for a long time they need to able to continue to do so yeah my my time is expiring here but Mr Kennedy I do have two questions for you and I'm going to submit them for the record and um I yield back to the to the chair
▶ 1:39:31great uh and that's a good reminder to all the members if uh you have uh questions that you are not able to get to for the panelists please direct uh the inquiry through the chair which we will get to the panelists and then we would request that you would uh in very short order uh reply to those so we appreciate that and sticking with our Missouri theme uh we are going to to go now to the gentleman from Missouri Mr Cleaver for five minutes thank you very much Mr chairman um M Ry
▶ 1:40:02uh thank you for for being here thank all of you for uh coming today um there there's a great deal of discussion um maybe even accusations as it relates to diversity equity and inclusion um or small Banks Community Banks particular in rural rural um is it
▶ 1:40:32important to have balloon notes on a mortgage is it important to have balloon notes is that what I heard I'm sorry yes so balloon notes provide some level of flexibility for those Community Banks that desire to keep that mortgage loan on their balance sheet but are unable to take the interest rate risk over a 30-year period of time so yes since some cases that is part of their model to do balloon notes and if um Congress
▶ 1:41:03unconsciously um halt balloon notes would that be like intentionally trying to hurt small Banks Community Banks yes by removing ability for Community Banks to offer balloon notes that would hamper their ability to serve the customers and to provide that level of service in their Community yeah I agree with you
▶ 1:41:36um but but but the issue is if members of this committee uh approved some legislation that would in fact eliminate it would it mean that the members here are just mean people discriminating against uh small Community Banks no I don't believe that's what it would mean I I think it's just a limitation of the services yeah
▶ 1:42:07I agree with you um so if people uh make decisions uh even unconsciously uh that exclude people should not that be addressed or to exclude people or communities yes so if if groups are excluded that should be addressed and that's one of the things I love about Community Banks is because they're so close
▶ 1:42:37to the community they they are able to understand what those unique needs and those relationships allow them to serve it's it's why our bank was founded it's trying to serve everyone in the community I don't I don't disagree with your point I'm I'm making is that sometimes people are exclusionary in their practices things they do unconsciously that there's no intentionality you know we're just going to do something for example um I had a little
▶ 1:43:07town in my congressional district um and they they uh they wanted to apply for some Community Development blog Grant monies well they can't do it uh because uh you have to have 50,00 ,000 people to to be to get what's called you know a u uh entitlement Grant and so little small communities can't get it they have to go they have to compete with
▶ 1:43:38uh you know 200 other little towns and I and in this little town I'm talking about the mayor the mayor's office was in the grocery store so they have no grant writers and if you if that is required and it is right now are we trying to discriminate against them anybody yeah we we're discriminating we're hurting little towns I'm saying that and it can be done unconsciously which is why diversity equity and inclusion
▶ 1:44:08is important to try to cancel out I mean I don't I'm not saying people just sit up and say let's discriminate against people of color and women but if you design things unconsciously you can hurt them and so what you need to do is try to figure out what can we do to stop that hurt that may even be unintentional diversity equity and inclusion is trying to do that and we're
▶ 1:44:38saying no we let's forget that I am just I don't care about if if there what happened to a little town like oric Missouri had had a a tornado to come through you got to have a a special kind of process to go after to get female money in a little town you think people set up in here and said let's try to figure out how to hurt little towns after a a devastating tornado U my time is running out I hope you got my point uh I yeld back M Mr
▶ 1:45:13chairman gentleman heels back and gentlemen from Kentucky Mr bar I recognize for five minutes thank you Mr chairman um you know a major problem that um that has prevented new bank formation in our country over the last few decades is burdened some initial Capital requirements often as high as $30 million when all is said and done these requirements leave uh the organizers of a new financial institution with a razor thin margin of error in executing
▶ 1:45:43its business strategy and generating a profit uh and that's why we've seen a dir of new Banks uh in denovo charters in our country over the last uh uh decade or so and that's why I've reintroduced my promoting new bank formation act which would establish a three-year phase in period for new Banks to comply with federal capital requirements and the Community Bank leverage ratio Mrs Romero Rainey can you discuss how giving startup Banks more time and flexibility to meet these initial
▶ 1:46:13regulatory requirements could Foster denovo Bank formation and rural and urban communities throughout the country and I would I would uh uh ask you to direct your your testimony to my colleagues on the other side of the aisle uh including Mr Vargas and ranking member Waters who have expressed interest in working with me on this issue thank you I I appreciate your your long uh work and and engagement in this issue when we think about new Charter formation as as we've discussed here today the first
▶ 1:46:43step is that Capital requirement as I mentioned in my opening statement my grandfather started a bank with $300,000 there's no way that would happen today and that's what I'm advocating for but those base level Capital requirements need to be reflective of the size of the community and the business model that that bank would represent not only those opening business requirements and capital requirements but also the business plan over time to allow that flexibility to engage in the business of banking to retain that local Community Capital so that it
▶ 1:47:14can be deployed in the form of loans and create that source of economic development that is so lacking in so many of our rural communities well thank you for that and and let me ask uh a question about 1071 also uh the Kentucky Bankers Association created a simple questionnaire explaining the statutory requirement for financial institutions to collect data pursuant to section 1071 small business data collection rule this questionnaire would allow the customer to fully understand why the data is being collected removing any uncertainty from the client and easing
▶ 1:47:44the potential litigation on the bank I know there's uh concerns about another mandate in the final rule that A bank's low response rate may indicate non-compliance but generally Miss do you think a questionnaire like this would help provide more certainty for your clients and could it ease liability concerns for your institution the questionnaire could certainly help explain more uh better Define the information that's being requested to the customer um I really can't respond
▶ 1:48:14on the liability concerns because I don't know how The Regulators will look at it when they analyze the information and if the customers choose not to disclose and there's few responses if we'll be forced still to go ahead and comply but the data collection requirement under the the final rule is pretty burdensome would you would you agree with that very burdensome burdensome and I I worry that it would force many small Banks to exit small business lending alog together that doesn't help
▶ 1:48:44minority-owned uh small businesses uh does it not at all most of them have a very difficult time Gathering the information that's needed to comply with various regulations and one thing that I I I'll recall from our conversations and debates uh with uh the ranking member and other members on the other side of the aisle on 1071 was that they in addition to director Chopra said that this was voluntary and so if it's voluntary if it's truly voluntary to Pro for these small businesses to provide this data uh we
▶ 1:49:14want a questionnaire so that they can actually choose whether or not it would be burdensome for them to supply the information or not Mr Kennedy let me shift back back to broker deposits following up from um uh uh congresswoman Wagner's good line of questioning how did the uncertainty generated by chair grinberg's push to overturn the 2020 broker deposits will harm your institutions and customers well if if you um ask me the the bigger question really I get to it is
▶ 1:49:44that frankly I think that the term broker deposits should just go away it was uh really uh instituted in 1989 to address an ill where Banks were buying broker deposits and we just simply don't have that anymore we have responsible deposit networks that Community Banks like ours and many of our clients use to ride Federal Deposit Insurance to customers and institutions in those communities
▶ 1:50:15my time is expiring but bottom line Mr Kennedy did the 2020 rule the previous rule did it improve Community Banks uh access to diverse funding streams yes it did great I yield back thank you so much gentleman yields back and now call the gentleman from the great state of Illinois uh Mr Foster is now recognized for five minutes U thank you Mr chair um you I i' had mentioned my very positive experience with banks of all sizes uh during the time our business was growing and and I'd like to
▶ 1:50:45focus the work of this committee on what we can actually do to help and we have to the starting point of that has to have a clear eyed view of what the real situation is you know I there's an interesting set of articles in the Wall Street Journal from the last couple of years that looked at the stress in small Community Banks and much of it is simply the result of fundamental economic forces that we have to recognize and if we need to subsidize their the existence of small Banks we may have to do it explicitly because you know these are real forces you know simply the lack of economies
▶ 1:51:15of scale which is very important in the increasingly digital economy we have the brutal fact that you know then in in dying rural towns there are not many profitable opportunities for loans and that's just the fact there were in the Wall Street Journal they talked about Banks whose survival strategy was to keep branches in the tiny towns that they started in and then establish branches and then simply to get deposits uh in those small towns and then do their actual loans in the nearby bigger city and you know you understand the fundamental
▶ 1:51:46forces there and we just have to understand that as well however we have to be careful of this narrative that all we have have to do is get government out of the way and everything will be fine um yeah Mr Kennedy You' look like you and I have enough gray hair that we remember the savings alone crisis or at least its aftermath um you know that's H for those of you for those members are not familiar with it you know most of the members of this committee were not in Congress during the the Wall Street crisis of 2008 and I think none of us were there um during the Savings and
▶ 1:52:16Loan crisis but it was a much bigger deal uh the you know in the end the during the 20 8 crisis when we had to pass tarp um we taxpayers eventually got paid back with interest on that so he made money on the tarp bailout that was not the case for the Savings and Loan bailout where Congress had to vote $150 billion which corresponds to about three4 of a trillion dollars in GDP terms uh today and you know and much of it frankly
▶ 1:52:46went into Texas which caused a certain amount of of stress inside Congress and probably was a result of super collider was killed which was a separate discussion but um so so this was a big deal but if you look at that so as I say members should just spend a few minutes on the Wikipedia article or the Investopedia article if you prefer that on the Savings and Loan crisis understand this was the simultaneous failure of many many smaller institutions caused by misguided deregulation the um elimination
▶ 1:53:16in some cases of of capital requirements at all causing these zombie thrifts to go and continue to get deeper in the hole and in the end the government was the taxpayer was on the hook for about 2 and a half% of GDP as I say just a huge amount of money and this can happen again if we don't maintain knowledge of of what happened so so be careful of that but what can we actually do to help and one of the things that um actually um uh I guess Miss Marshall mentioned
▶ 1:53:47was the cost of of kyc compliance and that is something where I think we can do some good you know there is a the tool at hand for that is the is the real ID compliant digital driver's license it is completely feasible to onboard customers today by having them get out their cell phone do their biometric login present their their real ID NIS compliant uh digital driver's license and have them prove they are who they say they are go hit finsen or website or whatever to say is this
▶ 1:54:17person on the list of Bad actors and if you got to they come back clear you you're on board them and I've actually discussed with the the chair of the full committee the possibility of setting up a pilot program to see if this very lightweight onboarding I think could be a huge benefit U both both for lowering the cost of kyc compliance and uh dealing with the fraud uh the fraud problems that is another huge cost for small Banks they don't have the same fraud prevention team of JP Morgan and so that
▶ 1:54:47I was just wondering if you have a reaction to that sort of proposal yeah I appreciate any opportunity for Congress to look at the BSA AML laws that have been in place for far too long without appropriate review I think technology and innovation in the financial services sector is going to be able to yield big results for us as both Regulators in the industry and policymakers I think we need to look at all those types of options that you've described as potential uh enhancements uh to that burdensome regulation
▶ 1:55:18and and it is appropriate because no one again wants the BSL or the financial services sector to be used by criminals uh or for elicit activity but that needs a fresh set of eyes after um almost 50 years I will U make an additional comment to your point of fraud it is one of the top risk along with the regulatory burden that I speak to my institutions about as well as cyber risk and those three areas certainly need our attention thank you back
▶ 1:55:49gentlemen yields back I now recognize myself for 5 minutes from the great state of Texas uh this past November the American people made their message very clear American families small businesses Community Bankers farmers and ranchers all tired of burdensome regulations that hinder the financial service industry the previous Biden Administration continuously pushed policies that were out of touch and only led to higher compliance costs and one policy in particular was the cfb's famous section 1071 small business data collection Rule and
▶ 1:56:19I have been consistently hearing from small community Bankers back in my district and across the country about how they are concerned with the complicated reporting requirements in this rule that will tie up loan officers and increase compliance costs and officers ultimately forcing Bankers to pass these costs down to their customers furthermore lenders are worried this rule will push the industry towards a standardized small business loan product and kill relationship banking this overly overly burdensome rule will limit the bank's Landing abilities and make it harder for small businesses to access the capital they need
▶ 1:56:49so yesterday I proudly introduced the 1071 repealed to protect small business Lending Act which repeals the 1071 small business loan data collection requirement to help eliminate costly regulatory burdens on financial institutions so thanks to my colleagues who signed on to this legislation I look forward to working with the chairman Hill and the Trump Administration repeal this deeply flawed regulations so Miss Owens could you elaborate on the cfb's 1071 rule NE uh how it will negatively impact Community Banks and lead to a reduction in small
▶ 1:57:19business uh lending and additionally how will increased compliance burden affect the the ability of local lenders to provide relationship based uh lending yes thank you very much for your question no doubt for Community Banks it will be a disportionate expense to them for the implementation and training to be able to implement all 81 of the data point fields that are required with 1071 which is of
▶ 1:57:49great concern I'm concerned that many Community Banks may not be able to afford that implementation which then would limit and restrict their ability to loan to businesses uh I also have great concerns on the privacy issues of 1071 since much of the information is to be released to the public although it'll be anonymized in a small community it won't be difficult to know which
▶ 1:58:20small business grocery store gas station Factory either was approved for a loan or declined a loan thank you Miss ow and and with that I would like to submit two letters uh for the record from the equipment Leasing and finance Association and the defense Credit Union Council supporting my legislation to repeal section 1071 so another issue with the rule making agenda of the previous administration was the lack of regulatory tailoring and the one size fits all approach to regulations because
▶ 1:58:50of the lack of regulatory Tailoring Community Banks were forced to comply with the same set of rules as our nation's largest banks and this leads to hundreds of additional hours spend on compliance forcing Community Banks to close their doors or merge to be able to meet the needs of their communities so miss Romero Rainey could you discuss how on size fits all mandates arm similar institutions and how this regulatory approach impacts the availability of credit for small businesses and Rural communities yes sir one of the things I appreciate most about Community banking
▶ 1:59:20is that the fact that their success depends on the success of the local community and so when we think about regulatory burden if it's not proportionate to the risk that that smaller institution represents then it creates undue burden that prevents their ability to offer those customized products to meet those needs of the community it also hampers the ability to create new Banks um it also hampers the ability in terms of how they expand how they compete competitively in in terms of their technology offerings so we
▶ 1:59:50have to look Beyond one size fits all and ensure that we're proportionately managing the risk the institution represents okay thank you now I have a short amount of time but miss Marshall can you explain how the decline in Community Banks and the lack of new bank formations are harming rural communities and why is more competitive banking environment ultimately beneficial not just for consumers but for the banks themselves thank you sir yes no two uh community no two banks are alike no two Community Banks are alike and the largest institutions are
▶ 2:00:20not focused on operating in rural parts of this country and so it's imperative that we have institutions that have a appropriate size risk profile and business model to serve those smaller areas or those individuals will not have access to the funding sources the The Lending opportunities the deposit opportunities that they need and it's you know very important that we all recognize that not everyone lives in a large city they may not all have access to broadband they may not also quite frankly not all use a
▶ 2:00:51cell phone and so that local Community Bank with that that uh neighborhood presence where those Bankers go to church my time is up thank you for that uh next the gentlewoman from the great state of Ohio Miss Beaty has now is now recognized for five minutes thank you to our Witnesses we're here today to talk about making Community Banks great again although I think our
▶ 2:01:21Community Bank banks have always been great we all value our community banks these vital institutions provide our constituents with access to credit and other critical Financial Services they create local jobs they extend mortgages they give loans to small businesses and promote economic development in our communities but it's ridiculous to be having this conversation while the president of the United States is actively taking
▶ 2:01:51steps to hurt Our Community Banks and our economy when his proposed 25% tariff on Mexico and Canada go into effect this will have a disastrous knock on effect for Community Banks make no mistakes here today when you inflict Financial harm on Bank customers like hardworking families and small businesses Mr chairman you inflict harm on Community Banks when a
▶ 2:02:21trade War causes small business supply cost to go up or increase the cost of exporting materials this financial strain will make it harder for those businesses to repay the loans they receive from Community Banks the same will be true for consumers paying more for gas more for groceries and more for a lot of other things making it hard to keep up with their mortgage loan payments again to Community
▶ 2:02:51Bank Banks his illegal ludicrous attempts to freeze nearly all government financial assistance programs would have impacted all kinds of Bank customers it would have undermined small businesses support programs like the state small business credit initiatives it would hinder cdfis including Community Banks and credit unions from getting support from cdfi the cdfi fund to serve small businesses and underserved communities
▶ 2:03:22his radical Crusade against diversity Equity inclusion and Now accessibility will do significant damage to our economy because diversity Equity inclusion and accessibility is good for business and yes it is good for banks already his sweeping senseless executive orders are creating disastrous unintended consequences causing federal agencies to eliminate and complet completely
▶ 2:03:52non diversity Equity inclusion and accessibility related web pages materials resources and programs Mr chairman we now have an unelected unaccountable billionaire with access to the entire Federal payment system that disperses trillions of dollars in government expenditures from Social Security payments to tax refunds creating a data privacy violation a of an
▶ 2:04:23unprecedented attitude Mr chairman I hope that all of our colleagues on your side of the ow are as bothered by this as I am bothered finally so while I appreciate our Community Banks as our chairman does and I have prepared questions for our Witnesses today I simply cannot ignore the hypocrisy of having this discussion in the face of an absolute chaos and Havoc this Administration
▶ 2:04:54is recklessly inflicting on our economy with that said Miss Rainey I'd like to direct this question to you as we all know financial fraud is on the rise Bad actors are finding new and more sophisticated ways to steal customers hard-earned money I know that Community Banks are on the Frontline of this fight uh through your know your customer identity verification financial literacy program and more what more can Regulators do
▶ 2:05:24to help Community Banks combat fraud and protect our consumer fund thank you for the question because it is a significant issue that we're seeing a dramatic increase in things as simple as I like to say Back to the Future check fraud where we're seeing checks being stolen from the mail washed and then redeposited um so what we're looking for here is greater coordination amongst agencies as well as financial institutions also working on things like coordination with the post office to make sure we can communicate
▶ 2:05:54and begin to Tamper out uh fraud but I think this is an area where coordination is going to be very helpful thank you for that Mr chairman I yield back the general woman yields I now recognize myself for five minutes um first I want to thank our chairman for uh choosing our first hearing to be about the uh uh Community Banks which is so important to many of our communi especially those in Georgia that said I
▶ 2:06:24think a great deal of uh what we discuss here can also apply to the credit unions as well especially in the line of questioning that that I'm going to have because they face many of the same problems at the national level in terms of of Regulation first let me start off by taking us a little back into history back to 1970 when Congress passed the bank secrecy act which among other things required financial institutions to report unusually large transactions to
▶ 2:06:54federal law enforcement Congress did not specify what constituted unusually large at that time early privacy Advocates challenged the law on the grounds that it violated the Fourth Amendment protected privacy that the 14 fourth amendment protects privacy rights when it reached the Supreme Court in 1974 the court took an unprecedented STA and considered the treasury Department's rule impending the law in their view of the law itself they found that the $10,000 threshold was high enough
▶ 2:07:25and that that it wouldn't capture everyday T transactions consequently the law was upheld yet if in adjusted adjusted for inflation which it has not been that $10,000 back then would be around today so miss Owen I'd like to ask open up with with question for you would you say that your bank frequently hand transactions greater than $10,000 in a single day
▶ 2:07:55absolutely probably many times over I can imagine yes approximately if you know this how approximately how much Manpower goes into processing currency transaction reports at your bank for our small Bank we have four BSA officers not to mention the tellers that are completing these transactions and the others that are checking Bei behind them before it goes to BSA so the the bulk portion of the reports that I can
▶ 2:08:25imagine are anti-money laundering CFT compliance how much do you think your bank spends on compliance those um each year if you don't know just give me a guess or an estimation I wish I could give you a guess or estimation um I haven't um written it down or put a pencil to it it's kind of scary to think about it no doubt those are position positions that are working on this but are not generating
▶ 2:08:55dollars or income for the bank okay well let me share a little something um with the GAO found out government Accounting Office in previous hearings I've mentioned that law enforcement only issues a tiny fraction of CTR data um or uses only a tiny fracture this time I'd like to focus on what we can do about it and without objection I'd like to insert a December 2024 report from ga on this um this 110 page report states that
▶ 2:09:25even a small adjustment to the filing threshold from $10,000 to $30,000 would reduce the reporting burden for banks for as much as 60% let let me just quickly read the closing note from the report it says by taking steps to reduce the number of unused ctrs such as though such as though adjusting the reporting threshold and by eliminating ating rarely used fields and clarifying aggregation requirements fenin could reduce
▶ 2:09:56unnecessary filer burden without affecting ctr's usefulness to law enforcement that's what I think we want to do and I actually have a bill to do that and I think it's something we can bipartisan do so miss Owen if you had a 60% reduction in regulatory burden would your bank be able to pass those savings on to your customers absolutely we would love to have that opportunity and last question for you and I am running out of time but as a banker do you believe that finim provides adequate feedback or followup once your AML compliance staff file a
▶ 2:10:26CTR or SAR unfortunately no we don't receive any feedback well that's what we're hearing from a lot of uh small especially small institutions and large is that especially with suspicious activity reports it's very generic very Broad in um since you're not getting that does that impact your assessment of customer absolutely uh even when we've made calls to
▶ 2:10:56them and tried to schedule appointments to make sure that we're submitting all the information they need on a particular item communication would be hugely important and I think hugely important in trying to resolve what they're trying to do well thank you and my time has uh expired and I just want to thank you all um for working with us as we try to make changes here uh now recognize the gentleman from Connecticut Mr heimes for five minutes thank
▶ 2:11:26you Mr chairman and thanks to the uh panel for being here very important topic I uh um watched uh very carefully during the pandemic the remarkable work that Community Banks did uh with the PPP they really were life- saving for a lot of businesses and and um and very conscious of the power of relationship banking but I I I I have two concerns I I arrived here in January of 2009 as the wreckage of the mortgage crisis uh smoked around us and so I'm
▶ 2:11:56super conscious of efforts that are sort of ongoing and always deregulatory uh and the Congress obviously has always been amenable to having tailored regulation for uh community and smaller Banks but I I I fear that the pressures associated with economies of scale on the Community Banks are so intense that it'll be very hard without creating risk in the system of doing a whole lot more deregulation um that's a whole other conversation because I actually want to take the conversation
▶ 2:12:27a slightly different but related Direction which is housing um we have a just shocking housing Supply crisis in this country certainly where I come from and um the multif family business at the gses has been resilient and helpful to the construction in particular of multif family housing but there's only a small number 30 I think of lenders that are authorized to access the program so my question and maybe I can start with Miss Rainey um but but if we have time we'll uh we'll go to others um
▶ 2:12:57would really um emphasizing and incentivizing Community Banks to be or other small lenders to get multif family licenses and to access that program would that be both a additional source of business for our community Banks and maybe actually help with our with our housing crisis yes I think you know as we think about solving for the housing crisis it's about as creating as many opportunities and solutions as we can so so multiple points of access and various Partners to work with are a tremendous part of the solution so why have
▶ 2:13:27historically I was trying to figure this out early why these 30 these 25 dust lenders you know they tend to be the big guys why is that true how can we make it easier for Community Banks to to to be as involved as the big guys are in in in multif family housing so I'm not specifically experienced with the program but my my experience would tell you that when we look at the size of transactions uh that we're dealing with with multif family that may limit uh when you think about whether it's lending limits or concentration limits that Community Banks have to manage
▶ 2:13:57and again this is an area where the solution to this problem is how do we facilitate partnership and ability for Community Banks to work together um to provide uh that single Credit in in coordination with the entity any other thoughts on the again I I come at this thinking that we could just deregulate ourselves into catastrophe in the very Noble pursuit of trying to to keep the independent and Community Banks alive so I my mind does go to what other sources
▶ 2:14:27of business are there for the small Banks any any other thoughts on multif family lending from panel I guess not okay all right well thank you I think there's plenty go go ahead I just I think there's plenty of opportunity I'm frankly not familiar with that program and I made a note I'm going to find out about it but I do think there's there's plenty of opportunities for multif family I mean housing is a big issue there's a lot of government guaranteed programs that a lot of frankly people just don't know about so
▶ 2:14:57as a lawyer advising Community Banks that's one of the things that we like to try to do so it's important that those kinds of programs and the agencies that are responsible for that get that word out can be done on a local basis and and frankly a national basis as well thank you thank you appreciate that and yield back gentleman y's back the gentleman from Tennessee Mr Rose is recognized for five minutes thank you chairman and I want to thank ranking member waters for holding this hearing and thank you to our Witnesses for your time and commitment to be here today
▶ 2:15:28I truly do believe that uh chairman Hills making Community banking great again agenda will do incredible things for banks and consumers and uh and frankly the Greater Community Financial system and I like chairman Hill have experience with Community Banks in my state in Tennessee and uh serving uh with those Banks and working with them and uh they are very much in need of attention and relief and so I commend the the chairman for holding this hearing
▶ 2:15:59commissioner Marshall in Tennessee we are blessed to have frankly uh a phenomenal banking commissioner in Greg Gonzalez um who is a dear friend and a fellow Alum of Tennessee Tech University I'll put in a plug uh this will be his 20th year as banking commissioner uh in our state in Tennessee serving uh governors of both parties and I think it's just a testament to the work that he does one idea that commissioner Gonzalez and and I have been discussing is
▶ 2:16:29the concept of having State Regulators such as the Tennessee Department of financial institutions conduct Bank examinations for smaller Community Banks in place of the Federal Deposit Insurance Corporation or FDIC the idea here would be that for your smaller Banks than say 500 million the state banking r regulator could conduct the exam and make sure that it is sent to the FDIC uh commissioner Marshall would you and do you
▶ 2:16:59believe that other state banking Regulators would be willing to take part in such a proposal thank you for the question and yes my dear friend commissioner Gonzalez is a great regulatory partner I will agree with you that uh this is an area that we need to explore because uh if it was uh enacted and something that we wanted to find that we found good benefit from my State uh not speaking for my legislature or our governing body but that is something that I would be interested in engaging in and I think there are other state Commissioners that would be willing to do so
▶ 2:17:30as well uh because the uh smallest Community Banks have a very traditional risk profile like I said they they're often not uh engaging in out of territory or uh New Market activities but they have uh the ability to serve their customers and so our one-on-one relationship with them as boots on the ground and and local representative and understanding of those markets they operate in we have that perspective and I think we could be able to uh oversee the the smallest of the institutions
▶ 2:18:00independently but with a good communication and coordination and collaboration with our federal Partners in whatever fashion that means thank you that's good to hear and I know that some may have concerns as to the rigor of these State banking regulator examinations on that point I have also considered potentially providing that staff can randomly attend certain examinations FD FDIC staff that is could randomly attend examinations conducted by state banking regulations Regulators do you do you have
▶ 2:18:30any feedback on that portion of this proposal or idea pardon if you don't mind to repeat exactly what you're so the idea that randomly FDIC could monitor or participate in these examinations where the state banking regulator was taking the lead I I certainly think that as the insurance agency for our institutions and and uh uh but along with us as the chartering Authority there is a role for the federal Regulators to continue to play in that oversight we do uh some of that right now
▶ 2:19:01uh on Independent examinations if there is a reason or a basis or a need for the federal regulatory partner to be in the room we certainly work collaboratively with them to make that happen um but I think that that is a process that could be worked out uh with plenty of time to review the proposal work together to ensure that we're on the same page have good communication a good framework around it and explore those opportunities thank you shift gears Miss Owen for smaller Community Banks like Eagle Bank and Trust can it be difficult navigating
▶ 2:19:31the process of managing both federal and state level banking examinations we're are very fortunate in that we have a wonderful Federal Reserve region that we uh operate within as well as a wonderful Bank commissioner and they work very closely together they collaborate together if there's a need for both of them it's not unusual that we'll sit down and meet with both of them to get their opinions and thoughts so we're very fortunate I've heard from other
▶ 2:20:01Banks that's not always the case and it can be very difficult for other Banks so so this proposal of streamlining federal and state banking examination is one that I think could ease the regulatory burden that Community Banks face to all the witnesses here today uh if you have any additional thoughts on this topic please do not hesitate to reach to me reach out to me in my office with feedback and my time is expired I yield back thank you chairman jman yields back the Gman from Illinois is recognized for five minutes
▶ 2:20:31uh thank you Mr Hill thank you all for being here um Miss Miss Owen um Sheila bear the former Republican uh FDIC chair recently said that there is strong consumer confidence in the FDIC brand and that customers are quote comforted by the FDIC insured sign on their doors um would your customers agree with that I think it's very important to have it on our doors yes excellent she she said that because in direct response to reports that Trump's advisers and members of this so-called Doge team are talking
▶ 2:21:02about ways to reform or completely eliminate the um keep it stay vigilant number two when you when you get a customer who comes in who asks for a loan from your bank and you're evaluating whether or not you want to issue a loan what the interest rates are you charged do you look at their their payment history with their other vendors Deb and otherwise yes we work up a cash flow because we want to know that they can adequately service
▶ 2:21:33the loan that they're and just to be clear if they have a history of non-payment or late payment that's going to be a negative impact on their credit score right yes okay last week I spent most of my time with Mayors with contractors with businesses who had signed contracts with the federal government and were asking me whether the federal government was going to Welch on that deal whether they should demobilize construction Crews that they expected to come through whether they could count on money that was contractually obligated to
▶ 2:22:03them is I'm assuming that our lenders are going to be just as as diligent as your bank is and say if you're defaulting on some of your creditors why aren't you going to default on me at some point that leads to an increase in treasury rates would higher treasury rates help or hurt the community banking industry that's an excellent question I'd have to really think through it because we have short-term loans and we have long-term sure and we just recently saw the FDIC bail out banks that all of a sudden
▶ 2:22:33had a squeeze because they had higher treasury rates right correct this this Administration is not acting slowly to destroy the US economy they're acting very quickly to destroy the US right higher treasury rates are not good last Point um question for you in response to in your exchange with Mr Williams you mentioned you had some concerns about privacy issues and making sure that information provided to Regulators you know doesn't leak out into the private would you have concerns if a bunch of teenagers who were unvetted
▶ 2:23:03by any security apparatus had full access to the treasury payment system from a privacy perspective that is I'm always concerned about privacy and the protection of all of our customers and clients and all of our personal information I I'm not familiar with what you were speaking to this week this week to our Clarity for everybody understands Elon Musk has put teenagers who have not been vetted they've only been recently identified who are controlling trillions of dollars of Treasury
▶ 2:23:33payments this is confidential information top secret information they are going to decide who can go through and access this information I have big privacy concerns about that I would imagine that your customers might also have those concerns and I can't believe that this is part of is look this hearing is called making Community Banks great again I appreciate that out of deference to the majority you all made nice comments at the start about how you also want to make Community Banks great
▶ 2:24:04again and I share your commitment to make Community Banks great I find myself questioning when we say great again exactly when are we to because if I look back in history and I say when was there a point when we did not have an independent fed when was there a point when we didn't have an FDIC protecting runs on the banks when was there a point when the robber barons were in charge of our government when was
▶ 2:24:34there a point where the federal government refused to enforce the 13th 14th and 15th amendments to the Constitution passed under reconstruction in order to make sure that we actually honor our protection our our constitutional obligation equal protection I'm going back to the 1890s oh we also had really dumb tariff policies then any Ferris ber fans here ber ber Holly Smoot tariffs anyone that was an ERA that where we had a run on the banks a recession darn near every four or
▶ 2:25:04five years of course that led to the Great Depression afterwards are is is that the era we're going back to I put this to all of you you are all leaders in your own Fields the entire country right now is wondering whether we are going to stand up for the constitution for the rule of law for making America greater than it is right now or are we going to stand and sit in cowardice and complicity with those who are trying to destroy it that is a question for
▶ 2:25:34all of us here and it's all of our obligation to move forward yield back gentleman's time has expired the gentleman from Wisconsin the chair of the financial technology digital assets artificial intelligence committee Mr style Wisconsin recognized for five minutes thank you very much Mr chairman uh before I dive into the commentation I just want to respond to my uh my colleague across the aisle uh the Federal Reserve uh High interest rates is a direct response to the horrific economic policies the Biden Administration we finally escaped from uh so the massive
▶ 2:26:04spending the aggressive regulatory state of the B Administration drove interest drove inflation up the Federal Reserve responded to that we're now working to actually bring down inflation through addressing the regulatory burdens of the B Administration addressing spending and in part I think this is an opportunity to have a conversation about making Community Banks great again uh in particular by rightsizing a lot of our regulations and so let's stage set in particular uh on fex if I can I'm going to start uh with um with you Miss Owens and I'll come
▶ 2:26:34over to miss Marshall on this topic um as we know uh a lot of banking is Shifting uh into the palm of our hands I have my iPhone here I could jump on and do personal banking as probably almost anybody in this room uh could do with their smartphone that's a great thing and we know some of our nation's largest banks have the ability to invest millions and millions of dollars in capex to develop their own uh proprietary uh apps or other tools uh in the fintech space our community banks are often relying on Partnerships uh with finex
▶ 2:27:05um and so in particular if I can start with you uh Miss Owens from the perspective of a of a Community Bank um how does that partnership with finex work and does that give you the ability to compete with some of our nation's largest bank for tools that consumers an excellent question thank you very much as a very small Community Bank we have yet to partner with any fintex we have looked at several of them but uh there is considerable amount of expense
▶ 2:27:35and um work to make them work with our Legacy systems the Legacy core banking systems that we have today which also entails a lot of additional expense under under under and as we look at this this is going to be a lot about rightsizing uh the regulatory environments that you can engage knowing that there is a real cost for you to do that so let me come to you Miss Marshall uh when you uh analyze the ability of in particular Community Banks to partner with fex what are
▶ 2:28:05the roadblocks uh that you're seeing in that space thank you for the question Banks need to continue to innovate effectively they need to be able to adopt technology in other forms to be able to compete and especially those that cannot do it themselves and so that third party relationship is critical and essential to that path going forward one of the roadblocks is the fact that the guidance that's been put out thus far is not clear it's so no let finish your sentence it's not clear it's not concise and it could be more appropriately directed
▶ 2:28:36uh with uh the the bank adoption in mind and do you think that some of the the biggest and most important regulars the the fed the FDIC OCC promulgated uh really one-size fits-all rules that was not scaled for Community Banks to be able to engage and that they were actually dissuading Community Banks from engaging with fintech providers I agree that the current proposal the guidelines and guidance out there is more of a one-sized fits-all approach and I will take an extraordinary turn
▶ 2:29:06that I believe we need to stop using the word fintech because that could have such a broad uh application of areas where there is not higher risk for a new technology that simply helps someone analyze a credit report but if it's a technology that's going to focus in on core banking functions such as deposit taking lending payments or custody that has a higher risk profile and needs a very tailored approach from a regulatory perspective and I agree we we well we could have good debates on the nomenclature of fintech versus another
▶ 2:29:36terminology but I completely agree with you uh on the importance of rightsizing the risk I think the human mind is really good at identifying new risk when new technology comes online is actually not as good at identifying and determining what are the long-term benefits uh in ways that we can Safeguard uh and right size that risk and I think what you're saying is what I have seen is that we have seen a regulatory environment where it's a one-size fits-all approach uh where they are not scaling this uh for our
▶ 2:30:06smaller Community Banks and as more and more consumers are asking Our Community Banks to be able to have uh the ability to navigate whether or not it's on your phone or any other technological tool that we really need to be pushing our regular ators to be able to rightsize that risk so that our smaller Community Bank so Miss Owens does not have the burden that she has so she can partner uh with fintech uh technology fintech players in the space uh to be able to provide a service uh that her customers uh are looking for this is
▶ 2:30:36really important in particular in Rural America and other areas that does not have easy access to a brick-and mortar facility appreciate you all being here uh Mr chairman appreciate it y's back the gentoman from Texas Miss Garcia is recognized for five minutes thank you Mr chairman and thank you to all our Witnesses here today Miss sponsor I wanted to start with you first let me just say that I grew up in rural South Texas uh on a farm uh so when we went into town whether it was just to go say hello to my uncle or to do
▶ 2:31:06business uh we always um worked with Community Banks obviously there was only two now I represent Houston where we have 33 and a lot of of what you all would call Big Banks uh but my heart is still up with Community Banks because they always had the little lollipops that the cashier does for you to get so as a child I enjoy that but banks have just changed a lot haven't they uh since the pandemic the big Banks were
▶ 2:31:36heavily embracing technology to make their service available to more customers however the Community Banks we have relied on for years are facing several cyber security risk and Technology challenges as they compete with mega Banks and big Tech firms and in turn communities they represent are sometimes Left Behind one of these challenges is providing services in languages other than English according to data from the US Census Bureau over 20% of us
▶ 2:32:07households speak a language other than English what can we do to ensure that Banks um can serve limited English proficiency individuals just as well as any other customer that works in the door well one of the things that we can do is uh when as Regulators when we have disclosures and those sorts of things we can make sure that they are provided in languages other than English uh so that can actually assist and help facilitate the banking
▶ 2:32:37institutions to be able to use those forms but another thing that we can do is we can continue to invest in our minority depository institutions that are in fact often the institutions that are located in those communities and providing Services um and I think that in particular is is one of the best approaches that we can have to addressing that concern well I want to talk about a recent report from uh cdfi which states that women and employees of color still fall behind
▶ 2:33:08white men in being represented in several key jobs including only 27% of economists were B of color and only 34% of their examiners were women I know we have at least one former examiner here in the room um it's kind of nice to hear that Mr Hill gets nervous still um do you think president Trump's recent actions to fire director Chopra from the cfpb imposing government wide hiring free and nonsense of tax on diversity
▶ 2:33:38equity and inclusion ini ites will aggravate the challenges at cdfi as well as other agencies I think it will I mean I think we are looking at uh the reality that eight out of 10 net new households created in the United States are households of color um and given that that's the reality it is imperative that we make progress in serving communities of color and customers of color um so increasing diversity recognizing it as an advantage rather than a Challen or
▶ 2:34:09something to be uh looked down upon should be a critical priority thank you I want to focus on the outrageous overdress fees that large Banks charge to users more than the third of Working Class People earning less than $65,000 a year pay overdraft fees each year this isn't once or twice many of them pay hundreds of dollars in overdraft fees and risk losing their bank accounts if they cannot afford those costs the cfpb recently issued a rule that
▶ 2:34:39would cap the overdraft fees to $5 to help protect those the hard-earned money of workingclass consumers my colleagues on the other side of the aisle recently issued a congressional review act CRA resolution that would resend the cfpb rule so how would you how would reversing the cfpb overdraft rule harm workingclass people well for all the reasons that we've talked about during this hearing uh now is a
▶ 2:35:09time where people are experiencing significant financial challenges um one of the things that we have to talk about when we talk about overdraft is is a series of regulations that have taken place it's not just that consumers are paying $35 right now for an overdraft of $2 um but it's also that it was true that financial institutions had the ability to kind of pick and choose how they would withdraw hit allow transactions to hit in order to amplify the amount of money that was being charged
▶ 2:35:39and that is why it got the reputation of being a junk fee um so if we repeal this regulation which by the way uh does not apply to community financial institution uh which is one of the reasons why it's interesting that it's being considered in correlation with this hearing but if we repeal this then we're looking at the reality that uh consumers will continue to pay time expired so it just supplies for large institutions thank you gentleman time's expired the gentleman from South Carolina Mr Timmons recognized
▶ 2:36:09for five minutes thank you Mr chairman I want to thank the witnesses for being here today many of us here could easily speak for hours about the cfpb under the Biden Administration and how its policies have expanded government overreach we all have stories from our districts stories from constituents and small businesses negatively impact by Mr Cha's actions over the last four years we all believe in the mission of protecting consumers but the extreme policies put in place by director Chopra have done more to harm consumers
▶ 2:36:40than they have good after the election just weeks ago chairman Hill and chairman Scott in the Senate sent letters to all government agencies in the in the jurisdiction of uh Senate Banking and house Financial Services encouraging those agencies to Halt rule making and new enforcement actions until New leadership could be confirmed almost unanimously those requests were well received and the various government agencies proceeded accordingly not surprisingly there was an exception
▶ 2:37:10the cfpb director Chopra we're going to get the records but it seems that they just went on a um flurry of of enforcement actions and one of them uh at the very last minute adversely impacted multiple businesses in my district so he uh I guess the news was received Saturday morning just a few days ago and Friday this is kind of crazy Friday at 5:55 p.m.
▶ 2:37:39and at 6:05 p.m. businesses in my district received C for those of you listening um that's basically a subpoena it's a civil investigative demand and these uh if you're publicly traded have uh disclosure requirements you have to uh tell the world that you're under in investigation by the cfpb and that has an adverse impact how many people think that the cfpb has people working every Friday
▶ 2:38:10at 5:55 p.m. I would bet that's the first time ever and you know I even think director chopr might have sent these cids out himself right before he submitted his resignation so let me tell you what I spent my weekend doing I get a call Saturday morning these businesses are uh very concerned they obviously know that there's a new Direction because of the uh election and again I just want to clarify the election uh results are exactly the response to this type of
▶ 2:38:40uh approach to government uh we have been out of balance the last four years and we are going to find balance um so I worked uh all weekend to notify committee staff to notify um chairman Hill and uh chairman of financial institutions uh bar and worked on a letter and so I ended up sending this letter to who I thought this is the best part I thought that she was the acting director at the time um because I was unaware of
▶ 2:39:10the development that we heard about Monday but I just uh asked uh who I thought was the acting director Martinez to um basically not send these cids out the email was sent notifying uh these businesses that um they were going to send by certified mail Monday which would trigger disclosure requirements on Wednesday and so I sent this letter out I emailed it to her uh Mr chairman I would like to submit these for the record without objection thank you so obviously uh worked Fe feverishly all weekend to
▶ 2:39:41try to get these businesses in my district relief um I guess Miss rainy do you believe that it is nor Al for the cfpb to send out uh CS uh Friday after business hours seems a bit extraordinary to me but I'm I'm not familiar with after hours practices government workers use government hours uh you know I can guarantee you that that is not normal and we're going to get to the bottom of this I think that uh chairman Hill and chairman
▶ 2:40:11Scott have requested a list of all the enforcement actions um that they have engaged in so obviously um I was very pleased when I found out that I sent the letter to the wrong acting director Monday morning um we had uh dinner with secretary bessent um Monday night and I thanked him for giving these businesses relief and this is crazy um not only did they send out these cids late
▶ 2:40:41uh Friday night but after the news broke on Monday Bloomberg I think got it first um C fpb staff initially said that that action does not apply to the Cs that they sent um obviously they changed course a few hours later after additional questions but this is not the way that um businesses need to expect the government to interact we have to protect consumers 100%
▶ 2:41:11I'm all in but when the cfpb goes Rogue and starts acting in this manner it is detrimental to the US economy gentle put a stop to it thank you Mr chairman gentleman from Texas Mr greens recognized for five minutes I thank you Mr chairman I'll thank the ranking member as well and I am U very much concerned about small Banks I understand that the definition of a Community Bank for the FDIC is a bank with less than 10 billion
▶ 2:41:42dollars assets uh but small banks are important to me because literally I'm here because of a small Bank um I went into a bank in Houston Texas small bank and I needed a loan when I was in law school small Bank the president of the bank interviewed me for the loan as a member of
▶ 2:42:12Congress I can walk into a bank today and probably not meet the president small Banks get to know people they put a lot of stock in what people can do based upon sometimes an interview well I hope you can understand why I'll pursue this line of questioning uh unfortunately small black suffer they can't get
▶ 2:42:42capitalized because first of all they service an area where you don't have a lot of billionaires and um they uh they have regulations that require them to help certain people and I I support this but they they don't get capitalized as quickly most banks in this country have uh assets under a billion dollars uh there are thousands of banks more than
▶ 2:43:13probably but when it comes to Black Banks less than 25 now there's something wrong with this picture that we have to have more black Banks not get a lot of heat because I support black people I would just hope that someone would understand that having grown up black having
▶ 2:43:43live black having suffered black having benefited sometimes from being being black that I'm going to support black people and black Banks so please understand what can we do to enhance the opportunity for us to have more black Banks Miss Owen you you've been banking a long time
▶ 2:44:13where did your bank capitalize at um assets our assets are 490 million 490 million so you appreciate the smallness of banking yes um I have a bank in my district that is small less than a billion dollars I have many banks by the way in my district but uh they you have a problem with technology what can we do
▶ 2:44:43that can benefit you which will probably benefit some of these black banks that are are trying to hold on what can we do well first I would like to say that both the American Bankers Association and I strongly support funding for mdis as well as cdfis they fulfill a hugely needed Niche for Banking and believe in them strongly uh lessening regulations would be huge
▶ 2:45:13in helping us be able to expand our technology effort may I just comment on that yes when we've tried this in the past I've been here for a number of years now the big Banks always swoop in and say Well we'd like to have that too can the small Banks stand up to the big Banks such that we can do something for the small Banks and not have to fight the big Banks all the way and in the end not get it done because the big Banks won't allow it can you stand
▶ 2:45:44up well I believe we do stand up and share and speak our minds when we come to DC with Congress and our Senators and we do advocate for ourselves but I also have to say that I believe big Banks fill an entirely different Niche than what Community Banks fill so there's a need for all of us and we can work together thank you
▶ 2:46:14thank you Mr chairman I will yield back the balance of my Time gentleman from Texas yields back the gentleman from South Carolina Mr Norman's recognized for 5 minutes thank each of you for for being here you know by by hearing the conversation and the questions that are been asked uh it shows you the dichotomy that we have I like my good friend Al uh but I don't know what a black bank is nor do I know what a white bank is I know what an American Bank is with the gentleman yield y'all are in a I can tell you what a black bank is
▶ 2:46:44hold on let me finish I'll get after with you I don't know whe the black Bank a white bank I know an American Bank y'all are in the competitive business and Miss Owens I mentioned to you what we're battling up here is just what my good friend Miss Garcia said their answer is government regulations to everything you do junk fees taking credit reports that omit bad debt I'm sorry you've got to you rank um credit
▶ 2:47:15as it is and all you have to go on is history and so it's and that's why the American people chose 77 million chose not to continue the last disastrous four years of government regulations that each one of you have talked about and this uh Dei uh thank God president Trump has has eliminated that it's Merit Merit base and some of the most successful Bankers I know uh have been uh of all Races
▶ 2:47:45when you get a bank loan you don't look at um and I'm I'm sure my good friend realize that if he goes to get a bank loan for a property if one with I guess he describes as a blank officer a black officer has a 5% higher rate on the interest rates versus someone that um is a different color he's going to pick the lower rate because it's better for him anyway my point is you miss y'all need to get stay involved to fight this kind of thing because as has been mentioned
▶ 2:48:16the cfpb has been uh overregulation and an agency that should be abolished and which hopefully we'll try to do um but I I you've got more power than you realize as far as your customer base and you serve a you're in a competitive business with other Banks you get big because of good service because of being competitive not for making bad loans where you don't know what the credit score is and where you don't where you're forced to hire somebody
▶ 2:48:46because anything other than Merit which um how glad I'm glad this m this President is doing Mr Kennedy I know in in your testimony you mentioned that serving as a bank board member or control investor should be rethought you also said that uh appropriate pricing of examination appliation fees may be adjusted and I agree with both of those would you give me some I guess guard rails that you recommend
▶ 2:49:17well it's difficult to do that I I do think just the the initial point is that we really the industry should be self-funding so we've got the regulatory structures but they need to be efficient as well they need to be educated and if we need to provide the funding for the Regulatory Agencies to understand what's going on and better understand what's going on in technology Ai and what the future will bring that's that's the key point in my
▶ 2:49:47view there uh director liability is an issue that's been um in the law for a long long time and it's gotten worse and if you just step back and say why don't we have as many Community Banks that's one of the key reasons so we've got to rethink that I don't have any immediate I can provide some more detail about it but it's a it's a topic that keeps people from going into that business I agree with you and Comm Community Bank Banks we all have been on Bank boards pretty
▶ 2:50:17much everybody here uh but it's regulations that keep Bank boards back from showing profit on the bottom line it's the reluctance of board members to get involved because most States need tort reform South Carolina is one of them uh that indirectly indirectly affect um your Banks uh what can we do more to incentivize and help what you're doing and M rainy I'll start with you and go down the
▶ 2:50:47line these these conversations are a great start but I think um you know as we've talked here today denovo and and as Mr Kennedy alluded to how we create new Charters how we ensure in regulation whether it's our ability to work with fintex and and uh create a Community Bank fintech partnership is and some clear rules of the road would be incredibly helpful how we ensure that the examination environment is again proportionate to the risk that we represent so for well capitalized
▶ 2:51:17well-managed institutions to extend the timeline between those examinations um as we've reviewed here today I think there's many pieces where again let's think about it about a not a one-size fits-all solution thank you all so much gentleman's time has expired the ranking member for our small business Committee in the house Miss Vasquez of New York recognized for five minutes thank you Mr chairman Miss uh spater I um I wasn't uh prepared to make the
▶ 2:51:48question that I'm going to make it be making uh now uh I have another set of question but listening to the attacks to 1071 and false food I felt compelled uh to set the record straight so uh you know the ranking member and I have been longtime champions of section 1071 we wrote it can you explain how section 1071 will increase lending to small
▶ 2:52:19well section 1071 is a sunshine provision uh it it lets the light in on what is actually happening in small business lending across the country and the way in which it does that it differs than just call report data it requires the reporting of the race of the the applicants it also requires reporting around denials and in doing that it will help us make informed decisions about why people are not getting access to business loans in the United States and can can you explain how the
▶ 2:52:50majority of Community Banks are Exempted from 1071 yes because actually when the Consumer Financial Protection Bureau issued the regulation they were very careful as part of that process to exclude a number of financial institutions making over so that the actual regulation establishes a threshold of loans that have to be accomplished before uh the reporting requirement picks in can you explain the other steps the cfpb took to make the
▶ 2:53:20reporting requirements less burdensome by giving them more time to comply yeah so one of the really interesting things here is that the the the the provision which has actually been on the books for 15 years was not actually after the regulation was finalized implemented immediately it has a phase in Period and it actually allows smaller financial institutions an extended period of time of compliance currently that the regulations effective data has been suspended Al together and isn't
▶ 2:53:50it true that most banks are already collecting most of this information I would think that a a financial institution would want to correct financial information relating to its business clients it may not be true that they're collecting information directly about their race uh and those Dynamics but it is certainly true that they are correcting information about their business profile through HDA can you explain how the cfpv was required by law and then a
▶ 2:54:20court order to write this Rule and this was not something that cfbb choose to do yeah it this the the small business lending provision uh was as you acknowledge a requirement of the Dodd Frank act it has been on the books for the past 15 years and unfortunately there was a lag in implementing it during that time period we have still had a lack of access to capital for minority small businesses in the United thank you for uh setting the
▶ 2:54:50record straight um to everyone on this panel I support Community Banks I have already publicly said I want to work on FDIC insurance and Deposit Insurance reform in order to make them more competitive yet president Trump and his Republican allies want to eliminate the FDIC all together does anyone think eliminating the FDIC is a good idea does any one think this will
▶ 2:55:20make them more competitive yes or no do you think it will make them more competitive I don't we don't know enough to know that we need Deposit Insurance in this country the FDIC plays a very vital role that's a good start ma'am
▶ 2:55:52the Federal Banking agencies the fdsc the Federal Reserve and the OCC are our partners in supervision for the institutions and just like the foundation of the Dual banking system where banks have a charter of choice whether they choose the state Charter the national Charter they should be able to choose whether they want a federal Charter a federal supervision of the fed or the fgsc and the protection of the fdsc Insurance Fund is very important to the stabilization of our yes or no if you agreed uh yes yes
▶ 2:56:22I the FDIC plays a critically important role and in its absence that would be highly problematic for all financial institutions thank you I yield back Gman yields back uh Mr muser from penan is right now for five minutes thank you very much Mr chairman thank you all to to our Witnesses very much so over the past four years um Community Banks have um been a little bit under the gun uh from 1071 one the C to overdraft fees being eliminated
▶ 2:56:53um uh credit card laate fees and such have been reduced I think from $35 to $8 something of that nature my guess is if we reduce speeding tickets from $100 to $5 there'd be a lot more people speeding so my guess is you've got a lot more Community Banks overdrafts taking taking place um so uh you know and as I'm hearing a lot from my Community Banks as as well about the increased cost of compliance and Regulatory burdens in fact I just heard a story
▶ 2:57:23not too long ago where cfpb came into a bank a Community Bank and said hey how we doing and they said well not well I've had to hire three new compliance officers to help and the cfpb uh and uh manager uh representative stated well that's wonderful we're we're adding we're we're creating three jobs um so they uh they they really don't get um the Pennsylvania Bankers Association
▶ 2:57:54uh obviously pays a lot of attention to Community Banks as they're cenal throughout Pennsylvania and they informed me that a recently A denovo Bank uh was told by the FDIC uh to slow its deposit growth uh because it was meeting a new uh yet underserved population that happened to be Amish um again brought to my attention by by the Pennsylvania Bankers Association so M Marshall is this something that you found FDIC meddling
▶ 2:58:25in I do not have an example specifically of what you're describing but I will tell you that the concentration of power at the Federal Banking agencies here in DC needs to be reversed and that delegation of authority needs to go back down to the Regional Offices of the fdsc or the districts of the the Federal Reserve because they like State Regulators are local they know the communities they the institutions they have a better gauge and so we don't need a one-size fits-all approach to the federal oversight of our industry we
▶ 2:58:55need that uh appropriate balance between centralization of of you know Direction but we need that execution and that independence of those individual districts and regions to make the best uh regulatory structure for our institutions and if you found that to be the ca case I mean has the U FDIC been engaged in such uh such drive-bys stop buys I mean are they basing it upon the reserves are they basing it upon a business equation or are they just basing it upon
▶ 2:59:25denovo bank that happens to be growing faster than they predicted again I have not heard anything specifically but I hope that all Regulators uh like I do focus on safety and sness consumer protection and in a denovo situation you're looking closely at the business model and the business plan but work with that institution you don't want to stifle the growth or the opportunity for those Banks to serve those communities especially when we have a new denovo in place that can be balanced with true risk management practices and to ensure that the bank and The Regulators
▶ 2:59:56are working together for the best outcome uh and I believe Banks do an excellent job overall of managing risk that's what they do every day and so that collaboration and discussion between the bank and their Regulators are very important okay I'd like to ask you about the importance of raising the insurance the FDIC insurance from 250,000 particularly perhaps for small business payables but I'd rather just I'd like that answered but Mr Kennedy maybe I can just start with you and we just go down the line Community Banks are
▶ 3:00:26not happy there's not one that I meet with that says hey we don't we don't feel under duress we feel great we're flexing our muscles we we're gaining new customers we're we're rolling they're feeling as if they are being somewhat suffocated what can we do in this this committee and in this Congress to improve that situation thanks for the question it's a the the question of the day and frankly uh what the chairman has put out is you know
▶ 3:00:56a masterful list and others who've talked about the legislation they've plan or have already engaged in a provided but I think that based on my 45 years of watching this industry and participating it something really dramatic to remove Community Banks from the heavy regulation that Congress has has put on them you can you can't blame all of the agencies because really the law is is is here
▶ 3:01:26and that's what started and all of it has been in reaction but it's been an overreaction and starts out well it's only the big Banks but then it's trickled down and you can ask any Community Banker that the trickle down effect is always there thank you Mr chairman now you back gentlemen time expired the gentleman from California Mr Lardo is recognized for five minutes thank you chairman hel thank you uh ranking member waters for holding this hearing and thank you to all Witnesses for coming forward to speak
▶ 3:01:56I very much appreciate the testimony I've learn quite a bit um I guess I had a question uh primarily for Mr Romero rainy about as you look across Community banking in country is it fair to say that uh that c commercial real estate lending is a significant share of the portfolio for many banks yes it is and what steps do you believe are necessary
▶ 3:02:27uh from the standpoint of the banks to protect against uh volatility in that market that we're seeing today this is something that Community Banks are experienced and doing and have over time in terms of knowing that the markets change and and we have to prepare for that volatility the other thing that I would really point out when you look at a traditional Community Banks portfolio majority of their CRA is CR is owner occupied and so that creates a very different dynamic as we think about the cash flows
▶ 3:02:58um and and the impact in terms of how that business is able to to manage they're typically in those Investments for the long term and but some significant share and I think I saw an FDIC report suggested it could be more than 30% is non-owner occupied non-residential uh so this could be office retail H tells it Etc and I I guess what I'm concerned about is as a recovering mayor of a city is I've had those conversations long ago as two years
▶ 3:03:28ago uh listening to developers owners of these properties uh telling me a lot of keys are going back to the banks and when they do the valuations are going to severely reduced uh and the banks are going to be inheriting a lot of very poorly performing assets that are far underwater and so I'm I'm wondering at this point knowing what we think we know about state of commercial real estate right now um is this the
▶ 3:03:58time when we need less regulation over for example issues around portfolio safety so so a couple thoughts there uh first is as I look at concentrations of commissional real estate a lot of this is going to vary regionally I am candidly not hearing a lot from our m numbers that their Siri portfolios are struggling so there will be pockets and that will have to be dealt with but again that's a perfect example why one size fits n is not the approach that we need to
▶ 3:04:29take here and again as I started with my comments that's the beauty of a Community Bank is that these are these are portfolios that they've they've built expertise and years of Mastery in terms of knowing how to weather those storms and so um again let's look into those areas of of Challenge and think about we support those communities as opposed to painting with a wide brush um in terms of how we support the the industry as a whole forgive me for staying at the wide brush for a moment
▶ 3:04:59nationally I think in the fourth quarter last year the vacancy rate is 19.8% um in office and a lot of folks believe that's a significant understatement given what we know about the fact that an awful lot of space is being subleased and those leases are coming up uh and essentially there's going to be a lot of non-renewals and I I'm thinking about that I'm thinking about I know in the hotel industry we're seeing um
▶ 3:05:30significant number of foreclosures on the west um and I I I can't help but Wonder um if at some point the other shoe is going to drop uh and to what extent these banks are going to be as aware small community Banks um about the severe difficulties uh that are really underneath the surface um that vacancy rate by the way is about twice as high as
▶ 3:06:00it was right after the Great Recession 2009 um this is a Monumental moment for a failure commercial real estate how can we be assured sitting here that two years from now we're not going to be having hearings about the string of Bank f ERS they're resulting from all these failed Investments or all these failed loans I should say yeah what I know today is when you think about a Community Bank operator they're the ones right there on the ground
▶ 3:06:30um watching what's happening in those markets and and in those buildings so that that we suggest a surprise in in terms a sudden shift uh that they're not prepared for that that's not the Community Bank business model they have proactively they are monitoring their again they are there in those markets watching that happen and so how how we prepare give the flexibility and and take into account the the fact that that they are there within those
▶ 3:07:00markets so much in terms of decisions that are being made thank you a the gentoman from California the chairwoman of the Asia Pacific subcommittee on house Foreign Relations Miss Kim is recognized for five minutes thank you chairman I want to congratulate you on holding this very First full Committee hearing on a great topic and I look forward to working with you as chairman of the committee and I also want to thank all of our Witnesses for joining us uh to examine how we can make Community banking
▶ 3:07:32great um today I'm concerned about the decline of our community banking in our country you know since the 1980s the number of banks in America has declined 18,000 Banks to less than 5,000 Banks today you know what that means is that less banks in our communities means less competition less access to capital for small businesses and less essential
▶ 3:08:02banking services for communities that need it so let me ask the first question to miss Romero you know can you give us your view on how we got to this point of having 13,000 less Banks today than what we have in the 1980s I I think it's it's a it's a cumulation of of looking at this industry from a one-size fits-all approach when you look at the compliance costs and the regulatory burden that
▶ 3:08:32have just been added on and added on in the last two years over 4,000 pages of new regulation that comes at a cost can you tell me how much does it cost for a Community Bank to comply with state and federal uh regulations it's it's significant I mean those the stories that we've heard today of you know Banks adding more and more compliance officers those aren't folks on the ground helping small businesses get to the next level um figuring out how to finance and transition that business to the Next
▶ 3:09:02Generation and that's the shift that I think we really need to focus on I share with you and my sense is also that the small banks are more worried about uh complying with regulations and focusing on you know what they need you know how comply with those regulations than focusing on what they need to do best and that is making those Capital available for businesses and for worthy projects that they want to fund uh Mr Romero I do have concerns about the supervisory
▶ 3:09:33appeals process as well that it's not being very transparent and having very little oversight so can you give us your perspectives on how we could improve the supervisory appeals process and make it more transparent I appreciate the question because that's all we're looking for is transparency and very much uh appreciate chairman Hill's bill that would create um this appeal process and and examination transparency by looking to the ffic to have a
▶ 3:10:03independent approach in which uh Bankers can raise their questions and challenge the findings sure and Miss Mel yes in your testimony you speak about the need to facilitate Community Bank Innovation through third thir party Partnerships uh can you speak on how greater regulatory certainty and Clarity with third party Partnerships can help small Community Banks and how can it help consumers have greater access to many banking services yes
▶ 3:10:33ma'am thank you and I think the consumer is a large part of this conversation because they are demanding that that you they utilize new products and tools and services to meet their banking needs they want that they expect that and so Community Banks are needing to keep up because quite frankly they may not be able to innovate themselves but that partnership gives them that opportunity to continue to serve their customers and attract future customers but the ability to do so is going to be very uh the successfully successful ability to do so is going to be very important as we look at uh improving and
▶ 3:11:03enhancing current thirdparty risk management guidance we need a regulatory framework that is clear-cut a road map that gives the rules of the road for banks to be able to follow and not just them but the third parties themselves as well as the consumer you need clear guidance we need clear definitions and we need it to be a transparent process in how regulators and bankers and the and quite frankly the third parties can uh facilitate those conversations about what that looks like for the next Generation because it is here to stay and I
▶ 3:11:33think it's very important for the Vitality of our industry and meeting consumer needs thank you um Miss Owens let me ask you a question and uh you know in my home District in Southern California I regularly meet and here from small business uh the banks of the need to um enact a safe banking legislation so can you talk about that how enacting safe banking legislation can help uh local Banks Banks
▶ 3:12:03do need good legislation but it needs to be clear it needs to be tailored it um needs to be very thoughtful in its implementation and General woman's time has expired thank you chairman I yel back Goman from Michigan M Le has recognized for five minutes thank you so much Mr chair um Can can everyone on the on the panel agree that our government should prop be promoting residents
▶ 3:12:34Economic Security not the serving the whs whims of billionaires does everyone here agree to that if you disagree raise your hand I didn't understand your question sorry does is our government's role and responsibility and is promoting our residents Economic Security not serving billionaires okay you're uncomfortable Mr Kennedy oh okay I just want I just want to clear we're Community Banks right I was thinking about we support real people
▶ 3:13:04no we're Community Banks I I don't know maybe you do have a lot of billionaires you serve I don't know but I no but this is important because the topic of today's hearing is community banking but we just you know we just can't act like there is isn't a crisis going on do you know the people calling my office it's hundreds of people calling my office right now saying what's going on with access to the treasury P payment system Elon Musk can simply stop funding any federal government programs like Medicare and Social Security my residents
▶ 3:13:34know that he doesn't care about them you know they're not experiments you know we're our people in our communities and our families are not experiments for Elon Musk and so it's really hard to be in the space to talk about something that I think a lot of people do care about but at this moment we're acting like there isn't a crisis going on in our government right now one thing I do want to uh talk to you all about and I think it's really important um is you know and this is for any of the witnesses
▶ 3:14:05here do you do you know which state right now specifically and to get to community banking but which state has the most Community lenders per capita does anybody here know no it's North Dakota which has around 64 Banks and Credit Unions per 100,000 residents it's pretty great right North Dakota has six times as many locally owned financial institutions as the national average did you does anybody on the panel know that no yeah for any of
▶ 3:14:35the witnesses again what makes North Dakota so special in its in its support of community lenders can anybody guess do you know what makes them special a large part of the answer is the Bank of North Dakota the Bank of North Dakota has operated successfully as a public bank for over a hundred years today it provides business loans student loans home loans and agricultural loans I don't know if the chairman and others know this
▶ 3:15:05public banking is in incredibly important to support in our country especially during this time where we see a lot of folks in the stronghold of again the economic security and the future of our families did you know that North Dakota Bank of North Dakota invested $1 billion in legislative directed programs that build schools water infrastructure and medical facilities a public Bank did that in 2023 it returned $140 million to state general fund and overtime and has returned more than1 billion dollar
▶ 3:15:35in funds to the state money back to the state to the communities and I don't even know if if if my own ranking member um uh congresswoman Waters knows this but importantly the Bank of North Dakota doesn't compete with Community Banks don't they don't compete with you all it partners with you about half of its5 billion loan portfolio is Lent in partnership with Community financial institutions participation loans increase the
▶ 3:16:05capital available for Community Development provide Community lenders with greater access to Capital and this is important as somebody that authors the public banking bill um thanks to to the bank of North Dakota no banks in the state failed during the 2008 financial crisis I'm going to repeat this no Bank in North Dakota failed during the 2008 financial crisis in fact the bank continued lending While others pulled back helping the state achieve the lowest foreclosure
▶ 3:16:36as somebody that's literally lives in the county one of the worst foreclosures uh in the country in Wayne County Michigan but it helped achieve the lowest foreclosure and credit card default rates again the lowest my public Banking Act would actually help States establish similar robust Community banking sectors which would be partners to all of you and if we're serious about assisting Community Banks we should look to long-standing and proven track
▶ 3:17:06record of P Bank of North Dakota this is so important for many of my colleagues many are not here right now hope they're dealing with the crisis that's happening however it is important to understand the role of public banking it is not something of the boogie thing it's it's actually a great way to again protect the economic security and future of our families that again feel like we don't have her have their back with that Mr chair I yield shoman yields back the gentleman from Florida Mr Donalds is recognized for five
▶ 3:17:36minutes thank you Mr chairman um I'm not even going to get into it um thank you so much Mr Kennedy how has the regulatory structure imposed by Dodd Frank negatively impacted Community banking in the United States I think it was about a thousand pages of legislation by Congress and probably 10 times that of regulations that were issued under under that uh act okay and um specifically in your view
▶ 3:18:06has Community banking in the country frankly been devastated by DOD Frank yes when you step I mean it was it was done to to react to a problem or series of problems clearly but it was an overreaction and it applied to every Bank in the country and Beyond and so it's stepping back it's it's a serious problem it's overregulation okay thank you uh Miss Rainey can you discuss how increasing the asset threshold for small Bank
▶ 3:18:36holding companies could help with capital formation yes I appreciate the question so as we increase that threshold what we allow these smaller Bank holding companies to do is to grow to lend more and potentially uh partner with other smaller uh Community institutions to keep that presence in the local community okay awesome and and do you believe that a proliferation of small Banks and small Bank holding companies will be better will be would uh be better in terms of addressing the needs of capital for
▶ 3:19:07um individuals micro businesses and small businesses it is the answer and that historically when we look at the footprint of small businesses in this country which is unlike anywhere else in the world we can attribute it directly to the presence of small Banks and those that are on the ground that are taking that local capital and redeploying it to small businesses so that they can grow and create additional capital for that Community thank you uh Miss Owens can you describe the role Community Banks can play in revitalizing local economies and uplifting American
▶ 3:19:38communities absolutely uh I'm a proponent of the acre uh access to credit for Rural communities which will provide lower um interest rate loans as well as uh additional credit to our rural communities and our farmers and our ranchers to the agriculture that is so vital to not only my state but our country
▶ 3:20:09okay thank you uh Miss Marshall what immediate action can con Congress take to address the regulatory Cliffs you mentioned in your t testimony I think starting with the static thresholds that have existed we need to review those uh there need to be indexed for the current environment the current economy so that Banks can continue to grow and expand alongside that economy and not fear that they as they approach a arbitrary asset threshold that they either need to pull back from their operations or quite frankly seek another
▶ 3:20:39alternative we need to let them continue to grow alongside in the natural pace that they will be able to keep up from a risk management and we need to take that stigma away that there is something magical or something horrible that happens when you cross over to be a 10 Billion Dollar Bank as I said earlier 10 billion is is not the threshold that Define should Define a Community Bank let me ask you miss Marshall to follow up what do you think the threshold is that should be defined in Community Banks in the United States something North I've never been asked that Mr dos
▶ 3:21:09thank you very much uh certainly something north of 10 uh maybe something less than 100 fair enough no and I understand why you don't want to uh as as a former Community Banker I understand that A1 billion Bank although it is Big quote unquote you're not talking about the National Banks which are massively larger than 10 billion doar I I do acknowledge that one one uh before I yield Mr chairman it was raised about the Bank of North Dakota and as a as a former Banker I would say a recovering
▶ 3:21:40Banker um the state of North Dakota the reason why they had to create a state bank is because there was no ability for any uh lending to occur because there was no banks in the state of North Dakota um I'm quite sure every American understands especially people from North Dakota that it is a very rural state it can be a very tough State and there was not a lot of uh banks that could survive in that climate so the state of of North Dakota decided I believe in the around 1910 1920 decided to create a stank
▶ 3:22:10estate Bank in North Dakota it still remains to this day I know that there are people in other states who brought up the idea of creating a state bank but the reality is is that Commercial Banking has been able to supply the needs in everybody's cities and economies and there are now obviously Community Banks and other banks that operate in the state of North Dakota so I don't think that the topic of raising a state bank is the Panacea to whatever the ills might be coming from the other side of the aisle the real cure is unwinding the regulatory Behemoth that is do Frank I yield
▶ 3:22:40Mr chairman gentleman yields back gentleman from New York Mr Torres is recognized for five minutes thank you uh there are 45 million Americans who have no credit score who have been deemed credit invisible or unscorable according to an analysis by Vantage score expanding the scope of credit scoring to include alternative data like rent payments would generate a firsttime credit score for about 33 million Americans and of the 33 million 13 million would have a credit score high
▶ 3:23:11enough to qualify for mortgage um Miss spotzer do you believe as I do that Banks should orig mortgages based on credit scores that take into account alternative data like payments uh yes I think it's a very important concept and I I think we're very pleased and supportive of the federal Housing Finance agency's efforts to make sure that the gse's pursue it Miss Randy do you have any thoughts I think this is something that Community Banks do today and and it's something that I love about relationship lending is it's not just
▶ 3:23:41credit score driven we're able to take into account many of those factors and so I'm I'm appreciative anything that brings that information to the table uh there are 5.6 million households 4.2% of the population that are unbanked 19 million households 14.2% of the population are underbanked uh there's a national initiative known as Bank on that offers free or affordable bank accounts in your experience how effective has the initiative been at reducing the unbanked and underbank population in
▶ 3:24:11the United States I I don't have the information specific to bank on but I think so much this is about education and and creating Pathways for folks to understand to create connections to Banks and anything we can do to to help with that is is good Miss SP do you have well I think education is important but I don't think that's the reason why we don't have uh people are not getting access to bank accounts I think it is the absence of service in communities that are traditionally underserved one of the
▶ 3:24:41things that we've talked about is the absence or or the consolidation of banks but what we haven't talked about is The Disappearance of Bank branches by existing financial institutions in communities of color um and that has consequences that lead to an increase in lack of access in banking account opportunities for people of color in places like the Brooks in those places Mr Torres I'd like to we do offer bankon accounts and are very proud to do so and it has certainly allowed
▶ 3:25:11us to bank some of our unbanked population and help them so so that they can get direct deposits at the bank and protect those um protect them from the risk of their checks going through the mail and payroll checks and and other things so we're very proud to be able to offer that in Spring of 2023 the fear of contagion risk led the federal government to ensure the uninsured depositors of svb signature and First Republic
▶ 3:25:41if the federal government feels compelled by contagion risk to ensure the uninsured at the back end you know why not provide Unlimited in Deposit Insurance at the front end you know in finance as in healthcare it would seem to me preventative medicine may be more cost- effective than emergency medicine what do you make of argument well I I I think there's a lot we need to talk about here and I I think that there's two pieces of this one is the the contagion effect the the agencies should have
▶ 3:26:12had the ability to implement a transaction account guarantee um immediately so that we weren't talking about a contagion effect and then as we think about um ultimately reforms to the deposit Insurance uh system how are we ensuring that uh monies are safe regardless of the size of the institutions and that um but IND indulge my hypothetical for a moment in a world of unlimited Deposit Insurance what incentive is left for a depositor
▶ 3:26:42to withdraw all their deposits from a bank well there there is none but there's also a cost that comes with that unlimited insurance and so how that then creates a disproportionate burden on the smaller Banks is the piece that we need to solve for and so how H how can we how would you solve for that I would solve for it by thinking about a system of Assessments that puts more of that burden on the largest system of um
▶ 3:27:13what do you make of the role of the Federal home loan Banks as emergency liquidity providers it's been said that emergency liquidity from the federal home loan Banks is much more accessible than the FED discount window what do you make of that role I think the federal homeown banks play a very critical role in terms of providing not just um immediate liquidity but liquidity over time that allow Community Banks to manage their balance sheets and and have um like I said given seasonal aspects whatever it may be
▶ 3:27:43they're they're very critical to to Banks liquidity I see my time has expired thank you gentleman Neil's back now recognize a gentleman from Nebraska Mr flood for five minutes thank you Mr chairman of Wisconsin the state of our banking system is not what it used to be post Dodd Frank I represent a district and I live in a state full of outstanding Community Banks in the 1980s there were more than 18,000 banks in the US today there are
▶ 3:28:13fewer than 5,000 commercial when I started on the uh Nebraska unic Camal legislator's Banking Committee we had over 300 Banks and today we have 137 dropping one is consolidation and the other is a lack of denovo Charters when it comes down to the big issues and I both believe I believe both have the same root cause regulatory burdens Miss Romero Rainey in your testimony earlier today you spoke to how inefficient
▶ 3:28:43and uh prescriptive regulations led to further Bank consolidation can you expound on that point for our benefit absolutely I think you know the the The Core theme for me here is as we look at the Community Bank business model that is tied directly to relationship lending we need to look at it through a lens of how do we proportionately manage that risk and unfortunately regulation that has been written over the years I mean 4,000 new pages in the last two years has not been proportionate to the Community Bank business model and that that
▶ 3:29:13comes at a higher cost to community Banks which absolutely contributes to consolidation one of the things I love about our banking system in America is that it's diverse you've got the GBS you've got the Regionals you've got the Community Banks and then you look at Europe and how many banks are calling the shots over in Europe a couple a handful and here we have this diverse system that's the Envy of the nation and we seem to be killing off one of the three legs of the stool uh let's talk about these uh
▶ 3:29:44denovo Bank Charters we've seen it a staggering drop in the number of these over the years Congressman Bar's legislation would seek to address that problem and I am a proud co-sponsor of the bill another question to you Miss rer Rainey you made a really interesting comment your testimony that uh your family's Community Bank Sentinel would not have been chartered today given the regulatory environment which specific barriers do you feel would have been most challenging to chartering a new bank denovo uh with the with the uh circumstances you had when your
▶ 3:30:14family Bank started for first and foremost the minimum amount of capital um as as we think about what is required again it's a one-sized fits all approach and so that has to be solved for immediately especially as we look at access to Capital in rural areas very good uh Mr Kennedy uh in your testimony you touched on the importance of allowing Community Banks to innovate and use technology to confront some of the barriers posed by the regulatory burdens I totally agree and I I would be fearful if I were running a Community
▶ 3:30:44Bank of getting in with a third party vendor that I that could take me a place where my license could be suspended but how can technology helps smaller institutions face the challenges posed by the regulatory burdens what do you think of that well I I think technology can level the playing field uh and has for the last 20 years and will continue to do that and they're just there's a there's a lot of different U meanings to the word fintex I think the
▶ 3:31:14commissioner talked about earlier there's we've got to be Innovative and the Regulatory Agencies have to understand that and give the banking community space to do that do you think The Regulators of Community Banks are as maybe open-minded to some of the finch possibilities as maybe you know the large GBS with their I I I think they they are uh I'm not sure that the leadership in Washington um of late particularly the
▶ 3:31:44last four years has allowed them to be very fair but I but I but I urge in in my remarks also my written testimony that we give the regulatory um folks uh an opportunity fund them better uh give them the opportunity to to to understand and and work side by side with banks as we innovate Miss Marshall um appreciate seeing you again this week uh a lot of banks in my home state have gone from an OCC Charter to a state Charter
▶ 3:32:15are you seeing that in Arkansas as well absolutely yes sir there's only seven State chartered banks in seven National Banks chartered in Arkansas and so um almost 90% of our banks are State chartered that's happened um fairly recently over the last few years why is that I will say it's our relationship to those institutions our knowledge of the local communities our accessibility our willingness to to partner with them in a way that it's not uh inappropriate but best suited for both organizations to maintain that healthy vibrant
▶ 3:32:45uh Community banking sector do you think the OC wants a larger Bank to regulate do they want to be in the space of Community Banks I wouldn't be able to speak to what the OCC would or would not want I can just assure you that our banks are pleased with the relationship they have with the state thank you very much I yield back gentleman yields back the ranking memb is now recognized unanimous consent question Mr chair I have a statement
▶ 3:33:16I have a unanimous consent request uh to enter a few uh statements in the record I have a statement from the Americans for financial reform representing more than 200 groups supporting cfpb and its rules I have two other letters from more than 200 consumer civil rights labor and other groups supporting cpv's overdrive room I have seven other letters from various groups including the leadership conference
▶ 3:33:46on civil and human rights rise economy and the responsible business lending Coalition strongly supporting cfpb's small business lending transparency rule the national Bankers Association and inclusive each submitted statements urging us to build on our bipartisan work to support cdfis and MD last the Free Speech coalition submitted
▶ 3:34:16a statement highlighting how debank hurts marginalized Community objection we now go to the gentleman from Indiana Mr stutzman now recognized for five minutes thank you Mr chairman thank you for being here um this is such an important issue for um our communities and I come from a district in Northeast Indiana that uh is very diverse a lot of rural areas a lot of AG ulture a lot of
▶ 3:34:47manufacturing um we have uh of course the city of Fort Wayne we have an urban area of and some Suburban areas and u i um I've been absent from Congress for the last eight years and so I've been very active in our community in the business space and have uh have worked with a lot of our banks uh small medium large um all of them and uh you know working to create jobs and to make um create better opportunities for our communities and one of the
▶ 3:35:17things that um I find uh interesting and Mr flood you know touched on it just a little bit of it uh is the diversity uh in our banking system which I find to be very beneficial um as a business owner and uh you know working with Banks from whether it's startups or whether it's you know existing companies agriculture which is tricky not just any bank is involved in agriculture um and you know what I continually heard from
▶ 3:35:47friends in the industry is the and and I don't think that they even wanted to complain because they wanted to be sensitive and careful to the you know the circumstances that we were in but it just seemed like their hands were tied continually you know in a variety of ways and I know you know one of the the key themes for this hearing is just transparency uh rightsizing the government but uh president Trump signed an executive order which launched m of deregulation initiatives
▶ 3:36:17including a provision to eliminate 10 regulations for each new regulation issued I guess I'd be just kind of curious would that be possible is that how how easy would that be um for the industry and I guess you know maybe especially for smaller Community Banks you know don't have that large group of attorneys that are readily available to help um but uh but I know that it's there's been a lot of hardships on the banks which creates a hard hardships for
▶ 3:36:47small business and and folks in the community that are really building up our small communities and I'll tell you you know rural communities are are struggling it's tough out there and um so that's why I believe this hearing is so important and how can we help and uh is that uh is that the right direction I support president Trump's end goal and and initiatives but uh is that something that will be a useful tool well I
▶ 3:37:18I I think it is and as we think about our theme here today again how are we thinking proportionately to the risk that we're trying to to to mitigate and manage so that that really is what is at the core of a successful Community Bank is is risk management and so how do we provide to to your words the the flexibility for these Banks to do the good work that they are not just in the easy times but more you know importantly in the challenging times I mean there's a reason that Community Banks make over 7 % of the agriculture loans in this country
▶ 3:37:48is because they're they're they're experts and and they've proven their ability to stand the test of time so to think about you know to to pull back to repeal 1071 that would make that less effective or efficient to think about the examination process in a different way for these smaller institutions to think about their access to Capital ability to grow through the the small Bank holding company act I think there's a lot of ways that we can just think differently in a way that acknowled is the very different business model that is community
▶ 3:38:18banking yeah I only got a minute left but I'd be curious what is the how's the Next Generation responding is there an interest in banking is there an interest in being a loan officer is there I know we've got you know one particular bank that has a really nice um program with the local high school with high school students but is there an interest are you seeing that across the country uh because it's important for our rural community our rural communities to be viable uh going forward for for generations to come I I take a personal interest in that
▶ 3:38:48as a third generation Community Banker making sure this goes on to the next generation and I think exactly what you're talking about Community Banks grow their own and they do it through internships they do it through engaging with local schools and this is where again we we need more of that when and uh really creating that um that understanding that a career in community banking is about giving back and engaging Community is such a wonderful story yeah my fear is is too much regulation drives people apart in the relationship business
▶ 3:39:19and uh we're constantly critiquing you know the banks critiquing customers it's important but at the same time there has to be a win-win for everybody involved so thank you for being here thank you for your testimony today gentleman yelds back I'm now going to recognize myself for five minutes uh thanks to the witnesses for being patient I know it's been a long morning afternoon uh I just wanted to dig a little bit deeper into cfpb um and questions for Miss Owen uh and and I know other members
▶ 3:39:49have kind of you know talked a little bit about this this morning so uh section 1071 rule requires lenders uh that make a certain number of small business loans to collect and report to the cfpb a total of there's 80 plus 81 separate Fields data fields um and it all applies obviously to the loan so it's a gathering of information right um seems excessive which is why I'm bringing it up but as I understand it
▶ 3:40:19A lender is required to comply with this rule if they make at least 100 small business loans arbitrary number uh Miss Owen can you please kind of explain or can you tell us any more information on the enormous data collection that's happening and what impact that has on small businesses Community Banks and the credit unions that serve them absolutely thank you very much for your question uh no doubt trying to collect those 81 data
▶ 3:40:49points from a customer is going to be very difficult often they come in with basic information we use Financial education to help educate our small businesses and uh end up giving them a list of items that we need for them to bring back so now we're going to have to add an additional amount of data of that they will need to collect and often these customers are very private
▶ 3:41:20uh that they really don't want to disclose some of the information we've had them often tell us it's none of your business and when we tell them we have to ask these questions I often don't like it yeah let let me let me interrupt you there because it's kind of the next follow-up question that I had because uh 1071 requires cfpb to publish a date data it gets from lenders every year that's kind of what you're referring
▶ 3:41:50to as kind of this this otherwise uh undisclosed information that small business people are uncomfortable with um if you include that information whether the lender denied a small business loan or or whether or not they're granted it right um what steps do you think the cfpb could be doing to protect that information and the Privacy that otherwise small businesses are not really offered any guarantee that that's going to happen is that is that
▶ 3:42:21correct yes we're very concerned about the release of private information into the marketplace and what it can mean for individuals as I've said before it's not going to be difficult to determine whether or not someone was approved or denied alone especially in a small community where there are only so many businesses especially of a particular industry so there are great concerns there thank you very much uh to miss
▶ 3:42:51Rainey uh kind of switching topics a little bit currently Credit Unions whether they're farm credits fexs uh they're not considered competitors for the purpose of the concentration analysis done under the bank mergers of which um Congressman bar and I have been working on a number of uh pieces of legislation on that front to make that more streamlined and easier uh can you discuss how this makes the bank mergers especially in rural markets um
▶ 3:43:21kind of creates this concentrated uh area and it's misleading I think would you agree it's absolutely misleading because it's not painting a picture of the full market and so when you look at the other uh Financial Services providers and if you exclude credit unions and Farm Credit especially in rural communities U that that does not tell the picture and and it um I think hampers some of the opportunity for some of the smaller Banks to to merge and work
▶ 3:43:52together thank you the last thing I just wanted to touch on I guess is um again going back to miss Owen so Community Bank lending uh to Farmers and ranchers is critical and we hear especially from uh obviously a number of members that either have been or have some type of history on that issue whether they on the financial services committee or they may be on uh other uh locally served Community
▶ 3:44:22boards that are focused on farms and ranchers can you tell us again um that access to credit for Rural economy act it's it's a bill that we've been working on how how this could be uh implemented and how this could be um very important I think to those communities that are kind of watching what Congress is doing right yes it will lower the cost of financing for our uh farmers and ranchers the agriculture
▶ 3:44:53industry rural communities as well as allow additional access to credit for them which is vitally important they are in need of this thank you very much I'll yield back I'll now recognize the gentleman from Ohio Mr Davidson for five minutes uh thank you and thank you for our Witnesses for taking time out of your businesses to come share with us and hopefully make the market a better more functional place you know Ohio is home to many strong Community Banks and some
▶ 3:45:23bigger Regional Banks and we have a diverse Financial Services sector in our own State and it reflects the the potential strength of our country's economy but I you know maybe one of the themes that we will do is uh making uh America great by making our Community Banks great again but maybe by repr privatizing our economy because for a while it's felt like the federal Regulators have decided that they need to weigh in on almost everything and so you know I really just
▶ 3:45:53you know Miss Marshall I wanted to ask you about you have state regulated Banks uh that choose to do that for a reason but of course there always seems to be a federal Nexus so could you kind of highlight for us what that tension's been like historically and maybe lately between State regulators and federal Regulators thank you for the question yes as a state bank uh they're you're going to have two Regulators the state regulator and the federal regulator their choice we work very hard at the local level to make that as seamless and efficient and
▶ 3:46:24effective as possible but it's that direction that's coming from DC that is uh directing um perhaps uh and challenging their local offices to uh manage situations in a specific way uh and overriding what the examiners on the ground may feel or think is the appropriate outcome one of the things I think that could really make a difference here is quite frankly uh congress's support of the existing law which is to ensure that there is a state bank regulator that sits
▶ 3:46:54on the fgsc board that is in law and someone in the State Bank regulatory experience pardon me uh uh and that is something that has been absent for quite some time and I think that would help temper this uh overarching direction that we've seen for quite some time and I think uh that would help uh ensure that there was an equal voice uh for state and community Banks to uh provide this uh Common Sense approach and balance out some of that direction yeah I think uh we're we're hopeful that we'll get somebody with that kind of regulatory
▶ 3:47:24experience uh even at the FED when we look at the the fed's desire to reach into virtually everything as well um you know Miss Owen when you look at at your experience in the market you know one of the things that you see maybe across sectors is that consolidation and concentration generally reduces Innovation and it almost always always reduces competition how have you seen that play out in the market uh as a community Banker yes we have certainly seen a consolidation
▶ 3:47:54within the state of Arkansas and frankly across the country as you've seen with the shrinkage of the number of banks uh it hurts all of our communities when they lose a financial institution that u a successful financial institution is so vital to each and every community so we are very much in favor of denovo banking and making the um requirements on Capital not so renous as well as U allowing more
▶ 3:48:24time for compliance with regulation for these denovo Banks yeah I appreciate you guys have highlighted some great legislation some of my colleagues have you know with uh Congressman Donald's on the small Bank holding company act Congressman Williams on the 1071 fix Congressman bar and others on uh some of the Community Bank regulations that deal with Capital leverage ratios and I was speaking with a small community Banker today they're holding 177% uh and so the whole concept of tailoring is out the window because they're being pressured They Don't Really own
▶ 3:48:55their own balance sheet they can't decide what's on their books uh in their own way and uh that's a factor Mr Randy could you talk about that have you had some observations in the market where it feels like Regulators are steering lending decisions instead of banks yeah again I think that's that's core to all of this is is community banks have proven their ability to manage risk to understand their local markets and uh let's give them the freedom flexibility to do that yeah thank you for that and maybe the last question for you Mr Kennedy
▶ 3:49:25you know structure makes a lot of difference and one of the I think really important Innovations is uh you know the way that you get a return Isn't just a leverage it's also you know how you can retain some of the equity and a lot of it equity and a lot of business deals goes to the IRS uh you have the small uh the es Corp for a lot of smaller Banks you talk about how that's important and how um that that shapes the market thank you for the question it's extremely important and as I alluded to earlier
▶ 3:49:55um the Federal Reserve study excuse me yeah the New York fed studied U that legislation that allowed Banks to have Subs elections um allowed it's it's the reason the principal reason we have as many that we still do but it's extremely important that we give that U ex that I'll be fighting to keep that and thank you all for your time and I yield back the gentleman yields uh the gentleman from Iowa Mr nun is now recognized for minutes thank you Mr chair I appreciate
▶ 3:50:26that as most Iowans know uh their local ler allows their institution to offer pretty customized Services particularly where they live and operate this could be a farmer a small business owner just a fellow dad trying to help out Iowa has approached our financial regulatory framework I think pretty thoughtfully which is why we still have over 250 small lenders across our community um many states five or six times our size don't even have that type of diversity in The Lending system
▶ 3:50:57I look forward to reversing some of the damages Mr chair that were done under the Biden Harris Administration that have hindered lenders restricted our economic growth and disproportionately affected rural communities across our country Mr chair I would like to submit for the record the list of priorities coming from my Iowa Bank bers Association from the Iowa Credit Unions and our Iowa Community Bankers this lays out a very good framework of what's working in a place like Iowa and maybe a recommendation on things we should be doing at the federal level without objection
▶ 3:51:27thank you so let's get to work first and foremost section 1071 rule I remain concerned that 1071 forces are small Banks and to level additional burdens on our businesses in fact they're requiring 81 different data fields now that's a 30% increase over what's federally mandated so this is already something we talk about efficiency we can start looking at an Iowa bank with just 17 full-time employees wrote to me recently and said we do not have enough manpower on staff to address
▶ 3:51:57the compliance requirements coming out of 1071 it's going to force us to hire another employee now in a small community when you're spending another six figure investment to meet a compliance requirement that's money that is not being spent in that Community or helping a local borrower so Mr Miss Owens I'd like to talk with you how does the impact to community institutions to report 133 different data fields between 1071 and the B beneficial ownership reporting requirement impact a local lender well
▶ 3:52:27it would require us or it will require us to invest more in the compliant side of complying with this regulation which absolutely directly affects what we are able to invest in the communities and not only making loans in the community and Staffing loan officers to be able to do that but also supporting the local food pantries and financial education and uh
▶ 3:52:58many things that we do you hit the nail on the head and thank you for highlighting the ripple effect this has across communities uh it's one of the reasons I'm proud Mr chair to co-sponsor Chairman Williams Bill to 1071 I'd like to also speak to tailoring now institutions of different sizes and business models are purposefully different inherent on where they are in fact most Iowa lenders have under 7 billion in assets but the Biden Administration chose to treat every lending
▶ 3:53:28institution the same as a multinational Bank in New York with $3.9 trillion in Assets Now with respect to my friends from New York across the rest of the country we're talking multi-billions of dollars you know for comparison 7 billion Ines is roughly 110 miles that's enough for me and De Moine to drive to the birthplace of John Wayne in Madison County but it would take that same amount of inches if we were trying to talk about 39 trillion inches
▶ 3:53:58from my house the same distance would be to the Sun so to put that into perspective this is how we are treating vastly different sums of money and regulation on a small bank that's here to Madison County versus a big bank which would be the equivalent of from De MO to the center of the universe so miss Marshall I'd like to ask you do you think that tailoring regulatory caps to account for inflation would alleviate some of the immense regulatory burden that is crippling Banks and lenders right
▶ 3:54:28in Iowa I absolutely do I'm glad to hear that and Mr nun if I may your ma'am your previous question about the compliance impact on our institutions and our community banks in addition to the cost what I also find that when I talk to Bankers is that they're having a hard time finding the Talent quite frankly not so much just the willingness but the expertise and sometimes it is the willingness of staff that they're going to bring in and to a earlier member's question about the next generation of Bankers who's going to come into those institutions and those
▶ 3:54:58rural communities and and take on this massive burden where is that resource going to come from that's another reason our community banks are looking at H how can we continue to survive when we don't have the the resources both financially and personnel and Miss Marshall I could not agree more because what I want my local inter is to help Main Street buy that first combine for a farmer help a kid get an F-150 not spend most of their time trying to understand Regulatory Compliance at of DC that is outdated over bloated and can be rescinded it's all about Economic Development yes
▶ 3:55:29ma'am uh the gentleman's time is up uh the gentleman from North Carolina Mr Moore is now recognized for five minutes thank you Mr chairman today's hearing is about restoring certainty and common sense to the way we regulate Community Banks in my home state of North Carolina of course Charlotte is part of Charlotte my district we have a good number of Banks and financial institutions there we rely on our local banks to provide small business loans mortgages and financial services that keep our families and our communities thriving many of these banks are locally
▶ 3:56:00owned deeply invested in their communities and essential to our economy yet instead of instead of supporting Community Banks the Consumer Financial Protection Bureau the cfbb has been driving up cost increasing red tape and making it harder for them to serve their customer customers and you all have answered a number of questions I notice this is a common theme of coming back to this same agency and by the way thank you for sitting here for almost three and a half hours I that's been a tough assignment Mr chairman for these for these Witnesses thank you for doing this uh but I think we're seeing
▶ 3:56:30a getting a sense that section 1071 uh is a is a leading rule that's an example of a big government agenda at cfbb and it seems that this rule from the testimony you've provided so far the other questions is forcing small Banks to collect I believe is referenced already over 80 different data points on every small business loan application including intrusive personal financial information on business owners so it's not just a paperwork burden as you've all already spoken to but it is a mandate that that discourages
▶ 3:57:00lending to small businesses and ultimately reduces access to capital for small businesses particularly in rural communities as my good friend from Iowa was just commenting about the other thing that's very frightening to me in this agency is that the CF uh PB is operating with no accountability and and I don't know how many Americans are aware of this you know disastrous policy that was passed and the way it was implemented uh under the previous administration under President u under President Biden but it seems that we have a choice uh that we can either continue
▶ 3:57:30down this path of bureaucratic red tape that'll ultimately lead to economic stagnation or we can Institute Common Sense reforms that allow Community Banks to lend to grow and to support their local economies so I look forward to working with you look forward to working with your peers and my colleagues here in this committee and in the house uh so that we can get this uh get this right I do have a couple of questions but I don't want to be repetitive of other questions that have been asked uh but uh the first question would be to miss Romero rainy uh in the
▶ 3:58:00final days and this has been mentioned earlier but in the very final days the Biden Administration uh director Chopra used his final days to issue a flurry of harmful regulations uh what I would say is one if you had to narrow it down to one two or three which would you say are the most concerning uh that you've seen and two how if if not rolled back how would these policies affect small businesses uh and put American Banks and businesses at a disadvantage internationally so I'm not as familiar with what
▶ 3:58:30happened in the last 24 hours what I think I would like to speak about is is to pick up one more piece is as I think about most harmful I go straight to 1071 and there's one more piece that we we haven't talked about as much is and and it's the Ripple affect back to the small businesses as you were alluding to the last thing small businesses need in this country is the commoditized approach to small business lending which is what this rule uh would would require and again as as we've demonstrated multiple aspects small businesses don't need one siiz approach no two
▶ 3:59:00small Community Banks look alike no two small businesses look alike nor should their lenders treat them as if they were alike yes ma'am well thank you and Mr Kennedy a question for you sir uh the cfp scrutiny of non-traditional banking services such as the fintech Partnerships has made it harder I would argue I believe there's testimony to this uh for banks to innovate and to offer modern Financial products uh given that how would you suggest that Congress
▶ 3:59:31set clear limits on the cfpb's role in regulating Financial technology and secondly how would you define that the current uncertainty uh is affecting the industry well the cfpb um has a trickle down effect on banks under 10 billion of course and so um I think having clear guidelines from the agencies that really regulate Banks and understand Banks and the relationship with fintex is extremely important um I think we've all got to recognize in the Regulatory
▶ 4:00:01and the business World we've got to work together things move very rapidly and we've got to work cooperatively so um that's my thoughts thank you sir you'll back the balance I give you back seconds of your day today uh the gentleman from New York Mr Lawler is now recognized for five minutes thank you like many of my colleagues I've been alarmed during the last Administration by a steady stream of partisan rules from Regulators that failed to be accompanied by substantive cost benefit
▶ 4:00:31analysis that lacked an understanding of the cumulative effects they would cause and whose adverse effects would be borne by American families and businesses of all sizes including by inre costs and reduced availability of credit we should be doing everything we can to ensure businesses and entrepreneurs have access to the resources they need to thrive uh and drive an Innovative and competitive economy and we need our Community Banks to be thriving as
▶ 4:01:02part of that effort I know the Chairman's making Community banking great again principles include ensuring access to diverse sources of funding and capital so with that in mind I'd like to touch on broker deposits uh Miss Romero Rainey and Mr Kennedy following up on uh the question from my colleague Miss Wagner uh to commissioner Marshall can you discuss some of the ways that Community Banks use broker deposits
▶ 4:01:32to access funding uh to access funding which allows them to make more loans to small businesses and families yes broker deposits have been a significant tool for Community Banks in a few different ways uh one is is just is you think about um seasonality in A bank's balance sheet so maybe I'm an A lender and so deposits are going to be high in one part of the year and maybe not as much in another or in my community bank we were tourism driven very much um varies the Peaks and valleys in terms
▶ 4:02:02of of the deposit flow so broker deposits are a a critical source of helping to maintain uh stability in that balance sheet regardless of what those local deposits are doing and so that provides they're contractual they're safe they're secure and and so it's it's a great tool for K Banks to use Mr Kennedy thank you um most of our clients and our own Community Bank don't use broker deposits but we importantly use deposit
▶ 4:02:33networks that allow us to provide Federal Deposit Insurance through reciprocal Arrangements this has been around for the last 27 years and it's an extremely important way for us and these Community Banks to maintain their deposits locally of for institutions and individuals that have more deposits than 250,000 particularly a lot of public entities uh so it's a very valuable tool not many people are aware
▶ 4:03:03of it but it's a way that um there's no big cost to it so it's not the theoretical and and the FDIC has defined that as broker deposit deposits only once you get to a certain limit so there's not a lot of logic to that but it's an important element of this whole notion of Federal Deposit Insurance Mr Lauren may I add a moment on broker deposits that haven't been addressed today um speaking with my community banks that have used them quite successfully for many years another
▶ 4:03:34very important part is that they're often the most coste effective uh source for funding and so when net interest margins are squeezed and there's an extremely amount of increase non-interest expense expenses that are going on to bank's balance sheets that is another reason why they are looking to find uh all the opportunities to have lowcost funding sources to then turn around and lend money to the consumers that need it most thank you for that uh the 2020 final rule on broker deposits was preceded by significant study and
▶ 4:04:04public rule making with an advanced notice of proposed rule making a notice of proposed rule making and consideration of 220 comments before finalization last year the FDIC issued a proposed rule modifying broker deposits however last year's proposal featured incomplete data that did not indicate what problem the FDIC saw uh Based on data and Analysis that would justify a wholesale recision recision of its 2020 rule uh it was alarming
▶ 4:04:34to me and many of my colleagues that this proposal uh appears it would have had a unique and negative impact on Community Banks by widening the scope of deposits classified as brokered last year's proposed rule would have increased the deposit Insurance Fund assessments Banks must pay to the FDIC uh such C costs would have been borne out by customers in the form of higher fees higher interest charged on loans and lower interest paid on deposits
▶ 4:05:04uh can any of you speak to that in the brief time that I have left well I would just say to to your point there there there was the rule was made not with incomplete um and very dated uh data in terms of the basis for it so flawed appreciate it thank you you back the gentleman yields uh the gentleman from New York Mr Garbarino is now recognized for five minutes thank you chairman thank you for the witnesses for all being here today
▶ 4:05:35originally set up to be an objective assessment of financial institution safety sadness and overall health camels has turned into an opaque process marred with inconsistency inconsistency and subjectivity the management rating is uniquely subjective as it isn't based on any empirical standard initially the management rating flowed from other ratings since it was a logical train of thought that if your bank has satisfa satisfactory Capital assets and earnings then it was safe to presume the bank was well managed however today it appears examiners have delinked the management rating causing Banks to potentially
▶ 4:06:05receive an unsatisfactory rating simply because they didn't manage their operations or conduct their businesses how the examiner mandated as a result result of a poor rating a bank could face limits on Acquisitions and poten potentially higher deposit insurance premiums for multiple years with no waight to appeal the examiners decision Mr Kennedy can you describe how the management rating has been misused over the years well it's a difficult question because um there's a lot of confidential information involved in that
▶ 4:06:35but um I think it's just a it's a subjective that's the unfortunate thing about camels each one of those ratings um and camels are very subjective and I've seen them in my 45 years of practicing law and representing Banks all over the country widely Divergent in terms of those decisions well does does the examiner when they when a bank gets a low rating uh does the examiner provide a detailed reason for the rating or is there a mechanism for a bank to challenge that rating
▶ 4:07:06there is but it's not effective how would you make it effective I think I'd make it more open and have an independent agency is suggested I think by chair so you can challenge the rating but it should be more open and you would use an independ to fix it you'd use an inde thank you very much uh mergers present Banks of varying sizes from Community to Regional banks with the opportunity to grow and benefit from economies of scale they also promote competition and generate cost savings that can be then
▶ 4:07:36passed on to customers and consumers as the number of the denovo bank formations decreases Bank mergers have effectively become the only Avenue for increase in competition fortunately under the Biden Harris Administration Bank merger evaluations became more stringent making mergers more difficult to complete rather than making the bank merger evaluation more subjective costly and timeconsuming Regulators should seek to provide clarity through objective metrics to evaluate potential mergers further clear expectations and timeliness for merger approvals
▶ 4:08:06allow Banks to make informed decisions on how to grow and meet the needs of their customers Miss Owen can you explain how inconsistent timelines can impact decisions to merge absolutely um it impacts so much more than people initially think of it's not only a matter of putting the two Banks together it affects people's lives there are jobs involved with mergers there are uh the communities and decisions are made of whether or not branches
▶ 4:08:36are going to remain open or whether or not they need to be closed where operation centers are going to be located it it goes on and on and on so there's a multitude of decisions and um things that come out of our part of a merger not just what people initially think of the combining of two financial institutions could do you have any recommendations on how we could fix uh what the Biden Harris Administration did over the last four years with when it comes to mergers I
▶ 4:09:06am very much in favor of what chairman Hill has proposed with a time frame for completing the mergers um unless there's reason to note not to do so thank you very much for that answer s s2155 directed credential Regulators to create a simplified Capital framework for Community Banks known as the Community Bank leverage ratio as a result the final rule was approved to allow Community Banks with a leverage Capital ratio of at least 9%
▶ 4:09:36to be considered in compliance with basil 3 Capital requirements and exempt from the complex basil calculation the intent behind this section was to simplify the capital regime for Community Banks ensure they maintain enough Capital to weather a downturn Mr Romero rainy at the time of this rulemaking and even in today would you say that the majority of qualifying Community Banks that have at least 8% C cblr already meet the well capitalized risk-based Capital ratios yes can you please describe the benefits that Community Banks saw
▶ 4:10:07from lowering the cblr to 8% Again part of this was to allow for additional flexibility and and um whether it's the definition of well capitalized or as they're looking to pursue other opportunities uh that's a that's a great answer and I appreciate I'm running out of time so I will yield back thank you the gentleman yields I now recognize myself for five minutes uh thank you all again for being here I know it's been a long day um in 2008 there were 64 State chartered banks in
▶ 4:10:37Montana now today they're only 36 almost half the situation Nationwide is not much better the vast majority of these banks that left the business were small Community Banks with crushing regulations being the primary factor now as we've covered throughout this hearing there are many challenges that prevent new Banks from forming or lead to mergers or closures of existing Banks you know that's particularly devastating for Rural communities like Montana's second district which I proudly represent so Montana is a heavy producer of
▶ 4:11:07cattle of wheat it's the number one produc producer of lentils in the United States and Montana Banks Support over 24,000 small farm loans across the state now these are the Family Farms that put food on our tables and clothes on our backs and uh the biggest obstacle Community Banks face from examiners is is not safety and soundness but uh the bank secrecy Act and the anti-money laundering laws you know these laws have a role in preventing fraud but are now far past the point of common sense you
▶ 4:11:37One Bank in Montana with about $800 million in assets has six full-time employees doing compliance you know roughly half of which is just spent on the BSA and the AML so my first question um you know M Miss Owens uh Miss Owen or Mr Kennedy can you either one of you talk about the difficulties Community Banks face with our outdated BSA and AML laws I'll start
▶ 4:12:07we have four BSA officers and I'm just under 500 million in size uh we do a lot of reporting as was mentioned earlier on transactions of $10,000 or more we never get any feedback back from the from finsen so do these regulations make opening new accounts for customers difficult as well absolutely it takes a lot more time you can't come
▶ 4:12:37in and quickly open an account you might as well plan to be there for a while thank you uh m rero Rainey what should Congress do to fix this so first we need to start with the thresholds uh you as we've discussed here today the the CTR thresholds uh that Miss Owens just re referenced were created in the 70s and and have not been Revisited or index since then so I think there's a real easy and and simple fix if there's such a thing um but that's it's a great place to start
▶ 4:13:08right so thank you for these responses it's uh clear that lawmakers and regulat ERS need to do much more to ease the burden on our small Banks you know uh no one's hurt more by Bank closures than the communities they serve so uh I yield back thank you so now I will uh the gentleman from Florida Mr heropoulos is recognized for minutes thank you Mr chairman first I
▶ 4:13:38want to applaud you for your endurance great job today I'm your last person I guess they're saving the best for last so um with that in mind I I first have to say this uh when I was running for congress I had some concerns about the cfpb and now that I've actually been under the hood for the last few weeks I have even larger concerns and we're so grateful for your willingness to testify today and give an honest appraisal of how it hits the real world and we're so grateful that for this testimony and I'll try to be brief um the first question will be Prof Kennedy
▶ 4:14:08if you don't mind um can you discuss putting a kind of a shot clock on Bank mergers and how that could provide Clarity for institutions and help uh prevent long and drawn out mergers and that drain resources absolutely there is no such shot clock as you say uh they can continue to ask questions and more questions and I've seen it go on for uh years and so the cost uh on the uncertainty is you know just not not workable and that
▶ 4:14:38same uh shot clock ought to be applied to really every including denovos because the denovo that's one of the big burdens with denovo is not only Capital but the the process of those applications needs to accelerated well thank you and um to miss Romero Randy if I could um this the cfpb recently finalized an overdraft rule uh that I would concerned about because again it's overly complex and could really limit or eliminate consumer access to funds that could
▶ 4:15:08help cover emergency expenses would you discuss some of the problems that you faced are potentially faced with that rule yes so to your point it's it's about limiting options and while in the rule uh in all fairness Community Banks under 1010 billion were exempt from the rule uh there's two pieces that worry as we've talked about today trickle down and and what uh that means in in terms of how this will be applied to Community Banks as well as uh specifics within the rule that say that could be Revisited
▶ 4:15:39over time and so at the end of the day this is about ensuring that consumers have access to products and services and um in these cases very welld disclosed uh services that they've chosen to pay a for and Mr chairman with that it's been a long day I want to yield back my time so these folks can uh get back voler the day but thank you very much for making the time for us it's been very helpful especially as a new member of the Congress thank you the gentleman is modeling good behavior he yields back
▶ 4:16:09that is appreciated by our Witnesses I want to thank all of our Witnesses for your outstanding testimony today thanks for presenting your views to the committee it'll help us in our work without objection all members will have five legislative days to submit additional written questions to the witnesses to the chair and we will forward those to you for your response I ask our witnesses to respond no later than March 31st 2025 to those written questions this chair this uh uh hearing is adjourned thanks