▶ 0:22:28on financial institutions will come to order. Without objection, the chair is authorized to declare a recess of the committee at any time. This hearing is titled promoting the health of the banking sector, reforming resolution and broadening funding access for longterm resilience. 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 five minutes for an opening statement.
▶ 0:22:54Thank you to our witnesses for being here and for offering their expertise on this important discussion. Today, we will explore a series of topics that focus on promoting a healthy banking industry for institutions of all sizes.
▶ 0:23:09We will examine ways to promote competition in the FDIC's resolution process for failed banks and explore how decisions made in response to the 2023 bank failures, such as the invocation of the systemic risk exception to guarantee all uninsured deposits created unnecessary uncertainty at a time when clear guidance was especially necessary.
▶ 0:23:33We will also look into potential reforms to the FDIC's bidding process for failed banking assets and liabilities with the goal of ensuring that community banks have a fair opportunity to acquire all or part of a failing institution. Community banks and regional banks, particularly when such outcomes best serve the interests of local communities.
▶ 0:23:54More broadly, the least cost test should not operate as a rigid constraint that effectively limits participation in the resolution process to only the largest institutions. We want all institutions of all sizes to be uh uh able to to bid on these failed failed banks. We will also discuss how access to diverse funding sources allows banks to remain competitive and continue to serve their communities.
▶ 0:24:22The current misalignment in the regulatory treatment of brokered reciprocal and custodial deposits have placed handcuffs on small well well-managed financial institutions ability to sustainably fund themselves and reform is necessary.
▶ 0:24:37I look forward to hearing from the witnesses about how legislation attached to this hearing would remove unnecessary barriers to bank funding, ensuring banks have access to diverse and stable sources of deposits that allow them to continue the lending activities that make our economy thrive. Restrictions on various deposit types such as brokered, reciprocal, and custodial should be based on actual risks to stability, not the whims of banking regulators.
▶ 0:25:04Finally, we will highlight the imperative that Congress rightsize the capital framework for small and midsize banks in the post DoddFrank world. Our capital regime has moved too far away from a tailored system, negatively impacting small and midsize banks and hindering their ability to survive and compete against larger institutions. We must reverse course on this as a diverse banking system is at the heart of a resilient and competitive banking sector.
▶ 0:25:34On a bipartisan basis, Congress directed regulators in 2018 to tailor regulations based on an institution's size, risk profile, and complexity. However, under the Biden administration, regulators failed to fulfill this statutory mandate, and we look forward to new leadership to ensure that a regulatory scheme designed for the biggest banks does not become the rules for all banks. Luckily, the regulators have the tools to further tailor regulations and reduce tape hampering the growth of small and midsize banking institutions.
▶ 0:26:05This committee will continue to urge the federal banking agencies to use the authorities they currently possess to provide much neededed relief for banks while protecting financial stability and safety and soundness. Community and regional banks have the unique ability to put necessary cash in the pockets of local businesses. And today's discussion will highlight the need for reform to guarantee long-term resilience and access to capital.
▶ 0:26:32The overly burdensome regulations imposed by the DoddFrank Act and subsequent rulemakings from the federal banking agencies have c crippled community banks and midsize banks and regional banks through heightened capital and liquidity standards, narrower sources of funding, and a miscalibrated bank merger review process. I look forward to hearing from our expert witnesses on these important topics and what we can do in Congress to reverse the negative impact of burdensome regulations.
▶ 0:26:59That I yield back and I now recognize the ranking member of the subcommittee, Dr. Foster, for four minutes for an opening
▶ 0:27:06Thank you, Chairman Bar, and to our witnesses. Today, the subcommittee will examine topics that underpin the stability of the US financial system. We will understand the avenues banks use to fund their operations, weather stress, and promote economic growth in our communities. Alongside this hearing, we will consider changes to the resolution process to ensure that failing financial institutions wind down their operations in a way that minimizes disruption for customers and the broader financial system while preserving competition.
▶ 0:27:34I believe that these are timely and important topics as this body and the administration look to make changes in the regulatory and supervisory framework governing the American banking system. Throughout this process, we should pro promote updates that reflect the current state of the banking system, respond to changing technology and the composition of the banking system, and keep in mind the unique needs of small community banks and credit unions. Technological innovation, while often beneficial, carries some risk.
▶ 0:28:03In 2023, we saw mobile banking technology and social media supercharged bank runs on Silicon Valley Bank, leading depositors to pull out nearly $40 billion in deposits from the bank in under 48 hours. The failure of Silvergate and Silicon Valley Banks triggered runs on several other banks, ultimately forcing regulators to invoke emergency authorities to stem contagion.
▶ 0:28:26So I fear that this type of situation will become more common as technology reduces friction in banking and increases the speed of information across the country. Uh that said the regional bank failures in 2023 started an important conversation about how to prevent rapid and and largecale bank failures from rippling across the economy.
▶ 0:28:47JP Morgan's acquisition of First Republican First Republic Bank raised questions about the appropriateness of FDIC's lease cost resolution and whether there may be alternative approaches worth considering. I'd also like to thank Chair Bar and Hill for noticing Congressman Lynch's bill, the Failing Bank Acquisition Fairness Act, which would ensure that small institutions have an opportunity to bid on failing banks, assuming they can do so in a manner that's cost-effective for the deposit insurance fund.
▶ 0:29:15Members of our committee are have also sought ways to manage the risks associated with high levels of uninsured deposits which were a contributing factor to the failure of SVB. Deposit insurance reform, expanded access to reciprocal deposits and other changes to the regulatory framework are among the proposals being considered in this hearing today. And so as our committee considers these issue, we must continue supporting the financial institutions in all of our communities.
▶ 0:29:42This includes more than 30 years of congressional support for community development financial institution, CDFIs, and minority depository institutions, MDIs, that serve lowincome and historically underserved communities. Since its creation, the CDFI has fund has supported more than 19 million loans totaling more than $300 billion, leveraging private capital to spur investments in infrastructure, child care center, home ownership, and entrepreneurship across all 50 states.
▶ 0:30:11Um well, I I really appreciate the um timing and subject of this hearing and look forward to hearing from the
▶ 0:30:20Uh the gentleman yields back and today we w we welcome the testimony of Mr. Dory Wy, president and CEO of Commerce Street Holdings Dallas. Uh Mr. uh James Bessie, partner at Squire Patent Box. Mr. Dr. Hugh Carney, executive vice president of financial institutions policy and regulatory affairs at the American Bankers Association. Dr.
▶ 0:30:46Norbert Michelle, vice president and director of the Kato Institute Center for Monetary and Financial Alternatives, and Mr. Robert James, president and CEO of Carver Financial Corporation here on behalf of the National Bankers Association. We thank each of you for taking time to be here. Uh each of you will be recognized for five minutes to give an oral presentation of your testimony. Without objection, your written statements will be made part of the record. Mr. Wy, you are now recognized for five minutes for your oral remarks.
▶ 0:31:17Thank you, Chairman, Chairman Bar, Ranking Member Foster, members of the subcommittee. Thank you for having me here today and hopefully uh I can provide some small help in any way I can. Glad to be here. I'm Dory Wy, president and CEO of Commerce Street Holdings, a Dallas-based investment bank, uh, that does M&A advisory and and, uh, investing in banks.
▶ 0:31:40For almost 40 years, I've started banks, raised capital for banks, invested billions of dollars, uh, raised billions of dollars for community banks, and advised through crisis. These crises include the SNL crisis of the 80s where we lost over a thousand banks. The Texas banking crash where we lost over 200 bank failures. We've got a road map of the scars on our back from from those time periods.
▶ 0:32:04The 2008 great recession with over 500 failures and of course the 2023 failures that we're all familiar with of those four banks. U experience shows that we must make banking investable again. I think we forget that sometimes. Now, first of all, I'd like to say, you know, we have the best banking system in the world in world history. And what we're doing is just fine-tuning what we have here.
▶ 0:32:30But we want to ensure fair investing, fair funding rules, and let these banks compete. We have to remember that they're not utilities. We want them to compete. We're partnering with them on the government side. The 2023 failures exposed some familiar problems. Low equity capital, poor risk management, and shaky confidence. Now, however, most banks came through with shining colors.
▶ 0:32:55Most of them did very good job of asset liability management, credit underwriting, and holding high capital standards. These exceptions shouldn't have happened, but they did. We saw similar runs in broker deposits in 2008 and 1980s. And the vast uh and the biggest issue bank holding companies like uh Silicon Valley banks had dangerously low capital around 5.5%.
▶ 0:33:22These holding companies have to be a source of strength when they don't have enough capital. They can't there's no room or margin for error. They can't support their banks just like during the great recession when things went wrong. Now, Dodge Frank's rules. Amazingly, banks have adapted quite a bit, but they cost banks $60 billion a year, having crushed community bank profits, pushing opportunities outside the system, increasing, not necessarily reducing systemic danger and risk.
▶ 0:33:50And this has turned away investors and talent, making banking less attractive. Congress should cut these regulatory burdens to bring investment capital uh back to banks. Let me close by emphasizing an appeal to and the critical role of virtue in our financial system.
▶ 0:34:09George Washington wisely noted, "Few men have the virtue to withstand the highest bidder." Yet, over my decades in banking, I've witnessed the vast majority of bankers embody this virtue, running their institutions with integrity, prioritizing customers, and upholding trust. This is especially vital in the United States, the only nation with a robust community banking system in the world.
▶ 0:34:33These banks are the backbone of our economy, fueling job creation and nurturing small businesses that drive innovation and growth. Our community bankers together with regulators and by extension Congress honor this principle acting as stewards of public trust, ensuring capital serves Main Street, not just Wall Street.
▶ 0:34:57Let us continue to support and strengthen this virtuous foundation, ensuring our community banks, our banking system in general, and our whole economy thrive for generations to come. Thank you,
▶ 0:35:11Mr. Barussi, you're now recognized for five minutes.
▶ 0:35:15Thank you, Chairman Bar, Ranking Member Foster, and members of the subcommittee for the opportunity to testify here with you today. My name is Jim Baresi. I lead the financial services practice at Squire Patent Bogs, which is a global law firm. Uh, I'm here today in my personal capacity, not on behalf of my firm or any client of our firm.
▶ 0:35:35And I'm here in hopes to share with you practical insight that I've obtained for spending more than 30 years laser focused on advising Main Street banks and also having on two occasions during that time period spent multiple years embedded in-house as the deputy general counsel of a what started as a small regional bank that after a string of a long string of large acquisitions ultimately became uh a very safe
▶ 0:36:06and well- reggarded super regional bank that competes with the largest banks in the Turning to the state of our US banking system, for a long time, our banking system has been both the envy of the world and the engine for economic growth in the United States. But the laws and regulatory framework that govern it are antiquated now.
▶ 0:36:31uh they need updating to function effectively in a fastmoving digital area era. Um we need to be able to move quickly because sometimes as we saw in the spring of 23 the inability to move with dexterity itself can be dangerous. So we're hopeful that this committee will continue to be uh assertive in adopting change like like it did with the Genius Act and we're greatly appreciative of that.
▶ 0:37:00I'd like to use the auto industry as a quick illustration for what we have in mind. Um, the auto industry of course is regulated like the financial services industry, but in the last few decades you've seen widespread adoption of innovative uh innovative tools like airbags, automatic emergency braking, lanekeeping assistance, blind spot monitoring, and many others.
▶ 0:37:25I don't think there's any doubt that these tools improve safety and the efficient operation of our transportation system, but it's much harder to do that in bankland than it is in other regulated industries because of the multi-layered overlapping regulatory regime and structure we have and because of the trepidation that our regulatory regime has historically shown to to innovation.
▶ 0:37:53What we're asking Congress to do here is to build the financial equivalent of an interstate highway system that enables our banks of various types, just like various types of vehicles on the road, to move with efficient capability and and the speed to safely deliver financial products to those uh throughout the United States. So, we have a host of recommendations in our written testimony. I won't repeat them all here, but just to highlight some for you.
▶ 0:38:22First, with respect to the bank resolution process, it's way too rigid and it's not competitive for anyone other than the biggest banks in the country. It needs to be modified to enable smaller players to participate effectively in auctions. It needs to enable uh those banks to show up and have their capital capacity evaluated.
▶ 0:38:44for example, if they show up with private capital sources or the ability to bring additional capital to the table to affect transactions and there are techniques like virtual data rooms that could be maintained uh on a real-time basis to enable biders to act.
▶ 0:39:00Um, depositive insurance of course is part and parcel of any discussion on improving resolutions and I won't rehash that here other than to note that our deposit insurance systems need some updating and I have in my written testimony and I'm happy to address some uh some ideas that are not expensive uh for the system and and that could be utilized.
▶ 0:39:25Um, third, I think the 2023 bank failures identify issues with liquidity in two respects. One, access to reliable emergency liquidity for banks that are in difficulty.
▶ 0:39:38And we can proactively combat the stigma at the Federal Reserve's discount window and improve the operational readiness of each of the Fed and the Federal Home Loan banks so that they can act uh to process large volumes of requests and prioritize among them. And then finally to harmonize some of the collateral practices across all the Fed regional banks and the FHLBs uh broker deposits and reciprocal deposits. We have an outdated system.
▶ 0:40:08Fortunately, we have unwound a system that treated them very or would have treated them very unfairly in in 2024, but it still needs to be updated to enable uh the proper use of these tools which provide a great deal of liquidity. Uh bank mergers are also important on the agenda and I think that they demonstrate the need and ability of community banks to grow and serve our
▶ 0:40:33Gentleman's time is expired.
▶ 0:40:35Thank you. Thank you very much. Uh, and we'll get to more of your testimony in Q&A, I'm sure. Uh, Mr. Carney, you're now recognized for five minutes.
▶ 0:40:44Chairman Bar, Ranking Member Foster, and members of the subcommittee. Uh, thank you for the opportunity to testify on promoting the health of the banking sector. I am Hugh Carney, executive vice president for regulatory affairs at the American Bankers Association, which represents banks of all sizes and business models across the country. I've spent the past 20 years working on credential regulatory matters both at the office of the controller of the currency and at ABA. My remarks today for focus on four priorities.
▶ 0:41:11Indexing regulatory thresholds, modernizing the resolution framework, updating funding statutes, and recalibrating capital standards. These changes will make regulations more predictable, transparent, and risk focused while preserving the vibrancy and competitiveness of the American banking system. For decades, many regulatory thresholds stayed fixed. Even as the economy has grown, for example, heightened audit requirements established by the FDIC in 1993 become operational when a bank's assets reach 500 million.
▶ 0:41:40Back then, it meant the more stringent requirements only applied to 7% of banks. Today, it applies to 41%. Dozens of thresholds have drifted the same way. This drift creates three problems. First, it burdens institutions never meant to be captured. Second, it discourages organic growth. And third, it dilutes regulatory resources. The solution is indexing.
▶ 0:42:01ABA recommends after a one-time adjustment to correct for past inaction linking assetbased thresholds to nominal GDP which reflects the size of the economy and the scale of the banking sector. If the FDI's 500 million audit threshold had been indexed, it would be 2.2 billion today, restoring its original scope. Indexing is a lowcost, high impact reform that allows regulators to focus on where the risk really is.
▶ 0:42:25We applaud the FDIC's recent proposal to index some of its regulatory thresholds and urge other policymakers to consider this issue, including Congress since some thresholds are set by statute. Shifting to bank resolutions, the bank resol bank failures of 2023 showed that resolution rules must evolve. Earlier this year, ABA formed a task force in deposit insurance and resolution issues. The task force recommends three reforms to res bank resolution policy.
▶ 0:42:54First, broaden the lease cost test so regulators can consider costs that a particular bank resolution may impose on the public, including potential costs of contagion and impacts on relevant communities. Second, allow greater community bank participation in failed bank resolutions through consortium bids and flexible evaluation standards. Third, improve transparency in the bidding process by publishing clear qualification criteria and timelines.
▶ 0:43:18These changes will help maintain stability, preserve local access to financial services, and reduce long-term systemic costs. Funding rules also need to be modernized. One example of an outdated law in need of modernization is the statute governing broker deposits, which has not been updated in over 35 years. Since the statute was enacted, regulatory, market, and technological changes have reconfigured banking and the provision of financial services.
▶ 0:43:45The result is that today a deposit classified as brokered is stigmatized based on an arbitrary interpretation of what entities are deposit brokers rather than a deposit's actual risk characteristics or a bank's broader liquidity risk management. ABA recommends repealing section 29 of the FDIA and replacing it with a framework that limits asset growth for banks that are less than well capitalized. This preserves the original purpose while allowing healthy banks to main access to stable, diverse funding sources.
▶ 0:44:14Finally, I'd like to address capital. It's important to recognize that capital rules are not just bank rules. They directly affect borrowers, businesses, and the functioning of the capital markets. That is why the 2023 Basel 3 endgame proposal generated such strong public concern. Miscalibrated capital standards can raise borrowing costs, reduce credit availability, and restrict liquidity in the economy.
▶ 0:44:36As the agencies reconsider Basel 3 endgame, we urge a capitaleneutral framework that removes excess goldplating that has been layered on top of international norms and remove double counting with the stress testing framework. In addition, we encourage rapid finalization of the proposed changes to the enhanced supplementary leverage ratio to restore to a its role as a backs stop. Moreover, we encourage revisiting leverage requirements more generally, including excluding low-risk assets from leverage ratio calculations and reducing the community bank leverage ratio to 8% at most.
▶ 0:45:07Finally, we recommend recognizing mutual capital certificates as capital without unnecessary compliance burdens. Taken together, indexing, modernizing resolution standards, updating funding policy, and recalibrating capital standards will make the banking industry safer, more competitive, and better equipped to serve customers. Thank you for your attention and I look forward to your questions.
▶ 0:45:29Thank you. Uh Dr. Michelle, you're now
▶ 0:45:32Good afternoon, Chairman Bar, Ranking Member Foster, members of the committee. Thank you for the opportunity to testify at today's hearing. I'm Norbert Michelle. I am vice president and director for the Kato Institute Center for Monetary and Financial Alternatives, but the views I express in this testimony today are my own and should not be construed as representing any official position of the Kato Institute.
▶ 0:45:55In my testimony today, I argue that the existing bank regulatory framework creates enormous cost with little perceptible economic benefit for the typical American. Larger firms find it comparatively easier to adapt to the system. So the framework itself creates the incentives for larger firms to grow larger as also the incentive for smaller firms to petition Congress for relief, protection, and better rules.
▶ 0:46:20For decades now, it has been obvious that there are too many rules and regulations in the banking sector and that those rules are overly complicated and often It is perfectly understandable that people in the banking and financial industries regularly ask federal officials for a better system. They need clarification of rules and they naturally want rules tailored to their business models. Their lives depend on working within those rules.
▶ 0:46:46So it makes sense that we are here today seeking ways to develop less costly and more effective rules to fund banks to capitalize banks to compete with banks to develop rules that are more commensurate with risk and even to do a better job resolving failed banks. These issues are critically important. But the regulatory framework suffers from a much bigger foundational problem. It is driven by the idea that the free enterprise system doesn't really work when it comes to financial markets.
▶ 0:47:16In financial markets, supposedly we need prescriptive rules to guarantee safety. And if we can just get the rules right, everything will be fine. There will be very few to no failures or instability or crisis. The truth though is that if we're going to allow people to take financial risks, something which we must do in a free society, then there is simply no way to compile a set of rules and regulations that guarantees these rosy outcomes. It simply will not work.
▶ 0:47:43Much like the advocates of socialism who insist that we just haven't tried the right version of socialism yet, advocates for the current regulatory approach are engaged in an exercise of wishful thinking that ignores the harmful outcomes the current approach is guaranteed to create, including those which we're here discussing today.
▶ 0:48:01We simply can't have a system based on thousands of prescriptive rules that assumes regulators are infallible, back it up with virtually endless amounts of both implicit and explicit federal backing, and then expect anything other than the outcomes that we currently have. We justify the system based on securing financial stability, and we've done that for decades, even long before the 2008 financial crisis. And we know that it doesn't work.
▶ 0:48:28We use words like panic and contagion and pretend that we can stop people from panicking. But even with the government backing that we have now and prior to 2008, we clearly cannot stop people from panicking. When you build the system based explicitly on maintaining stability, you are effectively saying that the federal government will protect people from losing money and the only question left is who the government will protect from losing money.
▶ 0:48:54And that's the problem because then the system helps those people panic, those people who want to make sure that they are not the ones who lose money. It creates the constituencies that seek more backing and it justifies even more rules, thus worsening the problem. We end up pitting ourselves against each other, whether it's Wall Street versus Main Street, big banks versus small banks, or now big and small banks versus medium-sized banks.
▶ 0:49:21Nobody should be amazed that we have banks of all sizes wanting different rules and we can deny it all we want but the regulatory system that we have created leads directly to this issue. Worse, it gives groups of banks by different class different size classes with balance sheets that look virtually identical. It narrows the way people can earn and invest money and it makes people dependent on the government. That's a fragile system, not a resilient one.
▶ 0:49:50But that is the problem that we have created and worsened. If we really want to thi fix these things, we need to take a different approach and regulate from the principle that free markets can work even in financial markets. We have to let business owners be business owners and even let bankers be bankers. We have to stop pretending that the free market doesn't work in financial markets. Thank you for your consideration and I'm happy to answer any questions you have.
▶ 0:50:17Thank you. And now, Mr. James, you are recognized for five minutes.
▶ 0:50:23Thank you, Chairman Bar, Chairman Hill, Ranking Member Foster, Ranking Member Waters, and members of the subcommittee. Good afternoon. Thank you for the opportunity to testify on promoting the health of the banking sector, reforming resolution, and broadening funding access for long-term resilience. This hearing comes at a critical time as the administration weighs regulatory reform.
▶ 0:50:45Congress should play a critical role in shaping those reforms, ensuring a healthy banking sister system sector that serves institutions of all sizes. My name is Robert James II, president of Carver Financial Corporation, parent of Carver State Bank of Savannah, Georgia, and BHM Bank of Birmingham, Alabama. I'm also immediate past chairman of the National Bankers Association, which advocates for our nation's minority depository institutions.
▶ 0:51:11These missiondriven community banks, many also certified CDFIs like Carver, are vital sources of strength and engines of economic development in low and moderate income communities. My testimony will focus on access to capital and deposits, FDIC insurance reform, and regulatory Tier one capital or the equity invested in a bank is the most critical component of its resilience and is essential for banks to grow in scale.
▶ 0:51:37While MDIs maintain adequate capital ratios, limited access to capital over decades has left them undersized for the needs of their communities. Pending legislation before this committee, including the Community Bank Capital Flexibility and Growth Act of 2025 and the Promoting and Advancing Communities of Color through Inclusive Lending Act, will help ensure missiondriven banks not only survive, but thrive. Capital alone is not sufficient. Our banks also need access to stable deposits.
▶ 0:52:05Community banks deploy deposits to fuel small business growth and afford and provide affordable credit for consumers. We support an all of the above strategy to expand community bank access to core deposits, including regulatory changes, broaden access to federal deposits, and partnerships with fintexs, larger banks, and other third parties.
▶ 0:52:25As banking business models evolve and fintech and other thirdparty partnerships begin to play a more prominent role, the laws governing how banks accept and categorize core deposits should invol should evolve too. Unfortunately, virtually any third-party involvement in connecting banks to deposits results in those deposits being categorized as brokered, triggering supervisory burdens and higher insurance premiums even when they function as core deposits. Updating these rules is vital.
▶ 0:52:54Legislation such as HR 3234 to allow well-managed banks to utilize more reciprocal deposits and the Community Bank Deposit Access Act of 2025 are important steps in the right direction. The failure of Silicon Valley Bank highlighted the risks to small businesses when banks collapse abruptly. It also drove funds away from community banks towards bank deemed too big to fail.
▶ 0:53:18To maintain confidence, the MBA has supported expanding FDIC coverage for small business accounts, including a permanent transaction account guarantee program, providing up to $10 million in coverage for payroll and operating deposits. We also support increased coverage on interestbearing accounts provided smaller banks are not saddled with higher premiums.
▶ 0:53:39Efforts to modernize FDIC coverage have wide bipartisan support, including from the vice president, who introduced a bill when he was in the Senate to reform deposit insurance. Current legislative proposals such as the Failing Bank Acquisition Fairness Act and the Employee Paycheck and Small Business Protection Act warrant serious We support the administration's focus on fortifying the financial system, but caution against reforms that overlook community banks.
▶ 0:54:06Regulations must be consistent with national policy goals such as closing the home ownership gap, supporting small businesses, and ensuring financial inclusion. If not, more activity may migrate outside the regulated banking system, making it harder to manage risk. We urge Congress and the administration to fully fund the CDFI fund, which is vital for community investment, and streamline data collection, recordkeeping, and reporting to reduce unnecessary burdens on smaller banks.
▶ 0:54:34The MBA applauds this subcommittee's attention to these issues. We look forward to working with you on legislation that will strengthen community banks, expand capital and deposits, and ensure regulatory processes align with our shared goals. Strong, missiondriven community banks means stronger small businesses, broader homeownership, and lasting economic growth in every community. Thank you for the opportunity to testify. I look forward to your questions.
▶ 0:55:01Thank you for all of your testimony and uh we will now turn to member questions. I will recognize myself uh initially for five minutes for questioning. Mr. Carney, this committee has repeatedly advocated for the federal banking regulators to tailor regulatory thresholds rather than operate under a one-sizefits-all framework. This ensures that a small bank in rural Kentucky is subject to a set of standards that reflects their own unique size, complexity, and business model.
▶ 0:55:27What has been the result of regulatory thresholds remaining static while the economy and banking sector
▶ 0:55:36So, uh, as banks grow, uh, we what we see what we refer to as regulatory drift. And, uh, indexing would allow for a more consistent risk appropriate framework over time. And a static threshold, what it means is as a bank approaches that threshold, they are looking at potentially increased compliance costs if they cross that threshold.
▶ 0:55:56So they begin to defensively manage their balance sheets to try and stay under that regulatory threshold or do what we refer to as jumping a threshold which is an acquisition to spread those increased compliance costs over a larger institution. Uh that's not appropriate. That's not a way of um it's far better to let a bank grow organically continue to fund loans in their communities rather than be forced into those two situations.
▶ 0:56:21Yeah, I've heard from banks of the in the9 billion category especially um because of Durban and other regulatory pressures that trigger up CFPB supervision at at 10. They want to jump really high and really fast in order to deal with that. Um so indexing these um thresholds would create a more dynamic and flexible framework that would keep pace with economic realities.
▶ 0:56:45Uh that is what we're recommending. We're recommending indexing to nominal GDP, which captures uh the value of goods and services provided.
▶ 0:56:53Okay. Small and mid-size banks rely on access to diverse sources of stable funding to remain competitive. You all testified to this. One of the funding streams is reciprocal deposits, where banks place deposits into a network between multiple banks, exchanging customer deposits with each other in in amounts below FDIC's coverage limit. These reciprocal deposits offer a valuable tool for protecting depositors and promoting financial stability by allowing banks to offer full FDIC insurance on large deposits while keeping equal funds at their banks.
▶ 0:57:23Removing barriers to their use would promote depositor confidence, strengthen funding stability, and enhance overall financial system resilience. I was proud to co-sponsor Majority Whip Emmer and Congresswoman Batty's bipartisan HR 3234, which would modify the amount of reciprocal deposits that are considered to be non-brokered, permitting greater use of this stable funding source, especially for community banks. Mr. James, you noted in your testimony in a letter that you support this bill.
▶ 0:57:49Can you briefly talk about how Carver State Bank uses reciprocal deposits and why they are important to your institution?
▶ 0:57:56Mr. Chairman, thank you for the question. Um, just before I came into this hearing room, I had a call with a large Wall Street bank that has made a deposit in our institution. Our bank is headquartered in a census tract with over 60% poverty. There is not a lot of, you know, spare cash lying around in that community for us to deploy to grow businesses or make consumer loans available.
▶ 0:58:20I was fortunate that the institution that we have this relationship with which is using a reciprocal deposit product uh decided that because of the impact that we're having in community they want to increase the amount of that deposit. Those funds will be made directly available to underserved urban and rural communities all across the state of Georgia and now into Alabama as we've acquired an institution there.
▶ 0:58:43It's very important that we be able to insource capital from higher netw worth individuals or corporations or municipalities uh in order to make capital and credit available in the communities that we serve.
▶ 0:58:54Yeah, that's a great example. Mr. Baressi, could you explain how increasing limits for well-rated financial institutions be before reciprocal deposits are considered brokered could support community banks in securing stable funding?
▶ 0:59:08Thank you, Chairman. Um, sure, absolutely. There are institutions all over the country who are heavily reliant on relationships with partners or large depositors where they need the ability to uh use an inrify or similar system for reciprocal deposits to be able to fund their activities.
▶ 0:59:30Um, increasingly those enterprises uh do business with partners that are subject to scrutiny uh under systems that that essentially penalize those deposits and uh it impairs their ability to have consistent and stable funding. So, uh flexibility on reciprocal deposits is crucial for smaller institutions to be able to fund uh the activities in their communities.
▶ 0:59:58My time is expiring, but on a on a related note, the regulatory treatment of broker deposits has been in limbo since the Biden era FDIC moved to rescend a framework implemented under the first Trump administration. Uh so it's important that Congress restore stability in this broker deposits regulatory regime. Uh with that, the gentleman from Illinois, Mr. Foster, Dr. Foster, is now recognized for five
▶ 1:00:21Thank you, Chair Bar to our witnesses. Mr. James, in President Trump's first budget request, he included a proposal to largely wind down the CDFI fund, characterizing as a quote woke unquote program. I disagree with this assessment, and as do a bipartisan group of 26 senators who urge the administration to release hundreds of millions of dollars of discretionary CDFI funds. These senators represent a diverse group of states of both urban and rural communities that benefit from the work of CDFIs.
▶ 1:00:51Uh could you briefly discuss the history of the CDFI fund and and whether the program has helped in particular farmers, small businesses, and families in rural areas?
▶ 1:01:02Uh thank you uh Mr. Ranking member. Um the CDFI fund is a program that has enjoyed wide bipartisan support on both sides of Congress. Um we uh became a CDFI shortly after the CDFI fund uh opened up certifications in the year 2000. Um, in just the past five years, we've uh deployed uh over $170 million of uh resources directly into communities in urban and rural communities across our state.
▶ 1:01:30Um, I looked at a map this morning and we've made investments in the last five years in 12 out of the 14 congressional districts in the state of Georgia and our institution is $130 million uh institution. So, we're punching way above our weight class. A lot of that is due to the resources that we are provided by the CDFI fund. We've used that those investments to create nearly 8,000 jobs across the state of Georgia in both urban and rural communities.
▶ 1:01:57And I think you'll see similar results from other CDFIs all across the country.
▶ 1:02:02Yeah. And obviously none of that would happen if the CFI fund was wound down as recommended. Um Mr. James, also following the collapse of Silvergate, Silicon Valley, and First Republican Banks in 2023, I think the regulators and members of this committee were shocked at the speed at which the events unfolded.
▶ 1:02:19As I mentioned in my testimony, if SVB's depositors attempted to withdraw nearly $40 billion to the bank in under 48 hours, leading to its failure, I'm very concerned that we're going to see similar situations play out in the future as social media and digital banking technology increase the rate that deposits can move. I also worry that artificial intelligence and artificial intelligent agents will make the situation even worse with AI agents given the ability to move funds at the first sign of trouble.
▶ 1:02:48In fact, that will be part of their fiduciary responsibility to get your money the heck out of any bank through which there is even a rumor that it's in trouble. Uh do you share this concern? Do you think that deposit insurance reform or a greater reliance on reciprocal deposits or or what are your recommendations for an effective curbs against these um AIdriven bank runs?
▶ 1:03:09Uh thanks again for that for that question. I I do share uh some concern with regard to the speed of implementation of technology and I and I really hope that our regulatory system can try to keep up with it and evolve. Um and so I believe that you know increasing our ability to rely on reciprocal deposits such as the example I that I mentioned earlier um is really important for community banks to remain uh competitive for larger deposits.
▶ 1:03:35I also think that FDIC insurance reform uh to index, you know, insurance coverage or to protect those transaction accounts so that our small business customers don't, you know, quote unquote outgrow us uh and maintain their deposits with us here in the local communities is very very important.
▶ 1:03:53Um, so while I do share some concern with regard to the rapidity of technological change, I also think that we need to embrace technology in order to provide smaller community banks with access to broader uh, uh, sources of deposits so that they can provide liquidity into communities.
▶ 1:04:12Um, Mr. Carney. Um, in a recent hearing, my staff and I have thought a lot about the various regulatory thresholds. And this is something I remember back at the time we were writing DoddFrank, uh, arguing about what the threshold for too big to fail is and arguing at the time for a fraction of GDP as a thing that would scale, which is what you reference.
▶ 1:04:31On the other hand, if you're talking about things like the damage, financial damage to an individual consumer from an abuse or something like that, the threshold there might be um scaled with just normal inflation rather than GDP. So, could you discuss a little bit about the pros and cons of those two different metrics?
▶ 1:04:50Generally, as the discussions have been gone ongoing, uh there are three areas that folks are looking at. One is inflation, which is a captures price. Uh the second is um nominal GDP which is what ABA is recommending and the third is total bank assets.
▶ 1:05:06Uh nominal GDP for an asset threshold perspective uh we believe is the most appropriate measure because it captures a broader set of goods and services uh pro produced and that represents the role of the banking sector in the broader economy. If it is a consumerf facing uh regulation, then inflation may be the best uh measure.
▶ 1:05:30Thank you.
▶ 1:05:30Gentleman's time is expired. The gentleman from Arkansas, Chairman Hill, is now recognized.
▶ 1:05:36Thank you, Mr. Chairman, and thanks to our panel for a really a great informative set of witnesses to help us in our work. I want to start out and talk initially about trying to bring resolution to the least cost uh resolution mandate. This was written back when I was a Treasury official in 1991. So I'm familiar with it having lived through the SNL crisis both in the private sector and the public sector.
▶ 1:06:03We know uh that it was meant to tackle the open bank assistance obviously of the of the 80s. But when we look at the more recent banking conditions, the bank failures of 2023 showed many gaps and sort of pitfalls around the FDIC's overall resolution process. It seemed to be kind of creaky, not very up to speed as it was 20 or 30 years ago.
▶ 1:06:30The trend of depositors fleeing to the nation's largest banks that enjoy an implicit guarantee for bank deposits is not a sustainable issue and it's antithetical to a healthy industry. So, Mr. Bessie, I want to start with you. We attached to this hearing a discussion draft about the issue of lease cost resolution.
▶ 1:06:51Basically, it would allow the FDIC to approve an alternative bid in the case of a resolution of a bank that uh uh if the cost of the alternative bid is less than the cost of liquidating the bank doesn't exceed the cost of the least costly bid by more than a certain percentage that the regulators would think through and that the FDIC determines that the additional cost is mitigated.
▶ 1:07:16This is the key point from my point philosophy that would limit further consolidation increasing competition in the banking. Uh do you think this kind of amendment deserves consideration? Thank you Mr. Chairman. I think that absolutely deserves consideration and I think you see in the recent past a very disturbing trend where the bank with the biggest balance sheet on the day of the bid wins the bid.
▶ 1:07:45you you've seen it uh in in 23 and it's a problem and the lease cost process is not considering the costs of diminished competition or costs over an extended period of time as a result. I think there are a host of things that should be able to be done including what you're describing.
▶ 1:08:01I can tell you from firsthand experience that we were involved in advising potential buyers andor investors in some of the banks that failed in early 23 and in in some cases had capital sources available on the sidelines to come in and help and weren't considered because we didn't have the biggest balance sheet on the day of the bid.
▶ 1:08:24And yet we routinely in these bank failure situations wave the deposit cap which is also a 1980s special where we basically said to the biggest banks in the country you can't have more than 10% of your deposits. So we've kind of regulated that and yet we wave it all the time.
▶ 1:08:44Uh, another attached bill to this hearing would restrict the circumstances under which bank regulators can wave that nationwide deposit cap and liability concentration limits requiring them to prioritize bids to comply with existing concentration rules again similar to my question first question. Do you think that would be a possible situation and limit the growth of too big to fail institutions? I
▶ 1:09:08I do. I think that's a a smart and tailored solution that limits the the growth that we see daily on too big to fail and there's already enough uh trans transformation into that space as it is of deposit
▶ 1:09:21you know in the in those in those bad days of a lot of failures between the SNLs and and commercial banks from say 1980 to 1996 we had a lot of expertise at the FDI inside and outside we had a lot of experience and they kept lists of people who could provide capital. So, Mr. Widley, let me turn to you. You're in the investment banking business for banks. You know, non-bank capital I think should be play a major role here in this idea.
▶ 1:09:50Uh we also have a proposal for shelf charters where people can come together a bank and non-banks and bring capital into a resolution situation. Do you think that that would benefit the regulators to have an idea of a pre-approved self-charter concept to help find more biders? Uh yes, Mr. Chairman. Um uh you know, from the 80s and early 90s, we learned a lot of lessons, a lot of failures, and there was no capital available back then, if you remember, but there were plenty of problem banks.
▶ 1:10:20Well, there's plenty of capital today. And what's interesting about all those banks that failed in 23 is at one point they were all very prime investment banks. In other words, investable opportunities. They were they traded at high multiples. They were very profitable. They did very well. They made some mistakes. Most of them asset liability management type. All they needed was capital.
▶ 1:10:44they had great they were great institutions. All they needed is capital. It was very sad to just see it flipped over to a money center for
▶ 1:10:51appreciate appreciate that. Appreciate the increase in competition and these good ideas. I yield back to you, Mr.
▶ 1:10:56Gentleman yields. Gentleman from Georgia, Mr. Scott, is now recognized.
▶ 1:11:00Thank you, Chairman. Uh Mr. James. Now, I'm kind of disturbed about this. Why do you believe that the president would do such a thing to take and to cut $291 from the CFD? I It's a bipartisan deal.
▶ 1:11:31It's much It's very critical to both the rural and the urban parts of our district and most importantly to the lower income and middle income individuals of this nation and I'm real frustrated about that you know um and the president is a very smart man he went to the
▶ 1:12:01Wharton school finance. I did too. We were there at the same time. But this really disturbs me. Why do you think he did this? Mr. Scott, thank you so much for your question. Um,
▶ 1:12:22you know, I I I do want to just acknowledge the broad bipartisan support for the CDFI fund. Um, you know, the CDFI caucus on the United States Senate side has an equal member of a number of Republican and Democratic members. Uh, I think that you're correct in articulating the wide and and deep impact of the CDFI fund uh across urban and rural communities across the country.
▶ 1:12:51our institution uh is a you know great user of CDFI resources in order to deploy capital uh in underserved communities. Uh and I just also want to acknowledge that I do know that the secretary of the treasury uh Mr. Besson is a is a big supporter of the CDFI fund and has and has announced his support for our institutions and continued funding for the CDFIS.
▶ 1:13:15Yeah. Now, has the administration uh proposed any type of alternative mechanism to generate uh the same scale of private investment, particularly to the underserved the the very group that needs to help the most.
▶ 1:13:41Well, I do know that, you know, generally speaking, if you look at the uh leverage power of CDFI funding, typically CDFIs are going to leverage those dollars uh 8 to one. So, for every dollar that's expended by the CDFI fund, uh there's going to be an eight times leverage of that funding. Uh which really is a an ideal public private partnership.
▶ 1:14:04uh where the public sector puts in a a certain amount but the private sector dollars that are coming from these institutions is really uh leveraged eightfold in order to have impact in communities and so I haven't seen an alternative proposal that would have uh greater impact than the CDFI fund and we continue to encourage broad the broad bipartisan support of the fund and encourage the administration to uh listen to members of their party as well as uh Democratic members with regard
▶ 1:14:34to support for the CDFI fund.
▶ 1:14:36Yeah. And let's take for example a very needed but yet vulnerable group and that's firsttime home buyers. What's going to help them?
▶ 1:14:51Um, and this is particularly true that in the president's fiscal year 2016 budget proposal to eliminate CDFI fund programs used by credit unions like the FA and the TA, how will that impact first home with this going away?
▶ 1:15:18Yeah, in addition to the CDFI fund, of course, first-time home buyers are impacted by, you know, lack of access to capital with small community banks as well as uh limitations on liquidity. And so, I think it's an all of the- above approach. You know, we certainly support continued funding for CDFIS, but we also really want to make sure that we have access to other sources of capital as well as liquidity. Well, we're going to continue to fight this.
▶ 1:15:45Uh both Democrats and Republicans, a lot of very needy people, whether they be white, black, rural, or American. It is truly an American program to help Americans from every single walk of life. We got to find help for them. Gentleman's time is expired. The gentleman from Michigan, Mr. Heisinga, is now recognized.
▶ 1:16:15Thank you, Chairman Bar. And uh this brings me back to our work last Congress when I was chair of O and I and oversight investigations and you as we were looking at the bank failures and and things that uh had gone on there. And obviously part of that investigation into the bank failures of SVB and Signature Bank became abundantly clear I think to all of us that regulators were unprepared uh at that time.
▶ 1:16:43Um we found uh in our investigations that the FDIC ultimately picked winners and losers uh when it came to resolving these bank failures sometimes very last minute. Um and uh we we heard stories about not being able to get a decision made and uh and and having it be very late uh in in in this and um that I think leads to a more difficult outcome uh for the banking system. But Dr. Michelle, I'm going to start with you.
▶ 1:17:14U I've long advocated that non-banks should have the equal opportunity to purchase failed bank assets in the time of crisis. something that I believe you just wrote about uh recently and when you said quote there is no good reason that anyone at the FDI should be able to decide winners and losers by making it more difficult for non-banks to purchase failed banks. All Americans are paying for this mess as well as FDI insurance and they're not banks. Close quote.
▶ 1:17:42And so during our investigation with both bank executives and non-bank market participants, uh this is what we heard time and time again that the FDIC was slow to react and that when they did act and react, they created a scenario that allowed them to use the systemic risk exemption uh in that. So my question to you is kind of two-part. Do you believe that the decision by the FDI to dismiss non-banks from purchasing SVB or or signature ultimately increase the cost to the insurance fund?
▶ 1:18:11And then uh in the concept of private non-bank investors bidding for failed banks uh that's not really a new concept correct so expound on that a little bit if you
▶ 1:18:21Sure. I I I certainly think that it increased the cost of the overall resolution. Uh whether it was the the specifically to the DI would have to defer. I suspect that it did raise the cost. um it's not a new concept and I think it's sort of um the the hesitancy to to blur the line if you will between uh say securities or capital markets and and banking it's sort of a a holdover from the
▶ 1:18:51glass deagle era. Uh it's not helpful. It wasn't a good idea then. Uh there's a lot of economic research that shows that the banks that were mixed with capital market firms were actually safer and sounder and and better capitalized and better able to withstand uh turmoil. And there's really no economic reason to think that that wouldn't still be the case now. So yeah, it's not at all helpful. It's not economically sound.
▶ 1:19:17I'm uh in writing because I'm down to two minutes. Uh I'm going to ask you to expound on the why do you think it uh was that way? and you I think you were touching on it, but we'll we'll send that question to you as to what created that that situation. Um I do want to kind of take a jumping off spot from where Chairman Hill was when it comes to bank resolution. Regulators were given certain tools after the '08 financial crisis. Uh and do you believe they effectively use those to tools during the 2023?
▶ 1:19:45For example, federal regulators could have used orderly liquidation authority in 2023, but they chose not to. Any anyone care to weigh in on that?
▶ 1:19:54It's a mystery. kind of a shrug, huh? Had the tool, just didn't use it.
▶ 1:20:04Okay. Well, all right. Mr. Mr. Basari. Uh oh, sorry. Baresi, uh, one of the potential missed opportunities during the run of bank failures in 2023 was the purchase of First Republic Bank by JP Morgan Chase, one of the largest banks in the world, became larger. In addition, we heard stories of deposit fleeing community financial institutions to uh safer ground in the quote too big to fail banks. This put these smaller institutions at a competitive disadvantage.
▶ 1:20:30Do you think allowing community and regional banks to merge would help promote competition with the larger banks which have gained more of the market share post DoddFrank?
▶ 1:20:39No question. Thank you for the question. uh Congressman Heisinga, no question that allowing smaller and regional banks to merge would provide for greater competition uh with larger institutions. Uh we have a problem right now where you see midsize banks getting hollowed out uh and and they need to be recreated through the combination of some regional banks and smaller banks to facilitate a good competitive environment. And that ultimately should be what it's about.
▶ 1:21:08A competitive environment that allows the customer the best product and the best opportunities and the freedom of choice on how they're going to do their banking in my humble opinion. So uh with that my uh yield back my time is expired.
▶ 1:21:21Gentlemen yields. Gentleman from California, Mr. Vargas is recognized.
▶ 1:21:24Thank you very much, Mr. Chairman. Appreciate the opportunity. Again, I want to thank the witnesses for being here. Mr. Besie, we have your curriculum vite here and we also heard from you. Um, you started off Main Street Banks. You went to the super regional bank and you talked about the banking system here being the envy of the world and the engine of economic growth and we need to be able to move quickly. What about crypto? Is it something that is going to allow us to move quickly?
▶ 1:21:54Is it safe for banks? Is there a problem there? Is there a risk there? You're the bank. you're the not only the banker, you're the attorney. Could you comment on that?
▶ 1:22:04Sure. First, thank you for the question. I think there are risks with all financial products. I think the action that Congress took recently to adopt the Genius Act was was good action to take a measured approach with respect to crypto. um the the issuers of payment stable coins would not be permitted to be financial institutions and I think that's a smart
▶ 1:22:30Did we pick winners or losers there?
▶ 1:22:33No, I don't think that you pick winners or losers with respect to the genius act so far. I would also note that uh we have a long way to go before
▶ 1:22:41put banks at a disadvantage.
▶ 1:22:43I mean we hear from banks now some of them say they were placed in a I would say that there are questions about whether that will cause migration of deposits and we'll see what happens with respect to remaining legislation and regulation and I think that there's a long way to go before the regulation's ultimately seen.
▶ 1:23:07Okay, Dr. Michelle, good to see you again. Um, same question for you. I mean, you we heard about picking winners and and losers. I did remember I think Kato commented, you could comment if you'd like on the government taking 10% position on Intel. I mean, are we picking winners or losers
▶ 1:23:28Oh, that one's pretty clear. Yeah. I No, I surprisingly uh No, I'm not a fan of that decision.
▶ 1:23:37No, I know. I mean, I I I find that interesting, but I I you know, I respect your um your positions and that you're very uh ideologically driven. I I do have the question then the same question for you. What about crypto? The bill that we passed. Did we pick winners or losers there?
▶ 1:23:52Um well, I mean I don't think anything is perfect. Any bill is perfect. I don't think I think crypto is is a broad term. I think we'd have to be careful with how we would use with with what we're exactly what we're talking about. I think stable coins, for example, if we're talking about uh fully backed stable coins as a payment option, I don't see any reason to say that uh that by itself is overly risky and should be kept out of the banking system, whether it's through a relationship uh where a bank is providing a fintech company with a
▶ 1:24:22relationship or whether it's a bank providing the coin the the stable coin. No, I would I would blend I I have no trouble blending that.
▶ 1:24:30Okay, fair enough. I I do have to say the comment aside, I mean, I do find it interesting. My colleagues on the other side um often talk about not picking winners or losers yet they seem to be fine with intel. I don't seem to hear a comment out of them. A little peep. I do hear it from you know ideological groups who I think is appropriate would be appropriate too maybe if we heard it from some on the other side but I think the the base might be a little tough on them because of uh who's in favor of that.
▶ 1:24:58But moving on, um, in the context of the rural areas of Georgia and other places, I mean, everybody thinks it's an urban thing, but that's not true. It's both, right?
▶ 1:25:15Uh, thank you, Mr. Vargas. The the the vast majority, or I would say not maybe vast, but the majority of CDFI resources are directed towards rural communities across the country. I think that's something that um is is very clear. If you look at the membership again of the CDFI caucus on the Senate side, you see members from both um you know highly urbanized states as well as very rural states because of recognition that rural communities actually uh have an outsized benefit from the CDFI fund.
▶ 1:25:44um our institution again, you know, we're reaching those underserved urb uh rural communities as well with resources that we have uh been able to win from the CDFI fund.
▶ 1:25:59Thank you. I have about 20 seconds left, so I want to say it's interesting when you talk about DEI or CDFIS, everybody talks about urban communities and yet we hear a lot of the damage it does in rural communities when you do away with these programs. So anyway, with that, I I thank the chair and I yield back.
▶ 1:26:15Gentleman yields. The gentleman from Texas, Mr. Williams, is now recognized.
▶ 1:26:19Thank you very much and thank you all for being here today. And one of the main issues I hear from lenders every day back in Texas is how regulatory costs are squeezing community and regional banks from capital requirements that uh that don't reflect a bank's true risk profile, duplicative reporting, and liquidity standards. Smaller institutions are spending more and more time and money on compliance instead of serving their customers.
▶ 1:26:40And static thresholds on one-sizefits-all frameworks force main street lenders to divert resources away from Can you discuss some of the costs that burdens and regulations have on the broader economy? Whether you think the volumes of regulations even make the financial system more stable?
▶ 1:27:01Sure. I mean that the anything any service that a bank is going to provide or any other financial company is going to be providing uh you'll have less of it uh the higher the cost that you implement or that you force onto the bank or the financial company. So that is a cost sometimes that's difficult to measure because it's the absence of something um but we know for example in Mr. James' communities you know there's there's an issue with with banks being able to serve their communities and one of those reasons is certainly regulatory cost.
▶ 1:27:31um it's not easy to comply with uh banking regulation at large and many of the specific pieces of it as well.
▶ 1:27:40Yeah. Thank you. The bank resolution process plays an important role in protecting depositors and maintaining confidence in arency in the building pro in the bidding process. It can limit the options available for healthy institutions step and continue serving their customers and communities. So that can make it harder to preserve a diverse and competitive banking system. So Mr.
▶ 1:28:03Breeesy, I was interested in your discussion of the need for the FDIC to evaluate the capital capacity of potential buyers more thoroughly, which could expand the pool of potential buyers to include smaller and regional banks. So how can Congress reform the bank resolution process to ensure it supports competition and avoids accelerating consolidation in the
▶ 1:28:24Thank you, Congressman, for the question. Um I do think there are several things that the FDIC could do to uh provide more competition in connection with failed bank process. Um and I think you could direct it to be uh more flexible in its activity with respect to lease cost resolution as one illustration.
▶ 1:28:45Uh I think process I mentioned maintenance of live data rooms that would contain the kind of information that people like Mr. WY would uh advise them on maintaining and uh also frankly the FDIC using technology and tools to help not only uh identify and and resolve situations that create risk um but also to help identify buyers and
▶ 1:29:15and uh the the paired offerings by by multiple institutions or institutions of the capital.
▶ 1:29:22Yeah. Thank you. Uh Mr. Carney, uh, custodial deposits have become an increasingly important tool, especially as more businesses look for efficient ways to manage funds on behalf of customers. For banks, these accounts offer low cost of reliable source of funding, and for businesses, they provide the convenience of pooling client money in one place with the added protection of deposit insurance.
▶ 1:29:42So at a time when community and regional banks are competing for stable funding, how custodial deposits are a way for regional and community banks to have access to additional sources of lowcost
▶ 1:30:01So co custodial deposits are a uh a form of uh funding that is uh appealing to many institutions. But we think that the biggest problem with the deposit framework right now is the treatments of broker deposits where it's a treatment that is just fundamentally um outdated and hasn't been updated in over 35 years. When the broker deposit framework was first put in place, banks advertised through newspapers. Uh the uh internet was in its infancy and iPhones didn't exist.
▶ 1:30:31And so we're really trying to focus as much attention as possible on the uh removal of section 29 of the FDIA uh and replacing it with a uh restrictions on asset growth for less than well- capitalized banks. U the gentleoman from California, the ranking member, Ms. Waters, is now
▶ 1:30:58Thank you very much. Uh my question will be directed to Mr. James. Following the regional bank failures in 2023, including Silicon Valley Bank, uh it quickly became apparent that our deposit insurance framework uh needed to be updated. Small businesses have enough to do.
▶ 1:31:20uh they should not have to be a bank regulated and figure out if their federally uh regulated bank could suddenly fail, especially if another bank failed. At a minimum, they should be able to maintain their payroll and operating funds at a bank and be assured that they can still pay their workers even if their bank suddenly closes.
▶ 1:31:51taking emergency action, there have been at least 37 smaller bank failures since including one in Oklahoma just last year where no emergency tools were used and small businesses lost money through no fault of their own.
▶ 1:32:07That's why I introduced HR4551, the Employee Paycheck and Small Business Protection Act to improve emergency tools and require the FDIC and NCUA to take a datadriven approach to expand deposit insurance to not only protect small businesses and their workers, but allow their smaller lenders and midsize banks to compete for these deposits.
▶ 1:32:35Other Republicans agree with Treasury Secretary Bessent voicing support for reform and similar proposals introduced by Senators Bill when he was in Senate. Mr. James, it has been about 15 years since Congress last updated our deposit insurance framework. What do you think?
▶ 1:33:01Should we expand it as I have proposed to help community banks, small business, and their
▶ 1:33:09Ranking member Waters, thank you so much for your question. Um, and thank you for uh authoring the Employee Paycheck and Small Business Protection Act. uh we're very large very major supporters of that legislation uh to modernize FDIC insurance coverage as well as other you know approaches to ensure that small community lenders have access to more liquidity. It's very important that our institutions are able to insource capital.
▶ 1:33:35Uh many of the institutions that our member banks serve uh are the lower inome communities that are serving both rural and urban communities across the country and are innovating within our communities and growing because of the capital that we're investing in them. We want to be able to keep those customers. We want to be able to not have them outgrow us. And so uh the FDIC insurance coverage should should mo should modernize.
▶ 1:34:05so that we can keep those customers with us instead of you know essentially pushing them towards these banks that have been deemed too big to fail.
▶ 1:34:12Wow. Thank you very much. I I've heard when I came in some discussion about CDFIS and you know uh that CDFIS and MDIS has been a bipartisan affairs for many years and I'm very much involved in trying to uh strengthen rather the CDFIS even in Trump's first term. Republicans and Democrats work together to ensure these community financial institutions could support underserved communities.
▶ 1:34:38Congresswoman Velasquez and I with former Trese Secretary Minutuchin. We worked with him and MDIS to provide paycheck protection program loans to small businesses. We work together with congressional Republicans to secure 12 billion in capital investments for CDFIs and MDIS.
▶ 1:35:03Unfortunately, now the White House is seeking to undermine the progress, including withholding funds that Congress previously appropriated. In case my colleagues have forgotten, CDFIs operate in all 50 states and have issued over 19 million loans totaling more than 300 billion supporting underserved communities in rural and urban areas alike and are ignored by traditional banks. Mr. James, has a CDFI fund been a good investment for taxpayers?
▶ 1:35:33Would you briefly discuss how CDFIs have helped borrowers in rural communities?
▶ 1:35:38Uh, Ranking Member Waters, yes. uh CDFI funds have uh the CDFI fund has been an excellent investment for taxpayers. Um and I want to access to capital and resources for CDFIS and the president for signing that uh legislation into law.
▶ 1:35:58uh the most historic investment in CDFIs in the nation's history has had an enormous impact in urban and rural communities, job creation as well as home ownership and access to capital.
▶ 1:36:10The gentle lady's time is expired. The gentleman from Georgia,
▶ 1:36:13the vice chair of the subcommittee, Mr. Louderdermilk, is now recognized for five minutes.
▶ 1:36:18Thank you, Mr. Chairman. Mr. Carney, how do banks typically adjust their behavior as they approach regulatory threshold and what are the broader implications of this dynamic?
▶ 1:36:29So, as uh banks approach regulatory threshold, they're looking at uh increased compliance costs as they cross that threshold. And so, oftentimes they defensively manage their balance sheets to try and stay underneath that threshold or they what we say is uh jump a threshold where they broader institution. Uh what this does though is it inhibits organic growth which is really what you want to see uh with a bank.
▶ 1:36:58Um it also dilutes regulatory resources because the more banks that cross a threshold the more scrutiny the regulators are having to give and that dilutes their focus.
▶ 1:37:07All right, let me follow on to that. DoddFrank's one-sizefits-all approach has been one of the mo one of its most criticized aspects. Midsize regional and small community banks which did not contribute to the financial crisis have been subject to subjected to the same regulatory regime designed for the largest most complex financial institutions. My tailor act would require federal regulators to tailor their regulations in accordance with the size business model and risk of each type of firm they regulate.
▶ 1:37:36Can you speak to the impact that an approach like the TR Taylor Act would have on these midsize regional and small community banks?
▶ 1:37:44I think it would be very beneficial. ABA not uh it is complimentary I think to the indexing uh approach that we're recommending. Uh the two can work
▶ 1:37:59Okay. Thank you. Uh Dr. Michelle, what can Congress do to streamline and improve the bank resolution process to promote competition, broaden participation, and prevent industry
▶ 1:38:11Well, the more radical approach would be to get it out of the FDIC. Uh, you know, bankruptcy is supposed to be an orderly resolution of a company and there's really no economic reason not to do that. Um, FDIC deposit insurance is the reason that we do it the way we do it. Um, but you know, if you're in regular bankruptcy and you take your money out of a company really fast before the judge gets to go in and resolve the company, you have to bring it back. So, you know, that that could theoretically still work.
▶ 1:38:40That would be one way to do it. And if you're not going to do it that way, understand why. um you know but then there bank companies or non-bank financial companies get involved in bidding processes. Um a lot of the way that this is driven is specifically to combine a larger and a smaller bank to make the asset size larger uh and theoretically sounder but that's not necessarily the case.
▶ 1:39:09Um but that is historically what has happened and and I think honestly the systemic risk exception is a mistake. Um you know if you're if you're going to resolve the bank resolve the bank if stability is the reason that you're regulating uh then an open bank resolution although it was disastrous from a cost standpoint in the 90s with the SNL crisis an open bank resolution is the way to do that.
▶ 1:39:33So what would be your recommendation to Congress on what to do? I would take the all of the above approach.
▶ 1:39:39Okay. All right. Thank you, Mr. Wy. Are there ways that you think the FDIC could improve the bidding process?
▶ 1:39:52Yes, sir. Pardon me. Yeah. How can they improve the bidding process? Well, one, I I think they need to take their time a little bit more. uh speed is essential when there's deposit runs, but at the same time, uh this is where I have a little bit of a problem with the lease cost initiative that comes in. I think it misses the point of what's best for the overall system.
▶ 1:40:17When we put all the deposits at risk, these large deposits, um then it adversely hurts the smaller community banks versus the larger banks which are too big to fail. So, the resolution needs to take that into account. There's been less than a billion dollars I think the the FDIC's had to uh force to eat on large deposits over time because they tend to get it back. Is it really worth it?
▶ 1:40:45So, you know, there's a lot ought to be and the resolution process, but at the end of the day, the best uh legislation ever enacted was the FDIC insurance. It's stabilized economies for all time, and we're fine-tuning it. We have to remember that's a that's a system of confidence. It's about confidence.
▶ 1:41:09And so when we can introduce more competition in, take delays, use bridge banks like they did in the late ' 80s, uh, shelf charters and things like that, I think you'll have better
▶ 1:41:20Thank you. Thank you, Mr. Chairman. I yield back.
▶ 1:41:22The gentleman yields. The gentleman from California, Mr. Sherman, is now
▶ 1:41:27Thank you. Thank you for holding this hearing. I know we're focused a bit on Silicon Valley Bank and its resolution. We shouldn't lose track of why it failed. It failed because we didn't deal with interest rate risk and we still don't and we do notity and it's available for sale uh bonds.
▶ 1:41:56And as long as we don't do that, we have perverse incentives where a bank can invest in long-term instruments, sell them at a profit if they go up or hide the loss if they go down. And uh that creates a perverse uh uh incentive for executives and uh and board members.
▶ 1:42:17Uh I the least cost method of resolving an um butts up against our desire to have in uh to give an advantage to smaller banks if they're bidding on some or all of the assets.
▶ 1:42:34But keep in mind if you increase the cost that cost then has to be borne by all the banks in the country through increased FDIC premiums that are ultimately passed on small banks with our desire uh not to have these additional costs incurred.
▶ 1:42:57Um, a lot of this hearing is about broker deposits, whether that be reciprocal, which is in effect a broker deposit or the traditional broker deposit. Uh, we're not focused much here on just increasing the $250,000 limit, but in effect, broker deposits do just that. Uh, so our rule will be going forward, the limit is kept at $250,000 unless there's a middleman who can make a profit.
▶ 1:43:26uh by splitting it up and sending it to a bunch of institutions. Um Mr. Wheel has uh talks about uh us not having a threshold. On the other hand, if you're going to have separate rules for smaller institutions and larger institutions, you got to have a threshold between them. I'd like to see us have more than one c from category A to category Z.
▶ 1:43:54But we simultaneously are told to have notes one sizefits-all, but to have special rules for smaller banks, now we're being told, well, when a smaller bank becomes larger, um we uh we shouldn't apply the standards that we have for banks of that new size. Uh Mr. Carney, uh, do your members find value in the, uh, flexible terms, uh, uh, uh, available from the regional home loan banks, uh, in their
▶ 1:44:25Uh, yes. Uh, banks of all sizes have very good relationship with the federal home loan bank system, and it serves a critical role in liquidity.
▶ 1:44:35Thank you. And I'd like to note that the recent bipartisan national housing crisis task force action plan released in June showcased the importance of community development financial insting housing affordability.
▶ 1:44:54Um we don't have anyone here I believe from the credit union uh side of things but I would just point out that we need to have parody what we do for banks should also be done for the credit unions.
▶ 1:45:14the uh uh Senators Hagerty and uh uh Alleso Brooks have offered uh NDAA amendment to increase um uh deposit insurance and NCA insuranceed up to 20 million for non-interest varying transactions accounts. Mr.
▶ 1:45:35Carney, is that a movement in the right direction to allow uh small and mediumsiz banks to continue to hold on to uh businesses as as they get uh legislation.
▶ 1:45:53Instead, we've developed a series of recommendations that focus on FDIC emergency authorities, uh, studying increased deposit insurance levels, uh, and, um, and reforming the resolution framework. Uh, we think that bills that are being introduced are useful discussion points, uh, and it's worth having the discussion now while we're not in a crisis situation.
▶ 1:46:18Thank you. I'll yield back the last eight seconds. The gentleman from Tennessee, Mr. Rose, is now recognized.
▶ 1:46:27Thank you, Chairman Bar and Ranking Member Foster for holding this important hearing and thanks to our witnesses for taking time to be with us today. I want to highlight the issue of limited banking access for independent ATM operators. Uh many have reported difficulty in establishing and maintain a higher money laundering risk despite little or no evidence to substantiate that.
▶ 1:46:58Additionally, some have lost long-standing bank accounts without clear explanation, often due to overly cautious compliance practices. It is crucial to address and prevent the debanking of independent ATM operators in my opinion. Mr.
▶ 1:47:14Carney, would the American Bankers Association support requiring merging banks to demonstrate how their post merger compliance framework will balance anti-moneyaundering obligations with the statutory duty to meet the convenience and needs of lawful businesses such as independent ATM operators.
▶ 1:47:35Okay. Uh so I think there are two components of that question. uh one uh for the first part uh banks that are going through a merger are complying with BSA requirements before a very interesting point related to compliance BSA compliance and access to financial services and the rules on the BSA side are very much outdated.
▶ 1:48:01they are um more focused on cash uh transactions than anything else which does raise some flags with those independent operators that you were uh talking about. But it's worth mentioning that over 20 million CTRs annually are filed. That's one out of almost every 16 Americans, which is an extremely high amount. Uh the net is capturing too much and I think there needs to be an evaluation of whether or not those levels are set at the right level.
▶ 1:48:28Okay. Thank you, Mr. Carney. Roughly what percent of American Bankers Association members currently provide banking services to independent ATM
▶ 1:48:39I don't have that information, but I can try and find it. Yes, if you please will and and maybe respond in writing as we move forward to entire industries like independent ATM operators without individualized risk assessments be reflected negatively in their ratings during merger reviews.
▶ 1:49:03Well, given the bank secrecy that it's not it's it's it's um it's catching up a lot more people in a draget net than it than than are actually criminals. Uh that's that's I think the base of the problem really or the core of the problem. It's not the banks. It's not the ATMs. It's the bank secrecy act.
▶ 1:49:21Sure. I I guess I would to maybe give a little background here. I had worked on this issue during the time I've been in Congress and um former congressman Blaine Luca Meyer and former former getting the the credential regulators to amend the FFIC examination manual to note specifically that independent ATM operators do not present at extraordinary risk.
▶ 1:49:49And then ultimately we we were able to to get each of the regulators that participate in the FFIC to note in specific to their examiners that this was not the case. And yet we continue to see banks uh debanking independent ATM operators. So it's a very real concern to me.
▶ 1:50:08And and while I hear what you're saying about the Bank Secrecy Act, I think there should be sufficient guidance at this point to banks that there should not be a um disadvantage given to uh customers who operate independent ATM uh networks. Um Mr.
▶ 1:50:29Baressi the the bank merger act requires consideration of anti-zalous in applying those rules in ways that result in broad denial of services to lawful industries like ATM operators.
▶ 1:50:48I think in in again in this ATM operator case, it's a difficult case and I don't know enough about the ATM operator and and and I think BSA AML compliance is a is a real issue. Um I in my view the regulatory analysis that has historically occurred in connection with bank mergers is is plenty robust in its current form and um I would not look to expand that.
▶ 1:51:17Thank you. My time is expired. I yield
▶ 1:51:19Gentleman yields. Gentleman from Illinois, Mr. Casten, is now recognized for five minutes.
▶ 1:51:24Thank you, Mr. Chair. Um, thank you all for being here. I'm I have to preface this by saying that the questions I'm going to ask are completely bizarre because it never would have in different times. Um, I want to preface that by saying that I think the single best way, and I presume you'd all agree, the single best way that we ensure a robust financial system is to ensure a robust US economy. Um, rising tide tends to lift all boats.
▶ 1:51:54And number two, everything that we all learned of substance in our freshman macroeconomics class is now deeply partisan. I learned that an independent Fed was a good idea. I learned that uh that the 1890s and having, you know, a financial panic every decade was bad and the United States policies that led to that were bad. But to acknowledge that now is to is to be partisan in this town. And I and I say all that because I would like you to answer this as if it was a year ago.
▶ 1:52:24Um because I think my freshman macroeconomics book is still right. Um, as a friend of mine who describes herself as an anarco libertarian recently told me, um, this moment is proving that the economists are always That's funny and not funny. Um, Mr. Carney, I want to start with you. Um, specifically given the ABA's role in our mortgage markets, the Fed, of course, there's all this pressure for the Fed to cut rates, but the Fed of course only cuts the, you know, the overnight borrowing rate.
▶ 1:52:53And the, you know, I think the general consensus, and I guess I'd ask you if you agree, that 30-year mortgages tend to index more off the 10-year Treasury than the overnight rate. Would you agree with that?
▶ 1:53:02I think that's generally correct.
▶ 1:53:04Okay. I mean, I think Fanny has made that point as well. So, what is your sense then of why it is that over the last several months, we've seen a steepening yield curve, put put another way, a a growing spread between the Fed funds rate and the 10-year Treasury. Um, you know, the 10ear Treasury hasn't really budged much even through the rate cuts over the last several months. So, what is your sense of why why that yield curve is steepening right now?
▶ 1:53:34I'm not in a position to actually answer that. I can ask some of our economists to try and find out more information on why that spread is occurring. Uh, there could be a variety of factors related to uh increased credit risk or things along
▶ 1:53:46Okay. Well, I mean, you know, JP Morgan, one of your members, has said that the they've they've ascribed it to concerns over tariff uncertainty, higher near-term inflation, and fiscal deficits. Um, Mike Consul, the Twitter writer, has described this as the premium. Um, you know, because if you have a risk about the long-term stability, you you know, you tend not to assume that current things are going to work through. And so in that in that vein, we've now got these attacks on the independence of the Fed, attacks on Lisa Cook.
▶ 1:54:15Um, Citadel CEO, a pretty partisan guy, I would add, um, recently wrote an op-ed saying that these actions risk stoking high inflation and higher long-term rates. We've got attacks on, you know, I guess if you don't like the data now, you just fire the head of the data agency. So, we fired the head of BLS because BLS gave numbers that that uh a certain manchild didn't like. Dr.
▶ 1:54:39Michelle, um in a recent New York Times article talking about that firing, you said, quote, "We'll just start seeing things get chipped away and eventually it kind of blows up." Would you agree that when the government manipulates um as we saw when Argentina distorted their inflation rate, when we saw that when Greece manipulated deficit that that tends not to end well? Yeah, I would agree with that. That's not a good a good spot to be in. Hope that that does not happen. Did
▶ 1:55:06did you ever think we would be at a point where we would be comparing US macroeconomic policy to Argentina and
▶ 1:55:13Not not not in this way. No. so it just strikes me that we're sitting in this moment where we're talking about bank stability. We all want bank stability, right? Why would the Fed lower rates right now? Inflation is close to 3%. It's not at their 2% target. The way to lower inflation would be to cut tariffs, but that would of course to be acknowledged that 1890s monetary policy was stupid. We're not going to do that.
▶ 1:55:40So maybe we're going to lower rates because unemployment is going to go so high. And I guess the all of these employment data is pointing that direction. But stagflation is a terrible idea for all of us. And if if if we cannot on a bipartisan basis acknowledge that my freshman macroeconomics textbook is still right, then we're going to make all of your banks, all of your clients in a much much less stable than they are.
▶ 1:56:09And I just hope we can we can start acting like adults again pretty soon and and not just on this side of the aisle. I yield back.
▶ 1:56:17Gentleman yields. Gentleman from South Carolina, Mr. Timmons is now recognized. Thank you for that, Mr. Chairman. I guess I'll start by saying I wish my colleagues across the aisle hadn't spent seven trillion dollars in their four years to get us into the situation with high high interest rates and high inflation. Now, on to the actual subject at hand. When Congress passed S2155, we recognized that small community banks, particularly those in rural areas, were being overburdened by capital requirements that were originally designed for the largest and most complex institutions.
▶ 1:56:48That's why we created the community bank leverage ratio. The CBLR was intended to provide a simpler, more appropriate capital framework for low-risk community banks. It was supposed to reduce compliance costs and give small institutions a clearer path to demonstrate capital adequacy, allowing them to focus more on serving their customers and less on navigating complex regulatory frameworks. However, the results so far suggest that the framework is not functioning as intended. Today, only about 41% of eligible community banks have chosen to opt in.
▶ 1:57:18That tells us there's a disconnect between the policy goal and the practical outcome. For small banks operating with limited staff and tight margins, unnecessarily high capital requirements mean fewer loans to small businesses and fewer resources for their communities. Uh Mr. James, what are some of the reasons that only about 41% of community banks have opted into the CVLR?
▶ 1:57:40Uh, Congressman, I think some of the reasons are are some of the things that you stated in your question. I mean I think um you know our institution as well as the national bankers association are in support of uh the community bank capital flexibility and growth act of 2025 which would adjust down slightly uh those uh that community bank leverage ratio in order to allow us to deploy more resources uh for staff uh as well as uh systems that will help us to be more
▶ 1:58:11efficient in serving the community. Um, so I can't speak for all the institutions that did not opt into the community bank leverage ratio. We have, we tend to be very conservative about how we manage our capital. Uh, but it would allow us a little bit more flexibility if we could move that that number down slightly so that we resources to better serve the communities across the state of Georgia and Alabama. Thank you for that followup to that. Mr.
▶ 1:58:40Carney, what are some potential changes that could make the CBLR a more practical and attractive option for these institutions?
▶ 1:58:47So, just to pick up where Mr. James uh started, uh when we've talked to institutions about um opting into the community bank leverage ratio, one of the things that we've heard is that banks like to hold buffers above any regulatory minimum. And so, uh a bank opting into 9% might only be comfortable doing that if they're at 11, 12, 13%. Um and so oftentimes, you know, we've been very disappointed that only 1,600 of the roughly 4,000 institutions eligible have opted in.
▶ 1:59:16Um we are supportive of lowering the community bank leverage ratio and also we are supportive of um uh increasing the threshold in which banks may opt in. That is another $10 billion mark. Uh chair bar mentioned Durban amendment and a number of other things that tied in at 10 billion. This is another one and this is another threshold that can be indexed. Thank you for that. I would also like to highlight the critical role that community banks and credit unions play in the rural areas of my district.
▶ 1:59:45Many of these institutions have served local families and small businesses for generations. Their success is not built on sophisticated technology, but on deep relationships and trust within the community. Yet, I consistently hear from these institutions that the rising cost of compliance and the duration of regulatory examinations are placing significant strain on already limited resources and personnel. One particular area of concern is the treatment of broker deposits. For many community banks, broker deposits are a critical tool for managing liquidity in a safe and sound manner.
▶ 2:00:14However, inconsistent definitions and overly broad restrictions have created significant regulatory uncertainty, even in cases where there is little to no elevated risk. Mr. Wy, can you discuss some of the ways community banks use broker deposits to access funding that allows them to make more loans to small businesses and families? I'm sorry, I'm struggling to hear you a little bit. Um, more ways that banks can access funding. Is that what you said?
▶ 2:00:43Um, can you discuss some of the ways community banks use brokered deposits to access funding that allows them to make more loans to small businesses and
▶ 2:00:52Well, I I do I do think they need them. I do think that uh the rules need to be relaxed a little bit and they need to be customized for the bank and they need to be used judgment needs to be used by the local regulators. Thank you for that. It is essential that our regulatory framework reflect the realities community banks face and that it supports their continued role in strengthening local economies. With that, Mr. Chairman, I am out of time and I yield back.
▶ 2:01:17The gentleman yields back his 5 seconds. The gentleman from Massachusetts, Mr. Lynch, is now recognized.
▶ 2:01:24Thank you, Mr. Chairman, and and Ranking Member Foster. Uh, and I want to thank the witnesses. uh you've been very helpful today in the wake of the collap some of this is going to follow up on Mr. Heisenger's line of questioning earlier but uh in the wake of the collapse of First Republic Silicon Valley Bank and and Signature Bank in 2023 at the time those were the second third and fourth largest bank failures in US history.
▶ 2:01:49Uh consumer and advocacy organizations such as Better Markets and Americans for Financial Reform raised some serious concerns about bidding for the assets of those failed banks.
▶ 2:02:07Now, while federal law prohibits large banks with more than 10% of total US deposits from acquiring another bank, that uh nationwide depository cap does not apply, as you know, uh to the acquisitions of failing banks. And uh as you also know the FDIC is is currently required to resolve a failed bank by selecting a bid that would present the least cost to the deposit insurance fund.
▶ 2:02:34In the case of First Republic, JP Morgan Chase, the largest US bank with more than well, now it's got more than $4 trillion in assets, entered into a purchase and assumption agreement with F the FDIC to assume more than hundred billion in deposits and $230 billion in assets and a a deal that included an FDIC loss share agreement that greatly reduced the risk and cost of that acquisition by requiring the FDIC deposit insurance fund
▶ 2:03:04to absorb the majority of losses that may have resulted from certain First Republic loan portfolios. While a number of healthy banks also bid to acquire First Republic, JP Morgan officials stated that their winning bid was predicated on the bank's financial strength and business model that facilitated a minimal cost transaction. Again, to Mr.
▶ 2:03:28To Heisenga's point, JP Morgan then promptly announced plans to shut down one quarter of First Republic's 84 branches, uh, which they viewed as duplicative or or redundant to their own operation in their existing network at the expense of depositors who were left with no local branch and then we had about a thousand employees who were laid off. So, Mr.
▶ 2:03:53as we seek to promote health in the banking se sector, can you offer us your perspective on why it might be important to ensure that smaller qualifying institutions, community banks, regional banks uh might have a fair shot when it comes to bidding on the assets of those failing banks. Thank you, Congressman. The uh diversity of our financial institutions is extremely important to the functioning of our economy.
▶ 2:04:19Uh I think one of my uh comp one of my colleagues stated earlier that uh the American financial system is the best in the world because of its diversity because of the different types of institutions and so we would support uh maintaining that diversity particularly when when it comes to resolution. Ensuring that smaller institutions have fair opportunities to acquire and resolve failed institutions is critical to those depositors and the communities that they that that those institutions were serving.
▶ 2:04:49That's great. Thank you. So, I'll soon be I'll be introducing my legislation, the Failing Bank Acquisition Fairness Act, to enhance fairness in this bidding process and recognize the critical role that smaller financial institutions, either community banks or regional banks, serve to provide tailored banking services to their communities and advance financial inclusion.
▶ 2:05:09Specifically, my bill would restrict larger financial institutions that hold more than 10% of total US deposits from acquiring failed bank assets where community banks or other smaller institutions have also submitted a qualifying bill. So, I am grateful to my friend uh French Hill, Chairman Hill, and Chairman Bar for attaching a discussion draft of this legislation to be discussed today. U do any of the other witnesses have any any thoughts on that?
▶ 2:05:37I mean, it seems to make sense that if we want to increase competition and and also we want to provide provide those services to a wide wider community um then it's it's better to let let as many banks bid as possible and have the opportunity to be successful.
▶ 2:05:56So, um ABA is supportive of expanding uh the lease cost test and what uh what bids are considered. Um things we've consider thought about is uh community bank consortium bids. Uh the FDIC generally also has a preference for whole bank resolutions which automatically excludes smaller institutions because it's very difficult for a small bank to bid a bid on a larger institution. However, you could bid on parts of it and so we do think these are issues worth exploring.
▶ 2:06:24Okay, that's great. Mr. Chairman, my time has expired and I yield back.
▶ 2:06:27Thank you.
▶ 2:06:29I now recognize the gentleman from Nebraska, Mr. flood for five minutes.
▶ 2:06:33Thank you, Madam Chair. Um, thank you all for being here. It seems to me the fundamental question that we have today is how should we prioritize different policy goals as it relates to the bank resolution process. Uh, one recent instance where we saw some of these public policy goals collide in real time during a fast-paced resolution process was uh during the collapse, as Mr.
▶ 2:06:56Lynch noted of First Republic Bank back in After being appointed receiver for First Republic, the FDIC entered into a purchase and assumption agreement with JP Morgan Chase to assume all of First Republic's deposits and most of its assets. Now, because of this agreement, the regulators did not have to use the systemic risk risk exception for First Republic.
▶ 2:07:19Instead, they found a transaction that would allow another bank to take on the uninsured deposits and thus save the diff from another costly hit after the collapse of Silicon Valley Bank and Signature Bank in March of the same year. If your objective is to minimize losses to the diff, this move made sense.
▶ 2:07:41And to be clear with a statutory least cost resolution for the FDIC of minimizing cost to the diff, you know, is their primary objective. The question here is whether we as policymakers should adjust the priorities of our regulators in these situations going forward. Uh well, I understand that the merits of the lease cost resolution.
▶ 2:08:02I I understand that if we end up with resolutions that lead to a US bank crossing the 10% of total US deposits threshold, particularly since there were reports of other bids on First Republic, then perhaps we need to think more about which factors we're optimizing to. So my first one is for Mr. Baressie. Do you feel that the least cost resolution mandate should remain unchanged? and if not, what do you think the other factors we need to consider are in the process?
▶ 2:08:33Thank you for the question, Congressman. Um, no, I do not think the lease cost resolution provisions should remain unchanged. I do think that careful analysis is required to understand cost. Right? There we've talked a little bit here today about restricting competition. There's cost associated with that. although that's not viewed as part of the equation currently.
▶ 2:08:58Um timing is also another factor but I I I do think that um some of the policy uh suggestions that you've made are very helpful and enabling other institutions to participate or even have a successful bid o if it's a reasonable bid over a north of 10% uh uh bidder um is helpful to competition in the system. It should be implemented.
▶ 2:09:27Thank you, Dr. Michelle. How do you think we should think about these conflicting priorities in this area? If we're weighing the public policy objective of minimizing the cost of the diff against the public policy objective of preventing further market concentration of the banking market, what's the right way to think about this effective balance between these two competing priorities given that in my opinion when you exceed 10% of all US deposits um that can be very dangerous and to have that kind of market
▶ 2:09:59Well, I mean, you you you can't have everything, so to speak, right? So, I mean, if if you're going to have the FDIC run this and you're going to have exclusively FDC deposit insurance and you're exclusively going to have to protect it, uh, then you're you you've opened the door and you've created the reason to have all of these rules and regulations, you know, and and yet yet you still have a fair amount of discretion.
▶ 2:10:26And there reason good reason to believe or at least reason to believe uh that the the the primary reason non-bankers were held out of that resolution process was simply a bias against non-banks by the the chairman at the time.
▶ 2:10:44So I I I mean I I I think you could you could pick any one area that you want to sort of focus in on and restrict more, but you're like eventually you're going to have to pick something, right?
▶ 2:10:58Yeah. Understood. I you know, in my opinion, if we tweak how the FDIC handles the the resolution process, I wouldn't want to inject lots of subjectivity and complexity to it. Uh to your point, I know that the American Bankers Association has supported some policy change around resolutions and um my time is running out. I think it's important though that we pay attention as members of Congress to the market concentration issue as banks get bigger.
▶ 2:11:23I come from a state that prides itself on community banks and sometimes I wonder will we be able to preserve this very main street level of of uh banking opportunity for for people in my state. So, thank you and I yield back. Thank you. I now recognize the gentleoman from Ohio, Miss Batty, for five minutes. Thank you.
▶ 2:11:49Thank you, Madam Chair and Ranking member, and thank you to the witnesses uh for being here. Uh, Madame Chair, let the record show that I had a series of questions on CD FIS, but in light of the conversation, so many of those questions being addressed, I'd just like to enter into the record uh that I support those uh words and especially those of ranking member Maxine Waters.
▶ 2:12:13Sure. Without objection. and and also in that same light uh would like to express that the March executive order by President Trump that directed the funds to be reduced or eliminated is not something I support. Nor that in May of this year when the White House put out their budget documents that included a proposal to wind down CDFI funds that I am also in opposition with that.
▶ 2:12:40Now, with that said, uh I will move on to the reciprocal deposit bill and say thank you first to uh Mr. James for uh your comments in support of that. And I'd also like the record to know that I have colleagues uh on both sides of the aisle and three members on the other side who are co-sponsors of that bill. And uh Andy Bar uh mentioned it today prior to his leaving. Uh Mr.
▶ 2:13:09James, I'm going to start with you. And before I go to my question, let me just say thank you. I've had some time um and had been in Savannah, Georgia, and have some mutual banking friends who had just praised the work that you and your family um that you have done and that you continue to do there in your financial institution.
▶ 2:13:31and and thank you for identifying working with CDFIS or MDIS only 2021 in the country now of MDIS and you use the terminology financial freedom and and thank you for that because I think that puts into perspective what we do here when we talk about the economy and we talk about finance that one of the things in banking is to make sure that we have financial freedom uh for individuals but I'll I'll go on
▶ 2:14:02uh to my bill with Congressman Emmer and myself. As you know, this bill updates the reciprocal deposit caps to allow for greater flexibility for community banks to receive non-broker treatment of reciprocal deposits. Can you um have some dialogue with us on what types of use reciprocal deposits and are are they business folks, are they individuals, not for profits, etc.
▶ 2:14:32Uh Congresswoman, first of all, thank you very much for uh the bill uh and thank you for uh continuing to have a bipartisan support for expanding opportunities for small community institutions like ours to access deposits uh that we can insource back into our community. Um our institution uh has survived for 98 years. Uh we'll be celebrating our 98th birthday uh in February of 2026. And the reason we've been able to do that is because we've been able to invite a diversity of uh institutions to support us.
▶ 2:15:02Uh so the types of institutions that support our institution which again is headquartered in a census track that has almost 70% poverty um are individuals uh corporations, nonprofits, municipalities and larger financial institutions. It's really critical for us to be able to deliver services and have impact in our community to uh deliver on our mission which is to provide the building blocks to financial freedom.
▶ 2:15:30uh to be able to bring capital from other places. Uh so folks uh in corporations or larger institutions or nonprofits that are interested in the impacts that we have in community and are willing to make large deposits with us have allowed us to actually almost double the size of our institution on the heels of the historic investment in the CDFI fund that has trickled down into our institutions.
▶ 2:15:55And so being able to access that liquidity from larger organizations has really amped up our ability to invest in small businesses and home ownership.
▶ 2:16:06Time's going to run out. But I did want to go to Mr. Carney and ask uh him uh how important are reciprocal deposits in your opinion. uh reciprocal deposits are important and expanding their access uh without any sort of uh negative inference or from regulators is very important. Uh the legislation you mentioned would be a positive step forward.
▶ 2:16:30Uh again, we think that the bigger issue is as relates to broker deposits and the need to repeal section 29 of the FDIA.
▶ 2:16:39Thank you. And hopefully we can continue this this dialogue. I yield back.
▶ 2:16:44Thank you. And I now recognize myself for five minutes of questioning. And I would thank all of our witnesses for joining us today. In California, where I'm from, community banks have relied upon the community bank leverage ratio to lower their regulatory burden and instead invest that money saved in the communities around them.
▶ 2:17:05However, if we could lower the community bank leverage ratio by an additional percentage point or more, we could see even more community banks uplift their surrounding And CRS estimated in 2020 that lowering the community bank leverage ratio from 9% to 8% would result in an additional 550 banks being eligible for a simple capital ratio and lower regulatory burden.
▶ 2:17:36So in California, an additional eight banks would have been able to receive regulatory relief and spend more time focused on their community and customers. That is why I'm introducing the Community Bank Lift Act, which would review the components of the leverage ratio and allow regulators to lower the community bank leverage ratio and make needed reforms to the ratio.
▶ 2:18:02So, combined, my bill will help uplift community banks and allow them to better serve the communities. So now let's talk about the community banks that have upped into the community bank leverage ratio framework and uh can you tell me u Mr. Carney let me start with you what benefits um would they experience compared to the traditional capital requirements?
▶ 2:18:29So the community bank leverage ratio allows uh banks to op if they opt in to just do a simple leverage ratio requirement rather than the complex riskbased regime. Um there's significant compliance costs related to the riskbased regime. And so the first immediate savings would be taking that compliance cost and being able to deploy it in the communities uh that they serve.
▶ 2:18:51um by lowering to 8% or lower uh you would also lower the minimum capital requirement uh that they are using and that would uh free up resources. Uh one thing I just want to note is that even banks that many banks that are eligible have not opted into the framework uh even though they have exceed the capital levels and in part that's because they want to maintain buffers above any minimum threshold. Um, as a result, you mentioned 500 banks.
▶ 2:19:20I would expect if you dropped it to eight 8%, you would actually have more than 500 banks opting
▶ 2:19:26So, I was talking about how it would affect my district, too. But, uh, as you can see, uh, there are some tangible impacts that this will bring on our communities. Absolutely. Sure. Yes.
▶ 2:19:36So, can you also talk about how with that additional flexibility allow community banks to support small businesses through more robust lending? Can you
▶ 2:19:45Oh, sure. Absolutely. Uh capital generally is viewed as the uh most expensive form of funding. It's a buffer. It's the first exposure to take a loss at a bank and therefore investors demand a higher uh higher rate. Uh those higher amounts would be passed through to customers if you have higher capital requirements. And so by lowering uh the community bank leverage ratio in effect you're making products and services for bank customers uh uh cheaper and more
▶ 2:20:14Thank you. So in 2023 when Silicon Valley Bank collapsed, many of my constituents feared that this would be the first of many California banks uh to collapse. But thankfully that didn't happen and uh but we have been proactive now to ensure that we learn from that crisis. So one thing that we have identified through that subsequent hearings is that uh there is a stigma associated with the discount window.
▶ 2:20:43Uh, let me ask this question to Mr. O'Reilly. Do you have any recommendations on how we can address the stigma surrounding the discount
▶ 2:20:54The stigma around what again?
▶ 2:20:56The stigma around um
▶ 2:21:00Oh, the discount window.
▶ 2:21:01The discount.
▶ 2:21:02Yes, I'm sorry.
▶ 2:21:04Um, well, there shouldn't be one, that's for sure. And and maybe that's uh communication and and promotion from the regulators or anything. I I don't I don't think there should be a stigma with that at all. But u you got to assume that there will be some banks that don't go to the discount window and say you know try to use that against their competition. I will tell you in dealing with trust preferred and and treasury lending and things like that in the past if uh you know from 08 that stigma was not real big.
▶ 2:21:34Let me ask a question to Mr. Baresi. What role do you think confidentiality protections could play in removing the stigma arounding the discount window since you seem to know more about it?
▶ 2:21:45Uh do I think there should be some
▶ 2:21:47I'm talking to Mr. Baras.
▶ 2:21:49Oh, I'm sorry.
▶ 2:21:50Um I I do think the confidentiality requirements if expanded would help remove stigma. Uh I know lots of banks that are very worried about accessing the discount window. uh some who do periodically to test and very intentionally do it in very small denominations so it's clear that when publication occurs they don't need it. So uh anything that could make the the tap more confidential would help as would requiring banks to do it more
▶ 2:22:21Thank you. My time's up. U let me now recognize gentleman from Texas, Mr. Green for five minutes.
▶ 2:22:27Thank you, Madam Chair. I thank the ranking member or her comments and would associate myself with the comments of the ranking member. I would call to our attention the intelligence that has been provided to me indicating that there are 4,487 FDIC insured institutions and it is my belief that less than 50 are blackowned.
▶ 2:22:58In fact, less than 40 a black own. To be more accurate, less than 30 a black own. To be even more accurate, less than 1% a black own. I'm interested in knowing how we can use this topic of uh funding access to acquire more black banks.
▶ 2:23:27Uh I I've been with friends who've started banks. It is not easy to acquire tier one capital. Tier one capital. There's not a black bank in the country with 10 billion in tier one capital. Probably two exceed one billion. Probably two. Now Mr. James, you're much more u educated on these things than I.
▶ 2:23:57So, correct me. Do we have more than two black banks with with tier one capital exceeding a billion dollars?
▶ 2:24:05Uh, thank you for the question, Congressman Green. Um, actually, uh, there are 25 blackowned institutions in the United States. Uh, and there are two that exceed 1 billion in total assets. Uh, so, uh, technically, no. There are no institutions that are blackowned that have more than a billion dollars in tier one capital. These are institutions that are uh just over a billion dollars in total assets. And the truth is this.
▶ 2:24:37We we didn't get here because black people are not intelligent, because they can't count, because they can't be educated. It's racism. So the question becomes, how do we overcome this racism so that black people can own banks and acquire I I don't have the answer, but I know what has created the problem.
▶ 2:25:05And until we confront this, I'm not sure that we'll be able to resolve the issues associated with starting and maintaining black banks. If Mr. James, do you have any answer for me to help me understand how we can acquire more black banks and and deal with the racism that still Uh, thanks again.
▶ 2:25:27Um I do want to acknowledge that uh in the last five years uh for the first time in American history we have seen a convulsion in the United States economy uh such as what happened during the pandemic and actually not seen a decline in African-Americanowned institutions. Typically, you know, when you had the Great Depression or the Great Recession, you would lose typically around half of the blackowned institutions would fail because they were under capitalized.
▶ 2:25:57In the last five or six years, there's been more capital available. And so, we've actually seen a slight uptick. So, at the beginning of the pandemic, there were only 19 blackowned uh banks and now there's 25. And so, that's good news. Um I think it would be uh very helpful uh to again you know reduce that that community bank leverage ratio to a smaller uh to a a smaller number uh to increase the access uh for reciprocal deposits and other forms
▶ 2:26:27of liquidity so that you could have smaller institutions of all types uh whether they serve urban and rural communities whether they be blackowned or owned by anyone else. uh where you can encourage just encourage more competition and more different types of institutions. Regulatory reform is also important because if we can evolve regulatory um uh regul regulation I'm going to have to we can have more
▶ 2:26:52I have to intercede because I have to close with this two things. The first is I think that we can do things to help all banks but at some point we will have to do something to help black people. we really will. We didn't get here because we were unable to help ourselves. It was because others wouldn't allow us to help ourselves. And the final thing is, are there no women who can can do what you men do?
▶ 2:27:21I I always pay attention to who's on these panels, all male panel. But for this African-Americ I assume you're African-American. You look like one to me. I don't know. But uh you know but but for the Democrats we wouldn't have a have a African-American on the panel.
▶ 2:27:38Gentleman's gentleman's time is
▶ 2:27:39the gentleman's time has always expired. I yield back.
▶ 2:27:42Gentleman yields back and now recognized gentleman from Pennsylvania, Mr. Muer.
▶ 2:27:47Thank you, Mr. Chairman. Thank you to our witnesses uh for the last couple hours, two and a half hours of testimony. Uh important information being provided. Thank you. So in 2018, Congress passed S 2125 or 55 to tailor regulations for banks on asset side size providing relief to community banks. The Trump administration now is continuing this push moving away from a one-sizefits-all regulatory approach while the Biden administration really was pushing the opposite way.
▶ 2:28:17Recently, Fed Vice Chair of Supervision Bowman uh proposed changes to community bank leverage ratio, a framework that allows community banks to meet a single simple capital standard of 9%. As you well know and we've been discussing important changes to reciprocal deposits like those proposed in Whip Emmer's bill, which I co-sponsor, could provide a stable source of funding for smaller banks, especially those that rely on reciprocal deposits to give their customers extra protection. So, Mr.
▶ 2:28:46James, I'd like to start with you. Uh, community banks uh, follow complex rules that assign different capital requirements depending on the type of asset they hold. Uh, the community bank leverage ratio takes a simpler approach. Banks just need to hold capital equal to at least 9% of their total assets. Uh, why is this a simpler standard? Why is the simpler standard more effective? Do you believe in it? and how would lowering that threshold as vice chair Bowman suggested help banks like yours?
▶ 2:29:17Uh thank you very much for your question. Uh I want to echo the comments earlier of my colleague Mr. Carney uh just simplicity and flexibility. I mean if if you know for a small institution like ours that uh has a very limited staff and limited resources uh complying with complex rules uh just takes resources away that we could otherwise deploy in communities.
▶ 2:29:39And so by having that community bank leverage ratio that simplifies uh one of the many myriad of regulatory requirements. And so if you want to encourage more institutions and more competition and more access to capital uh particularly within regulated financial institutions so that you're not just having a proliferation of non-regulated banks and financial institutions then uh reducing that that community bank leverage ratio is a good idea because it will you know bring more people back
▶ 2:30:10into a regulated uh financial system that would you know not expose folks to as much risk.
▶ 2:30:17Very well said. Thank you. Uh Mr. Carney, uh similar question. Uh what do you see as the biggest advantage of having capital requirements designed specifically with community banks in
▶ 2:30:29So the community bank leverage ratio is specifically designed for community banks. It does provide the relief uh that we've been discussing. Um we would like to see that relief expanded. Uh we would like to see uh the community bank leverage ratio level drop to 8% at most. Regulators can do that. uh currently uh with it's within their purview with um now but Congress can actually drop it lower than amount that amount also. Uh by doing so you will have more banks opt in.
▶ 2:30:56Uh banks have typically tried to hold buffers above regulatory thresholds. Uh so if it's 9% now they'd only be comfortable opting in if they're at 11 12 13%. And so by lowering that ratio, I think you would have uh community banks would have a lot more resources to deploy um into their communities and compliance costs would be uh cut.
▶ 2:31:18All right, important comments. Thanks. On a scale of 1 to 10, how hard is it for community bank to comply with the current complex rules compared to the straightforward CBLR?
▶ 2:31:27Uh so the community bank leverage ratio is almost automatic. Uh it's a leverage ratio within the call report. So compared to anything else, it is uh it is a lot easier. Great. Um, Mr. Wy, uh, reciprocal deposits are a way for banks to give customers more FDIC insurance coverage than the usual 250k limit for the benefit of people back home. Can you explain in simple terms why banks engage in them?
▶ 2:32:05Why do banks typically use reciprocal deposits? Yes, they have to one to access funding because they need it and they're growing. Two, uh, customers that they have, they want to reduce the risk and try to get under the $250,000.
▶ 2:32:17You see any harm in it? Do you see any harm in it?
▶ 2:32:20Pardon me.
▶ 2:32:20Do you find any harm in it?
▶ 2:32:23Do I find harm in it? Right.
▶ 2:32:25Okay, good. That's what I wanted to ask. All right. Uh, Mr. Chairman, I yield back my time. gentleman yields back and I'll recognize myself for five minutes. Uh thank you gentlemen for being here this afternoon. Um I'm also a member of the judiciary committee uh chairing the Um so my first question kind of goes to it's a bigger question but uh I believe my opinion the Biden Harris administration took kind of a negative posture towards uh mergers and acquisitions across the
▶ 2:32:56board uh resulting in applications being substantially they were either delayed or there was very little transparency uh and US bank mergers faced kind of a unique multi- agency review requirement uh involving both antitrust and and credential regulators. And in my opinion again cause delays and uncertainty is varying from uh whatever sector you were referring to.
▶ 2:33:23Uh healthy mergers can increase obviously competition and make the banking system more dynamic. Allowing banking organizations to realize the economies of scale and scope via mergers or acquisitions creates competition and generates cost savings that can be passed on. Uh, I understand that there's there's issues with with the size of some of these institutions, but I I just felt there was kind of a negative approach to this. So, Mr. Besi.
▶ 2:33:52Um, it's kind of self- serving, but I have a bill, the Bank Competition Monetization Act, which um, which is noticed to this hearing, including the provision directing regulators to find that mergers resulting in a bank with less than 10 billion and assets do not create a monopoly or substantially lessen competition.
▶ 2:34:12So given your experience, I know you've kind of addressed uh some of this stuff directly and on the on the fringe here this afternoon, but um can I just ask you what is your opinion on this and given your experience advising banks uh specifically finance firms and fintexs? Uh how how do you advise them to approach this moving forward?
▶ 2:34:38I think your proposal is would be very helpful and if I can I'm going to try to tie together a few things we've talked about. Um it's incredibly difficult for small banks to compete in the United States of America.
▶ 2:34:52If you look at ratios of returns on assets, returns on equity, multiples in in the market, um stock price, in other words, um there's a direct correlation between size or scale on the one hand and positivity on the other, good returns.
▶ 2:35:10Um, small banks face a huge uphill battle and uh, allowing them to combine in a way that is efficient and fast and does not cause them operational difficulty while they are waiting u for extensive periods of time to obtain approval is very helpful. Um, banks are subject to tons of competition from credit unions and financial technology companies.
▶ 2:35:37It's you're hardressed to say that you you can't find access to the to to financial services in the United States except in some rural areas where it can be hard to get physical presence. So I think what you suggest is a good idea and I think it would help not only with the approval process but with a host of things that we've discussed as to why it's tough to be a small bank.
▶ 2:36:00So Mr. Carney, let me uh let me just ask you quickly. Uh the competition modernization act is designed to ensure regulators fully account for all types of competitors including credit unions, the farm credit institutions and non-bank financial companies. Um how would you include these additional entities in a competitive factor when you're trying to analyze this given the regulators a more complete picture of the full market?
▶ 2:36:29The merger rules are over 30 years old now. um goes back to 1995. Banking and financial services has fundamentally changed. And so taking into account competition wherever and however that competition occurs is important. Focusing in on local bank branches is no longer appropriate. Very good. Uh I'll just finish. Mr.
▶ 2:36:49James, uh, can you talk a little bit about when you're involved in a merger and you find yourself, uh, having to continue to market your services and, uh, you're caught in maybe a 90day holding pattern.
▶ 2:37:05Uh, thank you for the question. Yes, I think, you know, quicker resolution of merger and acquisition activity would always be helpful. uh so that you can you know stop focusing on you know compliance and and regulation and more focused on and get get more focused on customers.
▶ 2:37:23You know we've seen instances where you know customers you know get concerned about the debit card number changing and you know core conversions and those are real operational issues that we would rather focus on rather than you know complying with uh regulation or or responding to you know inquiries from uh uh supervisors. Very good. Thank you so much. I'd like to thank all the witnesses. Thank you gentlemen for being here this afternoon and without objection.
▶ 2:37:53Uh all members will have five legislative days to submit additional written questions for the witnesses to the chair. The questions will be forwarded to the witnesses for the response. Witnesses please respond no later than October 14th of 2025. This hearing is adjourned.