▶ 0:20:55The subcommittee on 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 regulatory overreach, the price tag on American Prosperity. 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 four minutes for an opening statement.
▶ 0:21:21I want to first thank our witnesses for being here today for the first of many in-depth hearings on the importance of supporting community financial institutions. The committee's first hearing of the 119th Congress laid the foundation for what we aim to accomplish in the financial institution subcommittee this Congress. During that hearing, we heard from regulatory experts and community bankers who are being crushed by the weight of burdensome and politically driven regulations from federal bank regulators.
▶ 0:21:52Community banks are the lifeblood of our local economies and serve as critical support for small businesses, particularly in rural and underserved areas. Unfortunately, these community banks were swept up in the regulatory overhaul of DoddFrank 15 years ago despite not contributing to the financial crisis.
▶ 0:22:11The onesizefitsall approach to regulation created by DoddFrank ignores the unique business models and size of these local institutions and impresses unnecessary compliance costs upon them. In 2018, Congress acknowledged the need to adjust regulations on financial institutions that reflect their associated risk profile and lending strategies.
▶ 0:22:36This led to the passage of the bipartisan economic growth regulatory relief and consumer protection act or S2155. This was a monumental step in recalibrating our federal bank regulation framework toward a more dynamic riskbased approach that does not impose excessive compliance burdens on small or less complex financial institutions.
▶ 0:22:59Unfortunately, Democrat-appointed regulatory officials under the Biden administration abandoned the bipartisan uh policy approach of tailoring in favor of a uniform subjectivebased approach. We saw this firsthand with the inter agency rulemaking on Basel 3 endgame, a partisan campaign led by for former vice chair of supervision at the Federal Reserve that moved away from riskbased tailoring and required small less complex institutions to follow the same rules as the largest globally systemic important financial
▶ 0:23:29institutions. Fortunately, due to the overwhelming number of negative comment letters and push back from legislators on both sides of the aisle and both chambers of Congress, this de facto roll back of S2155's tailoring was not finalized. Last Congress, we advanced several bipartisan bills that reassert congressional oversight over the kinds of agreements regulators strike with global governance groups such as the network for the greening of the financial system or the NGFS.
▶ 0:24:00This proved to be successful as our credential regulators have since pulled out of the NGSF NGFS. Several bills attached to today's hearing advance regulatory tailoring and maintain Congress's article one authority over these agencies. I've heard from community bankers across the country about the inconsistency and lack of clarity in the supervision and examination framework being driven by partisan bureaucrats in Washington.
▶ 0:24:24Rather than our credential regulators working alongside supervised institutions to ensure compliance, we've seen a shift to promoting agendas such as climate related finance or the debanking of legally operating businesses, dangerous deviations from the core mission and purpose of the agencies. For example, we've seen regulators hand out supervisory determinations based on novel interpretations of long-standing laws without providing a meaningful appeals process without any due process.
▶ 0:24:51These covered institutions are constantly held in limbo while they await the next press release that attacks their legal business strategy. This hearing will examine how Congress can direct bank examiners to use objective riskbased metrics in their examination process, specifically regarding the camel's framework and the abuse of the management component that has hindered otherwise compliant firms.
▶ 0:25:14I look forward to hearing from our witnesses about Congress's role in supporting an objective riskbased regulatory and supervisory framework that works for all Americans, the importance of regulatory tailoring, and the need to protect the US financial system from overreach by global governance groups. Uh, I yield back and the chair now recognizes the ranking member of the subcommittee, Dr. Foster, for four minutes for an opening statement. Thank you, Chairman Bar, and thank you to our witnesses.
▶ 0:25:42Over the last 100 days, President Trump's policies have triggered a wave of uncertainty for the financial system and for Americans in all walks of life. On again, off-again tariff tariffs, mass firing of federal civil servants, and unlawful attacks on what should be independent agencies like the Federal Reserve have made it impossible for small businesses to plan, injected volatility into our financial markets, and weaken the US dollar.
▶ 0:26:06On the campaign trail, President Trump claimed that he would lower prices for Americans on day one with policies like capping credit card fees at 10%. And reinstating GlassSteagall. Really, I don't see any of that here today. Just chaos. 100 days in, more than 60% of Americans disapprove of the president's handling of the economy. Nearly 90% expect the new tariffs to increase prices. Twothirds of Americans say that they fear a recession.
▶ 0:26:33and banks large and small are hearing from the businesses that they support that these businesses have no idea how they will survive the chaos, the cost, and the supply chain disruption from Trump's tariff tantrums. I support some of the legislation being put forward at this hearing, like the Home Buyers Privacy Protection Act, which will protect the privacy of mortgage applicants and prevent them from being bombarded by unwanted solicitations and scams.
▶ 0:26:56Our witnesses bring thoughtful perspectives on banking supervisory and examination processes and I look forward to discussing their recommendations with them today and I believe there are real opportunities for example to use technology to streamline bank supervision. But I was elected to Congress and joined this committee in March of 2008 on the eve of the global financial crisis.
▶ 0:27:18On this committee, we surveyed the wreckage from excessive risk-taking and from large financial firms, predatory mortgage lending practices and other market excesses that brought about the uh brought the global economy to the brink of collapse. And all of this was due to ill-advised financial deregulation.
▶ 0:27:36And I would note interestingly that while there are several Democrats on this subcommittee that were in Congress at that time, Representatives Lynch, Sherman, Meek, Scott Green, there zero Republicans members of this subcommittee were. Perhaps that explains their amnesia. Following the financial crisis, I was proud to help draft the DoddFrank Wall Street Reform and Consumer Protection Act, which aimed to correct the mistakes that led to the panic, pain, and contagion that we saw in 2008.
▶ 0:28:04And following DoddFrank, we saw the strongest period of uninterrupted economic expansion in our country's history. A period in which the US financial system far outgrew the less well- reggulated rest of the world, achieving, dare I say, financial dominance. And now we appear to be throwing that all away. One important provision created the Consumer Financial Protection Bureau, CFPB, that was tasked with regulating things like mortgages and credit cards whose predatory terms and hidden fees weakened consumers ahead of the crisis.
▶ 0:28:34The DoddFrank Act also established the Financial Stability Oversight Council, FPS, and the OFR to oversee activities of systemically important financial institutions. Each of these agencies along with our banking and market regulators serve critical roles in the for the financial stability of the United States. Yet their missions are under assault.
▶ 0:28:54Tomorrow our committee will consider legislation that would cut the CFPB's budget by roughly 70% cut the FSC and OFR budgets by nearly 90% far below what they require to carry out their roles established by Congress. This comes as thousands of federal employees from around the federal government are being terminated without cause and without due process, leaving essential roles unstaffed and financial agencies without the resources they need to function.
▶ 0:29:20This uncertainty caused over the last 100 days, combined with pre-existing geopolitical tensions, cyber security threats, and disruptive technologies make these financial watchdogs more important than ever. So, I urge my colleagues to oppose the administration's deliberate economic chaos and preserve and strengthen the federal agencies that protect America's financial well-being. Thank you, Mr. Chairman. Yield back. Gentleman yields. Uh, the chair now recognizes the chairman of the full committee, Mr. Hill, for one minute.
▶ 0:29:50Thank you, chairman. Today's hearing revisits one of our committee's top priorities for this Congress, enhancing and growing our community banks and restoring common sense to financial regulation. For 15 years, we've heard testimony in this room about how DoddFrank has hollowed out our banking sector, especially hurting small and midsize institutions that serve as the backbone for our local main street economies.
▶ 0:30:14That's why Republicans and Democrats came together in 2018 to pass common sense credential reforms during the first Trump administration S2155, including the support, I believe, of our ranking member of this subcommittee. Now, it's time to return to that spirit of bipartisan practical approach to community financial institution supervision and regulation.
▶ 0:30:37This hearing is an opportunity to build on the record of support for ideas like regulatory tailoring, supervisory modernization, issues that every community banker and credit union back in our districts are thinking about every day. I look forward to hearing from our witnesses about the challenges these institutions face, their thoughts on the bills we've noticed today, and what's at stake if we fail to act. I thank the chair and I yield back. Gentleman yields.
▶ 0:31:01The chair now recognizes the ranking member of the full committee, Miss Waters, for one minute. Good morning. Our Republicans are once again using community banks to advance an agenda for mega banks.
▶ 0:31:27Instead, we should hold a hearing on Trump's coup and theft of the American dream. Unfortunately, Republicans are not using their oversight power and instead ignoring the Trump regime's reckless and lawless actions from firing board members of the National Credit Union Administration, imposing chaotic tariffs, and attacking the Community Development Financial Institutions Fund.
▶ 0:31:58All of these actions harm community banks, credit unions, and the consumers and small businesses they serve. Mr. Chairman, it is no wonder consumer confidence has dropped to record lows. Americans are worried about higher prices, fewer jobs, and Trump's cureta. So, I yield back the balance of my time. Gentle lady yields. Today, we welcome the testimony of Mrs.
▶ 0:32:25Sarah Flowers, a senior vice president and senior associate general counsel for regulatory affairs for the Bank Policy Institute, where she focuses on capital stress testing, mergers and acquisitions, and other credential regulatory matters. Mr. Michael Radcliffe, uh, a fellow Kuckian, welcome to the committee. He's chairman and CEO of Community Financial Services Bank, a $ 1.3 billion community bank with eight locations that serves rural western Kentucky.
▶ 0:32:55He has been with the CFSB since 2002, and it's my great pleasure to have him here with us today in Washington. Miss Margaret Tyer is the head of the financial institutions group at Davis, Poke, and Wardell, where she has been a partner for 27 years. She has testified before this committee previously, so we welcome her back. Good to see you again. And Mr. Graham Steele, an academic fellow with Stanford Law School's Rock Center for Corporate Governance.
▶ 0:33:23He previously served as assistant secretary for financial institutions uh at the Treasury Department under the previous administration. We thank you all for your time uh being here. 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. Miss Flowers, you are now recognized for five minutes for your oral remarks. Chairman Bar, Ranking Member Foster, and honorable members of the subcommittee. Thank you for inviting me to testify.
▶ 0:33:53My name is Sarah Flowers, and I'm a senior vice president, senior associate general counsel of the Bank Policy Institute. Prior to joining BPI, I spent several years focused on credential regulatory policy at a regional bank. and for many years in private practice, I serve bank clients of all sizes. BPI is a nonpartisan policy research and advocacy organization representing the nation's leading banks.
▶ 0:34:15On behalf of BPI members, we greatly appreciate this committee's leadership and the opportunity to provide perspective on regulatory overreach in the banking sector. In the United States, banks of all sizes play a vital role in fueling economic growth. By recognizing the value each type of institution offers and appropriately tailoring regulatory requirements and supervision, our banking system better supports the economy.
▶ 0:34:39Secretary Bessant recently noted that besides better tailoring of regulation, perhaps the single most important reform will be to refocus bank supervision on material financial risks. To support these goals, we offer a few recommendations. First, regulations need to reflect economic reality rather than being frozen in time. There is an urgent need to index regulatory tailoring thresholds for all banks for economic growth and inflation.
▶ 0:35:05Regulation that fails to evolve with the macroeconomic environment constrains growth without offering an offsetting benefit. Economic growth and inflation do not increase systemic risk in the financial system. As the economy expands, various sectors of the economy grow proportionally. Annually and automatically adjusting the tailoring category thresholds would prevent banks from facing more stringent regulations solely due to natural economic expansion.
▶ 0:35:30Once properly indexed, as new rules are developed, care must be taken to prescribe less stringent requirements for firms whose activities and structure present less risk. Rules designed to address the complex activities of internationally active banks should not be indiscriminately applied to smaller banks with less complex structures and business models. Second, effective tailoring requires effective supervision.
▶ 0:35:56By enacting a bipartisan tailoring law in 2018, Congress communicated to the banking agencies that they should take a holistic approach to regulation. However, that holistic approach has failed to take hold in supervision where examiners treat regional banks and the largest banks with the same broad brush. Regional banks routinely report that the agencies use horizontal reviews to hold them to the same standards as global systemically important banks or gibs through the exam process.
▶ 0:36:24These banks are technically exempt from those standards, but nothing stops an examiner from imposing them by issuing a matter requiring attention or MRA in a non-public exam. A key reform should be the adoption of regulations that define an unsafe or unsound practice using a financial materiality standard. This would help ensure that enforcement actions are grounded in practices that genuinely threaten a bank's financial integrity. Finally, the exam ratings framework is broken in the exam framework itself.
▶ 0:36:53A lack of focus on material financial risk leads to unwarranted camels ratings downgrades as the ultimate output of the exam process. While this framework in theory evaluates six factors, it is the management rating or the M that dominates as a factor in the composite rating. The management rating is uniquely subjective.
▶ 0:37:12It is not based on any empirical or financial standard, but rather serves as a vehicle by which examiners can find fault with any aspect of a bank's compliance program or the bank's willingness to exceed to examiner mandates. It is often where inappropriate focus on reputational risk can manifest. There are severe automatic consequences of an unsatisfactory management component rating.
▶ 0:37:35Removing or replacing the management component would help limit the assignment of unsatisfactory camels ratings to institutions in poor financial condition and better reflect that a bank should be considered well-managed if its management team is appropriately managing the risks that matter most. Because the exam process remains confidential, it is not subject to public scrutiny and the ratings frameworks themselves provide no meaningful standard to govern their use or misuse.
▶ 0:38:01While the agencies have adopted internal appeals processes, the appeals involve senior personnel of the same agency involved in the dispute. This conflicts with fundamental principles of fairness and due process. Banks should be expressly permitted to appeal Camel's exam findings and ratings to a legitimately neutral authority.
▶ 0:38:20We greatly appreciate this committee's thoughtful approach to these issues and stand ready to work with you to ensure that bank regulation and supervision supports financial stability without imposing undue burdens on institutions. Thank you for the opportunity to speak today and I look forward to any Thank you Mr. Radcliffe. You are now recognized for five minutes. Chairman Bar, Ranking Member Foster, and distinguished members of the committee.
▶ 0:38:46Thank you for the opportunity to speak today on the impact of regulatory burden and overreach on community banks. My name is Michael Radcliffe, and I am the CEO of Community Financial Services Bank, a 1.3 billion institution serving rural Western Kentucky for the past 135 years. Community banks like ours play a critical role in the financial system. We provide nearly 60% of small business loans and 80% of bank agricultural loans nationwide.
▶ 0:39:12In many rural areas, we are the sole financial institutions, offering access to credit, creating jobs, and fostering economic growth. Despite holding just 13% of total banking assets, our impact is substantial, and we operate with unmatched efficiency and local focus. However, the increasing regulatory burden is jeopardizing our ability to serve these communities. At CFSB, we spend over $632,000 annually on compliance costs alone.
▶ 0:39:41This includes expenses for personnel, training, reporting, and technology, all resources that could instead support local families, farmers, and small businesses. The CFPB's 1071 rule exemplifies the challenge. While it aims to promote fair lending, the data collection requirements impose significant administrative costs and raise privacy concerns amongst our borrowers, eroding the trust that defines community banking.
▶ 0:40:06I'm grateful to this committee for passing HR 976, the 1071 repeal to protect small business lending act to provide relief from this harmful rule and statute. Additionally, regulatory expectations for tier one capital ratios have shifted unofficially with examiners often requiring many community banks to maintain levels above 9%. Far beyond the well- capitalized standard of 6%. These unmandated requirements tie up resources that could fuel local economies.
▶ 0:40:36Unlike large banks, we cannot easily absorb these costs. For them, $632,000 is a rounding error. For us, it's a substantial portion of our These disparities drive industry consolidation with Kucky's state chartered banks declining from 109 in two 2020 to 98 by 2024. The last new state banking charter was issued in 2009.
▶ 0:41:02Consolidation of this magnitude reduces financial diversity, weakens rural economies, and ultimately increases borrowing costs for families and small businesses. We need more new charters to offset consolidation. I strongly support Chairman Bar's promoting new bank formation act HR478 which would provide regulatory and capital flexibility for denovo bank charters and I thank the committee for passing this important bill to preserve the essential role of community banks.
▶ 0:41:30I urge the committee to consider the reforms scale regulations to bank size and complexity. Ensuring community banks are not burdened by rules designed for larger, more complex institutions. provide targeted regulatory relief to simplify compliance and reporting requirements. Encourage innovation, enabling community banks to adopt technologies that enhance efficiency and ensure proportional oversight to balance financial stability with market diversity.
▶ 0:41:59As I explained in my written statement, a number of bills before this committee today incorporate these core principles and I would like to make and would make critical regulatory reforms to strengthen community banks and the local economies they serve. For example, Representative Louderdermilk's tailor act would require the agencies to tailor rules and regulations on banks profile banks risk profile and business model.
▶ 0:42:23Representative Heisinga's FDIC board accountability act would designate a board seat for an individual with small depository institution experience. Fed Governor Mickey Bowman has shown us the value of creating a designated community bank seat and I expect that this bill would yield a similar benefit. HR2808, sponsored by Representatives John Rose and Richie Torres, would protect the privacy of home buyers and curb invasive and annoying trigger leads.
▶ 0:42:50Two bills, the Trust Act and Smart Act, would ease exam burden for well more well-managed and well- capitalized community banks. I encourage you to advance these bills at the opportunity. Community banks are not just financial institutions. We are lifelines for the communities we serve. Without meaningful reform, the increasing regulatory burden will extinguish this vital part of our financial ecosystem, leaving rural America without access to essential services. Thank you for your time and attention, and I look forward to your questions.
▶ 0:43:22Thank you, Mr. Redcliffe. Um, Miss Ty, you are now recognized for five minutes. Thank you for inviting me to speak to you here today. Let me start by giving respect to the art of supervision and the many dedicated examiners. But I'd like to submit to you that bank supervision needs modernizing reform. There are two key challenges. One is discretion and the other is secrecy.
▶ 0:43:46In years, there has been a great deal more discretion in examination as examiners have moved away from core financial risks into qualitative subjective judgments on governance and management. More discretion means more accountability is needed, especially to congressional oversight committees, banks, and the public. The culture of secrecy is also a challenge to reform.
▶ 0:44:16There are many unknown unknowns in supervision. Is it effective? Does it work in business as usual or in troubled times? We actually know. That is because it's not transparent. Why isn't it more transparent? I'm not suggesting body cams on examiners, but there are some things that could be done that are relatively easy.
▶ 0:44:39One is to release very old exam reports 35 years or more where nobody who was at the bank or at the agencies is still working. Another is to release more consistent anominized aggregate data that will allow an examination into whether exams are consistent and fair across banks, their models, and whether tailoring Another is to reform the appeals process, which is broken.
▶ 0:45:10As Secretary Bessant recently said, it's more theoretical than real. In a 13-year period at the FDIC, there were um there were 50 appeals to over 100,000 exams, and I don't think anybody's that perfect. There were very few wins. Last year, banks were 1 to 17. Here are other things that we don't know about supervision. How are examiners trained?
▶ 0:45:39There's more information out there about the training in the exams that other professions uh take place. doctors, lawyers, CPAs, barbers, manicurists than you can find on the training and the examination curriculum of examination staff. What are the pass rates?
▶ 0:46:02We don't know what has been the training on interest rate risk and governance as examiners have moved into those areas or in the case of interest rate risk maybe not. We don't know a lot of unknown unknowns. How are examiners and their managers held accountable? Very little public information on how the supervisory staff is organized and managed. And to be fair to line supervisory staff, we should ask whether they are well-managed.
▶ 0:46:32Do they operate in an environment where they have the tech and the tools and the direction to do what they need? or are they stuck in this morass of checklist because of a lack of direction from the top? There are a lot of good ideas being discussed at the moment and I've listed them in my written testimony. This committee also has a number of bills before it which would which would encourage or require many of these reforms.
▶ 0:46:58But in my view, the executive branch and the agencies should not wait for Congress to act, but should start their own process of reform now. I believe the three banking agencies have all the power they need in their own grounding statutes with the authority granted in FFIC and in the authority granted to FSAC. There are two topics that are not on the agenda for supervisory reform, but which ought to be.
▶ 0:47:28They are examiner discretion and the assertion of criminality. The agencies defer particularly in the ALJ enforcement process to examiner discretion. But I think it's an open question how much different should be given to examiners outside of their core expertise and I think that should be re-examined.
▶ 0:47:49The other is the fragile nation nature of the criminality CSI is view it is criminal to disclose it and that that that is based on a very fragile assertion of property that recent case law has challenged and it's always been fragile.
▶ 0:48:06I think that should also be rethought in some appropriate reforms made by the federal agencies working together for efficiency, transparency and fair fair fairness and enhancing the oversight of Congress and its committees could really create change for the better. Thank you very much. Uh thank you for your testimony.
▶ 0:48:29And before we move on to our final witness, uh just a reminder to members and staff to take your conversations outside of the committee room so that all members can hear uh clearly the testimony of our witnesses. Uh thank you for your consideration. Mr. Steel, you're now recognized for five minutes for your oral remarks. Good morning, Chairman Bar, Ranking Member Foster, and members of the subcommittee. Thank you for inviting me to testify today.
▶ 0:48:54My name is Graeme Steele and I'm an academic fellow at the Rock Center for Corporate Governance at Stanford Law School and a fellow at the Roosevelt Institute. From J from November 2021 until January 2024, I served as the assistant secretary for financial institutions, the Treasury Department. So, we know that building a more just economy and society requires a stable financial foundation.
▶ 0:49:19Unfortunately, the Trump administration's plan is clearly to gut, whether by legislation, regulatory action, or staff attrition, the agencies that oversee the financial system, the authorities those agencies use to rein in financial excesses. Some of the bills under consideration today would weaken supervision and regulation for banks of all sizes, unlearning the lessons of the global financial crisis and the regional banking stress of 2023.
▶ 0:49:46One proposal addresses the purported threat of so-called debanking while still others would impose assorted ownorous reporting requirements on banking agencies and limit their ability to provide useful guidance to industry and the public. Finally, several bills would impose limits on US agency's ability to participate in non-binding international financial financial policy coordinating bodies.
▶ 0:50:07My written testimony goes in greater depth into the problems with each of these bills, but I want to right now offer two observations about the short-sighted self-defeating nature of the Trump administration's access actions to date and the harms of financial deregulation.
▶ 0:50:23The first point is these bills which are ostensibly about executive branch accountability fail to address the most pressing issue of the day which is that this administration is running rashad over traditional notions of financial agency independence and respect for the separation of powers. The president has illegally attempted to remove democratic appointees at the NCUA and other agencies. The White House has issued executive orders attempting to place agencies under the thumb of the White House's Office of Management and Budget and the Justice Department.
▶ 0:50:54The acting director of the CFPB is violating an order from a US District Court by attempting to all but eliminate the CFPB, an agency that has returned more than $20 billion to US consumers. The EPA and DOJ have ordered City Bank to freeze the bank accounts of lawful grant recipients, including community financial institutions, in order to make investments that will help communities address the impacts of climate change.
▶ 0:51:20The president has been browbeating the chair of the Federal Reserve Board in an attempt to exert partisan political influence over monetary policy. And the president is attempting to use the international emergency economic powers act or IPA to impose sweeping and likely illegal tariffs that will increase costs for US consumers. The these lawless actions are causing instability in our financial markets and our society more broadly.
▶ 0:51:46The cure for this instability is not deregulation but robust economic growth and financial stability coupled with adherence to democratic values, stable institutions and the rule of law. The second point is that financial deregulation will only make the problems this administrating is administration is creating even worse. Deregulation will allow financial companies to take excessive risks, extract wealth from working people, and enrich executives and shareholders through bonuses and payouts.
▶ 0:52:17We'll make this financial system less accessible and less affordable for people looking to start a new business or buy a home. It will make the financial system more fragile, meaning people's money will be put at risk and taxpayers may eventually be called upon to support failing financial institutions that have behaved It will undermine banking agency's ability to pre prevent or respond to financial crisis, making crisis more frequent and more severe in their impact.
▶ 0:52:44And it will be harder for smaller financial institutions to compete with big banks that benefit from advantages of size, scale, and implicit support. The subcommittee is interested in ensuring widespread prosperity for the American economy. Some issues that warrant your attention and consideration include first reforming the deposit insurance and bank merger review regimes. Second, stopping light touch charters like stable coins, industrial loan companies, and the movement of big tech into financial services.
▶ 0:53:14Third, rather than threatening to cut the CDFI fund, providing more resources for CDFIs and MDIs to invest in urban and rural communities. Fourth, help community financial institutions update their technology offerings and navigate their relationships with core service providers and other technology providers. Fifth, help community and regional financial institutions address the increasing risks of climate change, especially the recent developments in property insurance markets.
▶ 0:53:43And sixth, conduct robust oversight of the president's attempts to stretch stretch the bounds of AIPA to impose illegal tariffs. Weakening oversight of the financial system, raising costs for working people, engaging in erratic protectionist trade policies, and assaulting the independence of agencies like the Federal Reserve will only create financial instability. Gentleman's time has expired. We will now turn to member questions. The chair now recognizes himself for five minutes for questioning.
▶ 0:54:13Uh let me start with um Mr. Radcliffe. Uh the general idea behind regulatory tailoring is that smaller non-complex financial institutions, community banks should not be subject to the same level of scrutiny as large systemically important institutions that engage in riskier uh behavior. Mr. Radcliffe, you run a $ 1.3 billion community bank in Kentucky.
▶ 0:54:38What kinds of products and services do you offer your customers and how do they differ from those uh offered by larger banks? Thank you, Mr. Chairman. Pleasure to be here. We offer many of the same products as the larger banks, but we are able to tailor them in ways that they can't.
▶ 0:54:58Um, for example, we offer floor plan where the um borrower is a watercraft marine dealer and so we've tailored it so they don't make payments in the winter when cash flow is tight. larger banks probably would not be that specific. Being relationship driven, we can be much more tailored in our products and services.
▶ 0:55:21Um, in your testimony, you explain how your firm's liquidity policies were deemed sufficient and acceptable by regulators until the failure of uh Silicon Valley Bank 6 months later when regulators came back and said those same policies are now insufficient. What kind of an impact does this approach to regulation have on a business such as yours? Significant.
▶ 0:55:42Our CFO spent at least six hours explaining to one examiner how to balance back to the call report, the liquidity reports. Um, we probably spent a total of 20 hours of staff time specifically on liquidity. We had a 15minute discussion on asset quality, a one-hour discussion on liquidity.
▶ 0:56:04Um, last Congress I introduced the Financial Institution Regulatory Tailoring Enhancement Act, which would increase the asset threshold from 10 billion to 50 billion for CFPB supervision, interchange transaction fee regulations, Vulkar rule, qualified mortgage requirements, leverage and riskbased capital requirements.
▶ 0:56:24Um, uh, Miss Flowers and Miss Tyer, would increasing the threshold on these um, help mega banks, as the ranking member suggested, um, or would it increase the stability of our financial system by providing tailored regulations to community and midsize banks? It would not help the mega banks because those banks would remain subject to all of the rules that you just mentioned.
▶ 0:56:49And those rules in many instances are designed for the largest and most complex banks. So if anything, it would relieve some unnecessary compliance burden on the smaller institutions. Miss Tyer and and when you answer this question um would providing additional tailoring and relief for those community midsize institutions would that would that help uh would that be prompetitive uh in terms of providing a counterweight to those uh GIPS?
▶ 0:57:20That's exactly right. It would be prompetitive and it would be a counterweight. It would not it increasing the thresholds wouldn't help the mega banks one bit, but it would help the midsize and regional banks. I have been told by many um community banks uh in Kentucky and around the country uh that are approaching that $10 billion threshold uh that that's a real impediment to organic growth.
▶ 0:57:45uh and and the only way that uh a larger community bank pushing that $10 billion threshold to trip that that uh threshold would be to uh jump over that in a major way. Is that is that smart banking policy? Is that or is is there a problem with that? So the cliff effect is real and it's a problem and it actually happens before. So once you hit seven or 8 billion, then your examination staff wants you to start to prepare.
▶ 0:58:15And that makes sense. But you can't go to 10 billion in 1 cent because if you do, you have all of the costs of being between 10 and 50 at the at a lower level of revenues and a lower base of costs. So I I think that tailoring should also include a transition period as banks move over and then they can decide do they want to be organic or do they want to do it by acquisition.
▶ 0:58:42Final question, Miss Ty, you you uh have very important testimony about um the supervisory examination uh process um and how it doesn't work. Uh, can can you uh c can you tell us um uh whether or not um uh bank exams depend on what examiner you which examiner you get and why that's a problem. That's often the case.
▶ 0:59:11What when you have an examiner switch out suddenly you have a lot of changes. you know, examiners on the ground. Um, they're not, you know, the the extent to which they're accountable to um the to others is really unclear. So, it's very very personality dependent. I think I think consistency in exams uh regardless of who the examiner is is very very important. Uh my time has expired. Um I now recognize um the the ranking member of the subcommittee, Dr. Foster.
▶ 0:59:40U Thank you, Chairman Baron. I'd like to focus my questions on how recent administration actions are actually tilting the playing field against small community banks and in favor of the fintexs and the large banks. Uh Mr. Steel, one of President Trump's first actions acting through Elon Musk and the Doge Group was to shutter the CFPB. The CFPB is widely popular among Americans of all political affiliations.
▶ 1:00:04It's returned more than$20 billion dollars to consumers and armed service members harmed by abusive practices and illegal actions by financial firms. Uh tomorrow this committee is will consider Republican legislation uh to cut the CFPB's budget by 70% and there are plans to cut as much as 90% of the CFPB staff. Now, as you know, the CFPB was the primary consumer compliance regulator for the biggest banks and big tech.
▶ 1:00:31Um while no one is currently supervising big tank big banks or big tech with the um deleting of the CFPB um no one is supervising them for consumer compliance. So the vast majority of consumer community banks and credit unions with less than $10 billion of assets continue to be supervised for consumer compliance by their federal credential regulator. Doesn't this create an unlevel playing field uh for community banks and credit unions? Well, thank you Congressman.
▶ 1:00:59It's a great question and I think this is an important point which is the CFPB the vast majority of of what it does or I guess what it did when it had sufficient supervisory staff was to look at non-banks. Non-banks have come in in certain areas and captured a lot of market share in recent years and they are the dominant providers of certain kinds of products and services.
▶ 1:01:17And so the CFPB examination and supervision staff spent a lot of time looking at non-banks that prior to the 2008 financial crisis had no or hardly any oversight whatsoever for consumer compliance and consumer harms. And so consumers are vulnerable on one side and small banks that are underneath the threshold are subject to examination and supervision because their primary banking regulator um is the one doing that examination supervision.
▶ 1:01:45So there's a competitive imbalance and there's a harm to consumers and um you know the CFPB had also issued a rule uh in the prior administration to oversee tech companies in particular and big tech companies you know that was the biggest part of their focus which obviously Elon Musk uh has his own big tech company which wants to offer financial products and services and obviously that's been rolled back by Congress now but um I do want to hone in on something else that you said in your opening statement which was the election was about lowering costs
▶ 1:02:16for consumers uh and putting money back in their pockets. And the president said he was going to cap credit card interest rates at 10%. The CFPB has saved consumers over $20 billion. Two rules that were just recently repealed by Congress, the overdraft rule and the credit card uh fee rule would have saved consumers $15 billion per year combined. I know you're going to consider whether you want to cut the CFPB's budget or not, but the CFPB's annual budget is about $800 million.
▶ 1:02:46For those two rules alone, that's almost a 19 times return on investment from the money the CFB is spending by putting money back in. Thank you. In terms of fintex, Mr. Radcliffe, are there areas where you have seen encroachment by FinTech on any of what used to be your core businesses? Fortunately, I of course I can speak for our bank's experience uh in the payment space.
▶ 1:03:12We have seen encroachment from of course the PayPal and Benmos of the world, but u we have sought to partner through our core provider and other platforms to try and compete. Yeah. So, are you concerned that the the FinTechs will not be subject to the same consumer compliance regulation that your bank will be?
▶ 1:03:35Well, and oddly enough, we're examined and held accountable for the FinTech's actions whenever the exam when when you partner. But a freestanding fintech can move into your area with uh without this sort of and that's that's the that's the unbalanced playing field that I'm really concerned about in terms of, you know, things like mortgages are another area where there's been huge intrusion in what used to be the bread and butter for ordinary banks. Now, um um Mr.
▶ 1:04:04Steel, um back to the CFPB for a moment. Um how do you think the CFPB's ability to operate would be affected by a 70% budget cut or a 90% uh cut in their staff level and and how instead of expanding oversight into FinTechs, uh is there any hope that they'll be able to do anything with respect to fintech competition?
▶ 1:04:27No, I mean I think the reason the judge ordered uh the temporary restraining order that they did in the district court case was because it's pretty clear you cut the CFPB by that much and it's going to be basically nonfunctional. It's not going to be able to hander handle consumer complaints in the way that it does vigorously. It's not going to do exams and supervision. It can't do enforcement. You basically won't have you'll have the shell of a CFPB but not a meaningful consumer agency. Uh time's expired. The gentleman from Arkansas, Mr. Hill. Chairman Hill is now recognized for five minutes.
▶ 1:04:58Thank you, Chairman Bar. Again, thank our panel. It's always good to have such a distinguished panel. Thank you, Mr. Steel, for your service at the Treasury. And Mr. Radcliffe, we're always grateful to have a practitioner uh before us. Uh in the years following the passage of DoddFrank, there's been significant bipartisan recognition that financial regulation should be based on an institution's size, complexity, and business model and not just be a one-sizefits-all approach.
▶ 1:05:26And that common sense idea, I think, is what we're about today. And it's in Chairman Bar's agenda. For example, a well- capitalized and well-managed institution under a certain size should be eligible for an extended exam cycle. That's one of our common sense reforms. Another example might be the community bank leverage ratio, which allows well- capitalized banks under $10 billion to opt for a more simplified capital framework.
▶ 1:05:54Um, Miss Tower, you've had such a uh a great career in this arena. You said you toiled in the field. I saw your resume. Thank you for sharing that. But would you agree that tailoring regulations for well-managed institutions already exists in law and it's just not being implemented by our Yes, I agree. It does exist in the law from the the the previous act.
▶ 1:06:19Um but we don't know how it is being implemented by supervisors in practice because of the culture of secrecy. But based on anecdotal evidence, I think it is being inconsistently implemented. Would you say that there other types of regulatory relief besides that exam cycle idea that might be should be availed to well-managed institutions? Say institutions rated one or two on a composite rating and have a a satisfactory CRA rating. What else would you think should be on that list?
▶ 1:06:49I think they should have expedited application processes. whether it's a new branch, whether it's an acquisition, whether it's an activity that requires approval. Um, I think there should in general be a lighter touch uh in in examinations and, you know, a a focus on major uh financial risks rather than uh qualitative judgments. Mhm.
▶ 1:07:14We talked about and chairman bar referenced it the idea and and several of you did in your testimony about exam u appeals on outcomes. This has been an issue back in 1994 just after I left the Treasury Department. We passed the Regal Neil Act which institutionalized uh appeals which in my judgment have have failed to be implemented very effectively.
▶ 1:07:40In fact, uh the FDIC inspector general back in July of 2023 uh said quote lacked the appeals process at the FDIC lacked independence, contained inadequate oversight mechanisms, and presented a perceived conflict of interest. Close quote. Um so, Miss Tier, I don't think that's unique to the FDIC.
▶ 1:08:05We're trying to get this appeal process right both for uh institutions that go through a normal state or federal exam cycle but also for those institutions that have a resident examiner program. Can you reflect on the distinctions between those two bank sizes? Sure. So the exam process the appeals process is clearly broken. I really like the fair act. I think that's the right name.
▶ 1:08:28Which would create an independent review process through the FFIC and not have examiners reporting up into the same hierarchy. So you don't have this judge, jury, you know, prosecutor uh issue going on. Many examiners do a great job. So appeals should be rare but fair. I think that's right. Right.
▶ 1:08:51I mean, I hear so frequently for state non-member banks that their state bank commissioners are advocating for them to overrule the, you know, FDIC in that example. Is that something you've seen in your legal practice? I have, sir. Yes, I have. And it and when it happens, it's it's very powerful. And and I will say that when I've seen it, the state uh banking commission is thinking very carefully before it makes such a statement. Sure.
▶ 1:09:21because that puts them at at suddenly on the wrong side of the negotiating table with their federal counterpart. Um, do you uh what what can you tell the committee just in the few seconds I have remaining, why why did that appeal process that was in the Regal Neo Act? This is after the banking crisis of 1991, this is after the savings and loan collapse. Why didn't that stick? Why didn't that work? I'm not sure.
▶ 1:09:51I I think it basically fell off the agenda and there were other priorities and then it was just easy to have an informal process that wasn't independent. Right. Well, thank you. I don't think it's independent. I don't think it's working. And I yield back. Mr. Chairman, gentleman yields. Gentlewoman from California, Ranking Member Waters, is now recognized. Thank you very much, Mr. Chairman. Mrs.
▶ 1:10:15Still, you discussed some of this in your testimony, but I've been troubled by President's corrupt uh cryptocurrency activities while he is supposedly running our country. Just this morning, the New York Times came out with a scathing investigation into Trump's shady crypto dealings. Apparently, most of his net worth comes from his crypto activities. Let's discuss some of them. There was a meme uh coins.
▶ 1:10:43Trump and his wife launched right before he was sworn in. With Trump's meme coin, thousands of investors lost $2 billion in the first few weeks, while Trump's family and friends racked up at least $350 million.
▶ 1:11:00Trump recently announced the 220 largest holders of his meme corn would have dinner with him at his membersonly golf club in Virginia and the top 25 largest holders would follow dinner with a tour of the White House.
▶ 1:11:18Following this advertisement about how to buy success, the value of his coin immediately went up 50%, earning him and other insiders $900,000 in trading fees alone in two days. Trump Media also announced a partnership with crypto.com to offer new crypto exchange funded uh traded funds or ETFs.
▶ 1:11:47Davis Poke who is represented on this panel by Mr. Tar is the legal advisor on the deal. While Trump has attacked a number of firms, he has not attacked Davis Pope. Davis Trump's family business, World Liberty Financial, is also getting into stable coins.
▶ 1:12:08At the same time, he wants Congress to pass a law that would let him write the rules of the road where he would follow his own stable coin compared to others, even requiring the government to use his stable coin in transactions with Americans. Mrs. Still, do you think president's crypto activities are appropriate?
▶ 1:12:29If so, what impact will there be on community banks if Congress advances a weak regulatory framework on stable coins and crypto market structure for Trump to implement? Doesn't this pose a massive conflict of interest? Well, thank you, Congresswoman. You asked me, do I think that this is appropriate? I think the answer is absolutely not. I think in any other administration, this would be a scandal.
▶ 1:12:55Um, you mentioned the dinner that he's having for the largest holders of his crypto meme memecoin. In the first Trump administration, we used to talk about the imalments clause and the fact that the president was not supposed to be taking money from outside sources while he was the president. We just don't talk about that anymore, but that's pretty obviously what's happening here. Um, I think a second issue that you raised is that he has his own he wants to issue his own stable coin as this committee is thinking about in and Congress is thinking about stable coin legislation.
▶ 1:13:26I have concerns about that in two respects and and frankly with the broader crypto activities that he is The first is I do not think that there is a financial regulator alive who would take a hard look at any of these businesses being run by the president of the United States who is their boss and if some of these administrative law cases go the way that they go, he can fire them at will.
▶ 1:13:52So he's got something hanging over the head of these regulators um which is a massive conflict of interest. Uh and that means that number one there can be risks taken that regulators will not get out ahead of. There can be consumer and investor harms they will not get out ahead of that will cost us taxpayers, consumers a great deal. It could undermine financial stability and lead to a financial crisis. The second point that you touched on is this is a massively unlevel playing field.
▶ 1:14:20There are other financial institutions both in the crypto industry but also community banks, other well-regulated financial institutions that have to follow the law and follow the rules and don't get special dispensations. They don't get regulatory forbearance and they're not wellconed enough to have the heads of these agencies on speed dial. So the large well-connected companies get treated one way and the small institutions get treated a different way and I think all of those are highly problematic. Well, thank you very much.
▶ 1:14:48Do you think this is an issue that members of Congress on both sides of the aisle should be focused on? This is so unusual uh to see this kind of thing. What do you think? Yeah. Yes. Absolutely. As I as I said in my testimony, a number of things deserve greater focus than some of the issues uh here, you know, the bills here today, and this is one of them. And I think in in past eras, there would have been a bipartisan outcry. I'm not sure why there's not now. Thank you so very much. I yield back. The gentleman from Michigan, Mr.
▶ 1:15:18Heisinger, is now recognized. Uh, thank you, Mr. Chairman, and um, M. Tyer. Uh, your, uh, your firm was just singled out by the ranking member. Do you care to address that at all before we get going on some questions? Thank you very much, Congressman. I'm sorry, but I'm not permitted ethically to comment on a current client, so I would prefer to stay in silence on that issue, but I thank you. That and that's fine. And unfortunately, that's a tool that's often used by folks up here.
▶ 1:15:47Uh you are contractually bound to not be able to say anything, but they can say whatever they want up here uh and and and try to smear people. So, um I I do want to try to set something straight here. Last uh last Congress, I was the chair of the oversight and investigation subcommittee. I spent a lot of time uh looking into the bank failures of 2020 2023. And at the time, there was a rush to judgment and apparently with Mr. steel.
▶ 1:16:13There still is a continuation of singling out 2155 as the culprit here, which we know frankly is a is the furthest thing from the truth. Um the claim that uh uh 2155 and tailoring weakened capital and liquidity standards is false.
▶ 1:16:30We know that in the case of Silicon Valley Bank, the Feds the Fed's own report says, and I quote, "SV's capital position was not the primary cause of of its failure." Uh the claim that uh supervisory tailoring weakened bank oversight is also wrong. The Fed's own review found that examiners identified issues such as with interest rate risk management but failed to escalate or enforce timely corrective action on that.
▶ 1:16:56In fact, Barney Frank uh himself uh a uh someone that I would probably struggle to agree that today is Tuesday with normally uh said, I quote, "I can tell you personally that there is no dimminionative uh diminuation of regulation." In 2018 didn't say no regulation or weak regulation. It said you wouldn't regulate a bank at 50 billion in assets the same you wouldn't regulate a bank at several trillion dollars.
▶ 1:17:24but they retain strong power to regulate close quote. So these are red herrings and some distractions. Uh so let's stay focused here and I want to I want to stay focused on that uh on that um bank supervision. So uh Miss Tyer, in your testimony you go into detail about bank supervision and I appreciate you saying that I wrote this down the art of supervision is absolutely correct and it's interesting running that oversight subcommittee. Um we ran into a lot of really really good people.
▶ 1:17:53uh at the FDIC and uh we uh and some of those people were very willing to help correct and point out to us as a committee uh the problems that were that were going on. Uh and uh you my friend Mr. Bar and I had released a report on the toxic workplace at the FDI and I'd frankly I'd contend that if it wasn't for the Basel 3 endgame uh Marty Groomberg would have been canned long before his quote unquote resignation happened.
▶ 1:18:21Um so but during our investigation we often found that a lot of disconnect between board and examiners in the field and that's why I've introduced uh reforms such as the FDIC uh uh board accountability act. This bill ensures two changes to the composition of the board.
▶ 1:18:38one, a board member who has state bank supervisory experience, which is what Chairman Hill was referring to uh earlier, and two, secondly, a board member who has demonstrated working in or supervising depository uh institutions with having less than $10 billion in total assets. So, Mire, do you do you see that as being advantageous? And do you care to comment on sort of the FDIC? I think those are both excellent ideas.
▶ 1:19:06Um, I think it's very helpful to have somebody with actual banking experience at the top of the house of any of the agencies. If I recall correctly, one of those bills would also remove the CFPB from the board of the FDIC. And I think that is wise because that would create room for more for somebody with banking experience. Okay.
▶ 1:19:29Um, in in my last minute here, uh, Miss Flowers, you you talked about management risks in your testimony and and, um, I'm pretty sure it's clear that, uh, regulators, uh, and examiners, uh, did not effectively use the metric, uh, when overseeing SVB and signature banks. Um, unless you disagree with that, I know you're affirming that.
▶ 1:19:53Uh so what would be a better way for examiners to ensure that uh to to ensure that this type of mismanagement isn't missed or frankly even worse ignored in the future. I think that what would be really important um as I mentioned in my testimony is to refocus the exam framework on material financial risks. That could include a standard for what constitutes safety and soundness that's mored in financial risk.
▶ 1:20:22I think with SVB, we saw that they're they didn't lack examiners. They didn't lack examiners with energy and authority and tools, but what they did lack was that focus. And so refocusing them so that they're not um distracted by process related governance and management minutia. I think it would have been better if those examiners um had been focused more on giving directives to management specifically focused on things like interest rate risk and liquidity risk rather than the gentle ladies expired.
▶ 1:20:51Time of the gentleman is expired. Uh the gentleman, the gentleoman from New York, Miss Velasquez, is now recognized. Thank you, Mr. Chairman. Mr. Steel, once again, today's focus on community banks centers on the right subject, but the actions taken by President Trump, his co-president Elon Musk, and the Republicans tells an entirely different story.
▶ 1:21:18Trump's disastrous economic and tariff policy has thrown our markets into turmoil and increase the risk of a recession. And you know what? The American people agree with that session uh assessment. 55% of Americans disapprove of the president's economic plan and 66% are fearful of a recession.
▶ 1:21:46Moreover, President Trump and Doge effort to dismantle the CFPB guts a regulatory agency Americans largely support. Isn't it right, Mr.
▶ 1:22:00still that seeking to shut down the CFPB trying to fire nearly 90% of its staff and significantly reducing its supervision and enforcement work will continue to cause community banks to face an uneven playing field against the GCP banks and now with emergence of big tech in our bank banking system as well. Thank you, Congresswoman.
▶ 1:22:30And yes, as as I was discussing with the ranking member, absolutely. I think a problem here number one is the unlevel playing field this creates because as I said, the CFPB focuses a lot on non-banks and the largest banks with no CFPB do examinations and supervision. They can't spot emerging issues there. Um, but the smaller banks are going to get potentially get more attention, not less attention because that's the only place they'll get it from their bank uh examiner, the banking agency, and not from the CFB. huge problem.
▶ 1:22:59You know, the last election, as we've talked about already, was about lowering costs for consumers and taking the CFPB off the beat. As I said, $20 billion back in the pockets of consumers as a result of remediative enforcement actions over the CFPB's lifetime, $15 billion in the rules alone, millions of consumer complaints that won't get addressed. I mean, this is this is hurting the consumer not.
▶ 1:23:23Can you explain how the tariffs will hurt not only consumers, small businesses, and the community banks and credit unions that serve them? AB: Absolutely. So, the concerns I have with the tariffs are you're raising the cost of financial products and services on one hand by eliminating important protections. On the other hand, the tariffs are going to raise the costs of consumer goods on the other.
▶ 1:23:51So, the consumer is going to get squeezed from both sides. Um, and that obviously will make it harder for them to make ends meet. I have concerns about the way that that then flows in through to financial institutions as well as consumers have harder time paying their bills. Maybe they can't pay their credit card bill or their mortgage. What does that mean for small institutions? That really worries me. Thank you.
▶ 1:24:12And uh uh the Republicans have also sought to resend the CFPB's rule on overdraft fees, which will have reduce over overdraft fees for big banks to $5. While Republicans claimed this was done in part to help community banks, more than 97% of banks and nearly all credit unions were exempted. Isn't that true? Absolutely.
▶ 1:24:40And the majority of banks were also exempted from the CSPB 1071 rule. And uh I just heard a witness um making a statement of as to how section 1071 will impact them negatively.
▶ 1:25:02But section 1071 rule only covers financial institution that have made 100 commun uh commercial loans in two consecutive years. Isn't that true? It is. So when Mr.
▶ 1:25:18Chopra, Director Chopra came before our committee and made a statement uh and given the asurances to community banks that they heard them that they took their concerns into account and that most community banks will be exempted from the rule. Isn't that the truth? It is. Okay. Thank you. I yield back. The gentleman from Texas, Mr. Williams, is now recognized. Thank you, Mr. Chair.
▶ 1:25:47In recent years, federal credential regulators like the Federal Reserve have taken their eyes off the ball and began expanding their regulatory agenda to include things like climate related financial risk. This decision to implement these practices come from an alignment with global organizations like the network for greening the financial system which is headquartered in Paris, France.
▶ 1:26:08Under the Trump administration, the Federal Reserve has withdrawn from the NGFS, a decision that I applaud and but under the Biden administration, regulators chose to play politics, insert climate in their agenda, and could possibly do so again in the future. So, Congress needs to examine the Federal Reserve's role in these international organizations to make sure that they are putting the United States interests above all else.
▶ 1:26:30Which is why I'm introducing the Federal Reserve Financial Accountability and Transparency Act, which require the Federal Reserve to report on their expenses and research related to international organizations like the network for greening the financial system, the Basel Committee on Banking Supervision, the Bank for International Settlements. It's important for Congress and the financial system to have transparency into our regulators interactions with these organizations and hold them accountable to the American people.
▶ 1:26:53So, Miss Flowers, could you elaborate on the lack of transparency into the credential regulators engagements with international organizations and how do these agreements put our financial system at risk? Thank you for the question. I think it's really important.
▶ 1:27:07Um we have very little insight into our federal banking ay's participation in committees like the Basel committee and other of the international bodies you mentioned they Basel committee for example doesn't release minutes we don't know what positions are taken by our agencies unless they voluntarily disclose them um and we don't get official reports on US views and whether they are um advancing positions that are um promoting our unique you know domestic banking system um and its structure in those international
▶ 1:27:37bodies. Um, our own efforts at BPI via foyer requests to obtain materials about the Federal Reserve and the Federal Reserve Bank of New York's deliberations at the Basel Committee specifically concerning the Basel 3 endgame were summarily and categorically denied. Even though the Federal Reserve identified hundreds of pages of documents, their own documents related to those deliberations, they claimed exemptions and refused to share them.
▶ 1:28:01And um you know in spite of the fact that they identified this we they didn't provide an explanation of why that sharing those documents with the public wouldn't increase transparency around that process. Okay. Thank you. I want to ask Miss Ty could you also quickly touch on how this lack of transparency puts our financial system at risk? Well I think when horse trading happens and deals are made in an international forum.
▶ 1:28:28I think there's an enormous amount of moral pressure on those who attend those forum and are repeat players to come back and impose it here exactly as had been agreed at the forum. We know for example in earlier Basil Accords that community banks were exempted out as a result of discussions that happened here. Um so you know Basil is very very different from 1988. It's too complex.
▶ 1:28:56um it's become overengineered and that's just not something that our banking sector needs. Uh when I speak with community leaders back home in my home state of Texas, one concern has remained constant over the past four years and that's a crushing weight of regulatory burdens and one-sizefits-all rules. Under the Biden administration regulatory agenda prioritized partisan policies over sound, common sense financial regulations with little consideration for the needs of the smallest institutions.
▶ 1:29:23So from the 1071 small business loan data collection rule to restrictions on overdraft services, community banks have faced mandates that fail to reflect their size, business model or risk profile disproportionately hurting them. Community banks have struggled for too long under the immense weight of compliance costs and burdens and they are backbones of the economy that help build around them. So Mr. Rackcliff, briefly on you, how much time on average does a community bank spend on regulatory compliance and how do compliance burdens affected your ability to serve your community?
▶ 1:29:54It's a significant line item in our budget. I know I served for over a decade as the bank's compliance officer. And since that time, we've gone from one person in compliance to five people in compliance. So now it accounts for about $632,000 a year. Well, the more compliance officers heard a guy like me that need to borrow money. I'm sorry. More compliance officers heard a guy like me that wants to borrow money. And correct, you don't have that. Got it.
▶ 1:30:19So briefly in closing, Miss Ty, I want to ask you, can you explain how abandoning regulatory tailoring increases systematic risk and what changes should Congress and regulators prioritize to establish a tailored riskbased framework across the banking system? I'm not sure that Congress needs to do anything, sir, but I do think you need to exercise muscular oversight on the regulatory agencies so that they implement the law that you've already put in place. Okay. Thank you. And Mr. Chairman, I yield my time back. Gentleman yields.
▶ 1:30:49The gentleman from California, Mr. Sherman, is now recognized. Seems like the regulators are in a Pinsers movement. On the one hand, they can adopt regulations that are precise and exact and then they get criticized because, well, it's one sizefits-all and they're too complex.
▶ 1:31:10or they can have regulations that have give in them and then judgments have to be made by individual examiners and then we're going to have a rigid appeals process by which we then sec second the judgments. Uh either we need to have judgments made and and sustained or we need to have uh regulations so precise that there are very few judgment calls.
▶ 1:31:38Um, the majority has uh focused on Operation Chokepoint and I very much agree with them. I took a lot of heat from strong liberals who dreamed of a day when gun sellers and payday lenders couldn't get bank accounts. Um, today they can have nightmares about whether Planned Parenthood or Act Blue will get a bank account. Fact is, everybody on both sides of the political aisle should be able to get basic banking services.
▶ 1:32:08Except as we deal with reputational risk, we should retain the issues of reputational risk for Iran and for foreign terrorist organizations. When uh regulation is too tough, then loans aren't made and economic activity suffers.
▶ 1:32:29When the regulations are too loose, we see the bank failures of 2008, which uh the gentleman from Illinois points out no Republican was here to see, but we got a taste of it, a little taste of it in 2023. If the regulations are misconfigured, then we get the economic impairment of very high regulations and the credential risks of very low Um, I'm concerned about the cuts to the FDIC.
▶ 1:32:59Some 1,200 employees they're planning to lay off. They've already had 500 take the buyout. They've canned 100 in probationary employees. Mr. Steel, um, we just don't have any effective auditing of banks. Could anything go wrong? Thank you, Congressman. It's a great question.
▶ 1:33:20Um, and going back to Congressman Isaena's points about some of the issues that had been at the FDIC, you know, the problem that the FDIC had, particularly going into the spring of 2023, wasn't that it had too much staff. It was that it did not have enough staff in the banks, examining them, catching some of the risks. They had too much attrition. the workforce was too stale as we saw and so they were not able to catch and and risks there.
▶ 1:33:49And I'll point out when you have one of these chainsaw approaches to an agency, the good people go on LinkedIn. They've had it. And uh there are a lot of private sector jobs for the best people at the uh at the FDIC. And I'll point out that if we're not going to have effective uh auditing, then we just one way to deal with that is just have ridiculously high standards. Then you don't have to be that clear.
▶ 1:34:18But uh I've got a question here about the uh uh the GIBs. Uh we face a sir charge that was put in place 10 years ago as a result of the crisis. The amount of the search charge is determined by a formula that includes his bank size, complexity, etc.
▶ 1:34:36the GIB searchcharge capital requirements as a percentage of assets have increased uh Um and uh the way that the Fed calculates the GIB s uh search charge uh for US banks is double what the EU does. Miss Flowers, uh, how, uh, does the US take a different approach on GIB searchcharge?
▶ 1:35:03Uh, and does that mean less lending for, uh, American businesses? Sure. I would say that, um, the US has a bespoke framework that they refer to as method 2, and they replace the international standards factor for substitutability with a bespoke factor on short-term wholesale funding. That factor was originally meant to represent about 20% of the overall score. it's ballooned to at least 40% um for many banks.
▶ 1:35:30Also, none of the indicators in the GIB score are adjusted again as we're talking about tailoring in general for economic growth and inflation. So, those things grow as the economy grows. Um the Fed promised in 2015 in its final rule to revisit that um periodically to make those types of adjustments, but has yet to do so. So certainly when the banks are holding more and more and more capital just because the economy is expanding that's going to restrict lending.
▶ 1:35:56And finally I say we need to tomarket a held for especially held for sale uh securities and I yield back. Gentleman yields gentleman from Georgia the vice chair of the subcommittee Mr. Louderdermilk is now recognized. Thank you Mr. Chair. Thank all of our witnesses for being here today. I'm going to tail I'm actually going to uh focus my questions around two bills of mine that have been attached to this hearing.
▶ 1:36:20The first being the uh taking account of institutions with low operational risk act or tailor act and the second um being uh ensuring US authority over US bank regulators act. Now the tailor act would require regulators to ensure each regulation fits the specific profile of the effective institutions. And Miss Flowers, I'd like to start off with you as we're speaking about the Taylor Act.
▶ 1:36:47Is tailor, excuse me, is tailoring regulation based on business models or operational models a sound regulatory approach? Uh why or why not? Absolutely. Different types of business models present different risk profiles and you don't want to take for example a regulation that's designed for a complexely structured internationally active bank and apply it to a regional or community bank that has very different activities.
▶ 1:37:12So absolutely you reduce unnecessary compliance burden on the smaller less complex banks by tailoring the regulations to their specific business profiles. Well, that's been my understanding which is why we're coming forward with this because many of the smaller banks have undue um regulatory burdens that are quite costly in compliance and um is regul regulatory tailoring based on business model models feasible from a regulatory perspective? It's absolutely feasible.
▶ 1:37:41I mean, I think that it was enshrined in 2155 and the banking agencies have made an effort, including in the 2019 regulations, to um set specific categories for what should apply to banks of different sizes. And I think what we've moved away from is the indexing of those categories to inflation, economic growth. But what we've also moved away from, when we saw this with the Basel 3 rulemaking, is making sure that we're applying the actual substantive rules appropriately.
▶ 1:38:07with Basel 3 under the Biden administration, we saw the same rule going to be applied basically all the way down and that was inappropriate. It should have been tailored according to the size and complexity categories in its implementation and that's what we hope to see. I'd also like to ask you about the structure of of my bill which has a limited loop back period for regulatory tailoring of seven years from the bill's enactment.
▶ 1:38:31Do you think it's important for regulators to look back further than seven years when tailoring to capture the whole of post DoddFrank rulemaking or is seven adequate? Um, that's a good question. Um, I think that it's it's not clear to me off the top of my head what exactly would fall within the seven-year window and what would be beyond that. So, but happy to get back to you with more thoughts on that. I'm not sure exactly what's in the window, but it's it's possible that there could be regulations outside of that window that deserve additional attention. Okay. I I sure appreciate that.
▶ 1:39:01Um, Miss Tar, um, gonna focus on the other bill that uh that is being noticed here today, which is the um, ensuring US authority over US bank regulators act. This bill would require regulators to be more transparent with Congress when engaging with foreign NOS.
▶ 1:39:21Um, and regarding u regulators engaging with foreign NOS, if international regulatory standards put American financial institutions at a disadvantage against global competitors, should American regulators advocate for changing those standards or just go along with them? They should obviously be advocating for uh the US banking sector uh in particular.
▶ 1:39:51You know, our largest banks play a major role uh in international finance and also in our national security. Okay. Do you think it's important for American regulators to seek congressional buyin before agreeing to any international regulatory standards? Yes, I do. Okay. Thank you for that.
▶ 1:40:10Um, should Congress have a more direct role in formulating international bank regulatory require requirements like those we spoke about already today in the Basil Capital That's a tricky one. You know, Basil is so technical and so detailed. Um, I'm not sure that Congress wants to do anything more than give more specific directions, but um, a day-to-day role might be difficult.
▶ 1:40:41Okay. Um, I think regulators ought to do a serious post-mortem of the failed Basel 3 in-game implementation that was draw withdrawn about a year ago. In your opinion, what could they have done better? They could have looked at the data first and then come up with the rules. They could have avoided goldplating the EU standards and they could have been more transparent. Okay. Thank you. That Mr. Chairman, I yield back. Gentleman yields. Gentle gentleman from New York, Mr. Meeks, is recognized.
▶ 1:41:12Thank you, Mr. Chairman. You know, I'm I'm just finding it a little difficult to reconcile the fact that today this committee is discussing reforms to improve accountability and bank supervision and strength strengthen inter agency coordination. Yet tomorrow we will be marking up a reconciliation bill that weakens regulatory agencies and undermines regulatory certainty.
▶ 1:41:37And the meantime, the president who routinely threatens threatens to the independence of the Federal Reserve abuses the International Emergency Economic Powers Act to impose erratic and potential illegal tariffs on US consumers and pressures banks to scale back hiring practices that have improved investor returns.
▶ 1:42:04So it seems to me that chaos is reigning the day and has no bounds. And unfortunately uh my colleagues on the other side of the aisle seem willing unwilling to see the bigger picture. At least they don't say so in public. But here we are attempting to have a serious power a serious adult conversation while the dumpster fire outside this room continues to rage on. Let me just check with you first. Mr.
▶ 1:42:35um the CFPB, you know, and its mission, they enjoyed a broad support among American consumers regardless of whether they come from red states or blue states. Wouldn't you say that? Absolutely. And the CFPB also has a strong record of returning money to harmed consumers and preventing companies from taking advantage of them.
▶ 1:43:00Do you know of any other agency that was put in to do just I can't think of one. So, could you then elaborate on how efforts to eliminate the agency conflict with President Trump's campaign to promise to lower cost and protect everyday Americans? Absolutely. It completely undercuts the promises promises that he made on the campaign trail.
▶ 1:43:26He's on the one hand reducing consumer protections that are raising the cost of overbaff fees, credit cards, and who knows what else if the CFPB is taken off the beat and on the other hand, he's actively raising consumer prices through the tariffs as well. So, he's squeezing the consumer from both sides with his trade policies and then with his consumer financial policies. You know, I want to talk about because it's clearly that those policies have a direct impact on community banks and credit unions. Wouldn't you agree with that?
▶ 1:43:56I would. And you know what? I found also that President Trump's executive order regarding the CDFI fund to be particularly alarming. While the administration has attempted to walk back the order, the intent of course seems clear. Uh it aligns with many other actions he has taken to roll back progress we've made in making this country more equitable for all.
▶ 1:44:19as well as CDFIs have played a crucial and critical role in supporting underserved community both urban and rural simply MDIs for example represent only 2% of all US banks yet they serve more than 30% of blackowned um of blackowned businesses so now the president can't override laws passed by Congress what should be what should we be prepared for moving forward regarding his efforts is to
▶ 1:44:49undermine CDFIs and MDIS more broadly and how can we work together uh to empower these institutions rather than undercut them? AB: Absolutely. I mean, I think the members of this committee have to be vigilant about attempts to undermine the CDFI fund and the services it provides to CDFIs and MDIs. The first Trump administration proposed eliminating the CDFI fund. And so, it was a bit shocking but not surprising to see that in the executive order as an idea.
▶ 1:45:18But as you say, Congressman, CDFI serve urban and rural communities um in blue states and red states. And I heard that a lot. You know, I administered the CDFI fund when I was at the Treasury Department, and I heard a lot of viciferous support from states in the Gulf States, Louisiana, Arkansas, and so forth that realized that CDFIs provide essential services. And I I would note this.
▶ 1:45:41For every dollar the fund invests in CDFIS, it can then leverage that for eight dollars in private sector investments. So, it's incredibly efficient. In 2020, you all appropriated almost 12 billion dollars to the fund, which the fund then put out there. I just want to get in one more question because, you know, I've been leading the charge in Congress to end tariffs uh and have authored three different resolutions terminating the reunation day of Canada and Mexico.
▶ 1:46:09have been fake emergencies that are supposedly authorizing these massive tax increases on the American people. How do you view the potential economic impact? Gentleman's time is expired. Uh we're now recognized gentleman from North Carolina, Mr. Moore, for five minutes. Thank you, Mr. Chairman. To our witnesses, you know, for too long, banks and credit unions, especially the small community institutions, have struggled under a, you know, one-sizefits-all regulatory framework.
▶ 1:46:37regulations I would submit should be tailored to the size, the complexity and the risk profile of each institution, not imposed uni uniformly across the board. But today, financial institutions, regardless of their size, are forced to navigate complex and costly compliance burdens. Under this system, small businesses and rural communities have lost access to affordable capital and essential banking services. which prompts a couple of questions.
▶ 1:47:02First for Miss Flowers, what is at stake if we do not return to a tailored riskbased regulatory approach? What's at stake is um economic growth. I mean, banks are fueling the economic growth of our country. And as I mentioned at the outset, banks of all sizes play an important role in that.
▶ 1:47:20when you have undue compliance burdens in particular that are imposed through the supervisory process even aside from regulatory tailoring when requirements are being pushed down onto smaller banks that are inappropriate for them um you're increasing the burden without an offsetting benefit so I think it's important to free those institutions from um supervisory expectations that are unmed from a legal or materiality standard and are just based on the reviews of what the biggest,
▶ 1:47:50largest, peer banks are doing and being pushing those down onto smaller banks. So, supervision must be rightsized, not dictated by arbitrary thresholds or rigid frameworks disconnected, I guess you'd say, from actual risk. Uh, Mr. Radquiff, would further tailoring of regulations for community-based financial institutions help reverse the trend of bank closure? I believe it would and that's sincerely my hope and that's why I support the Taylor Act in particular. Thank you.
▶ 1:48:20You know during the previous administration Biden regulators injected political agendas into bank supervision particularly by pushing climate related or digital asset related risk requirements far beyond uh what safety and soundness concerns demand. These actions have real world consequences. less credit for small businesses, fewer mortgage options for families, and reduced innovation into the American economy. Uh, Mr.
▶ 1:48:45Tar, could you speak to how the politiciz politicization of reputational risk has created legal risk for the banks? Well, I think it's created legal risk uh for those banks that have either that have permitted themselves to be persuaded by the regulators that politically exposed persons or other disfavored industries should be cut off.
▶ 1:49:12And I think it was said here earlier before there is a sauce for the goose, sauce for the gander issue around these because we we have election cycles and so today's favored industry could be tomorrow's disfavored industry. I my own view is we should take political views out of banking. Right. So I would So so Miss Tar, let me ask you this.
▶ 1:49:34Do you think there's a a credible objective way to measure reputational risk or is there inherently just too subjective to remain part of the supervisory framework? It's inherently too subjective. It's new. Let's remember how new it is. It didn't exist 20 years ago. Doesn't add anything to existing risks. For example, bank secrecy act, anti-moneylaundering, terrorist financing, they're all already covered.
▶ 1:50:01And I just think that experience has shown that it cannot be objectively supervised or managed. You know, at the end of the day, we need a federal financial regulatory system that works for the American people, one that's transparent, accountable, and proportionate. Uh Mr. Radcliffe, in your experience, what impact would returning to an 18-month exam cycle for well-managed institutions as proposed in the Trust Act have on your operations?
▶ 1:50:32It would allow us to devote more resources to serving our clients versus serving our regulators because during exam time, we devote probably at least 10 to 20 staff for at least two to three weeks dedicated time to exams. And and this is a question I I'd put this one back to you again as Mr. Eckliff.
▶ 1:50:52If you had to estimate anecdotally what you are, what industrywide, what percentage of um cost of operation are spent to addressing these new compliance requirements? Do you have an idea? You had to, and I'm going to spitball that right now, what that percentage might be? Uh that's really tough to estimate. I know we spend well over half a million a year now. The actual number is probably higher than that. I've probably underestimated it.
▶ 1:51:21So probably threequarters of a million bank loan and that has significantly increased since the since the last administration. Gentle gentleman's time has expired. I yield. Thank you. Gentleman yields back. Gentleman from Georgia, Mr. Scott is now recognized for five minutes. Thank you, chairman. Mr. steel.
▶ 1:51:40There is now a ripple effect going through the Georgia economy and uh due to President tariffs. Now, we've got to understand tariffs are taxes. It's a tax.
▶ 1:51:59It's an unfair tax, particularly on our community banks and on our lower income communities and working families and small businesses. Driving up the cost of essential items like our food and our uh our hidden consumers in my district and across this nation where it hurts the most, in their wallets.
▶ 1:52:30So, let me ask you this, Mrs. Seal. Higher prices means less disposable income to cover typical expenses, leaving many struggling families keeping up with their mortgages.
▶ 1:52:46Just how are these tariffs, these taxes, let's call them what they are, impacting the customer base that's served by community banks and our credit unions? How so? Well, thank you, Congressman. As you said, it is driving up their costs. So, households are getting hit by higher costs when they go to the grocery store, when they want to buy new goods or services.
▶ 1:53:15That means they have less ability to take out a loan to make certain kinds of purchases. Obviously, they could also be impacted if there are layoffs at companies that are affected by tariffs. That could lead to things like delinquencies and or defaults on people's credit cards and mortgages. Um, all compounded by the fact we don't have a CFPB anymore to help protect consumers when they get into financial trouble. So, as I said, it sort of gets them from both sides.
▶ 1:53:42and and how can this kind of instability prove catastrophic for community lenders trying to offer stable financing to local businesses and consumers. On the commercial side, what I really worry about is institutions that focus on manufacturers that are going to get hit by this by the across the board tariffs or the trade war the president has started with Canada, for example, if they're part of the supply chain.
▶ 1:54:12I worry about firms that are focused in the agricultural sector, which we know is going to get hit really hard by this, as I'm sure you know, Congressman. Um, and so I'm worried about a general pullback in spending in the in the um spending and investment in the commercial sector that's then going to in turn hurt community financial institutions.
▶ 1:54:30And and and let me ask you, why is it dangerous to offer financial and market deregulation as a solution for the instability that has come from President's Trump's tariffs? Well, because we know that um better capitalized and stronger institutions can better serve their communities when there are economic downturns.
▶ 1:54:57And so if we weaken those rules, if we weaken institutions at a time when we might be going into a recession, that's only going to make things worse. It's only going to perpetuate it. And the reason why I worry about community institutions in this particular situation um especially is large financial institutions they can they can go to their trading desk and they can offset loss revenue by going making money and making money in these volatile markets. They'll make it if it goes up if it goes down.
▶ 1:55:25I worry about the small um that cannot pull back from their communities. I think of you know I used to work over in the Senate for a member from Ohio. I think about a small bank in Mercer County there. Um, you know, that served the agriculture and manufacturing base there. They're going to be in that community. They're going to exposed to it.
▶ 1:55:45They can't go to Wall Street and and make profits by trading or something Well, what's going to happen if we don't straighten this out? This This is like a a train wreck that is happening. We don't know what's going to happen. The uncertainty of it.
▶ 1:56:11How can you really run a country, an economy with this kind of financing, with such a questionable instrument as tariffs on the world's most powerful economy? Absolutely. As you said, I I think this just puts a general cloud of uncertainty that hangs over everything. It decreases spending. Thank you. The gentleman's time has expired.
▶ 1:56:41Thank you, Mr. Chair. Gentleman yields back. We'll now recognize gentleman from South Carolina, Mr. Timonss, for five minutes. Thank you, Mr. Chairman. I want to thank the witnesses for being here today. Last Congress, I consistently oppose the Biden administration's proposed rule mandating additional long-term debt for financial institutions.
▶ 1:56:59The previous administration's one-sizefits-all approach to long-term debt requirements resulted in a range of unintended consequences which could have contributed to broader financial instability with potentially significant ramifications for the American public. Uh, Miss Flowers, in a recent letter to federal banking regulators, Republicans on this committee called for the withdrawal of the flawed long-term debt rule proposal. In our letter, we highlighted the rule's lack of appropriate tailoring and its problematic internal banking organization LTD issuance and holding requirements.
▶ 1:57:29Do you agree that the long-term debt proposal should be Yes. And I think that that proposal is a prime example of reverse tailoring where um a regulatory requirement that was originally developed for global systemically important banks was taken and applied in a in a more problematic way to regional banks including the the the piece that you mentioned with the dual issuance requirement. So there were many flaws with that proposal which we opposed.
▶ 1:57:56And um if we're going to return to substantive tailoring where not only are we indexing categories, but we're applying the appropriate requirements to each category, that would be a prime example of doing the opposite. Thank you for that. This is the kind of ivory tower academic approach to policymaking the last administration engaged in and it lacked any real world common sense. And that is why we have a new administration. That's why we're going a different direction.
▶ 1:58:19And I want to say I'm grateful to President Trump and uh the Treasury Secretary for halting any long-term debt rulemakings that conflict with the regulatory tailoring approach we are striving to advance. However, I do remain concerned about the political pendulum that causes regulatory policy to shift dramatically with each new administration. In your view, uh, Miss Flowers, what steps can Congress take to ensure that the Biden administration's long-term debt proposal is permanently set aside regardless of future change in changes in who controls the White House?
▶ 1:58:50As far as permanently setting aside substantive policy, I I agree that's concerned and we want to pursue durable reforms that enshrine, you know, the appropriate tailoring of requirements. Um, I think that there's already a law on the books that is often overlooked when the agencies are inappropriately applying substantive rules um to smaller banks that weren't intended. That's the administrative procedures act.
▶ 1:59:11So using as I think my uh my colleague uh or my co-witness uh Miss Tyer suggested the regulatory muscle or sorry the the congressional muscle around oversight of the agencies to making sure that they that they comply with the laws that are already on the books for their rulemakings would be a first step because then they have to empirically support and do costbenefit analysis that's required. Sure. Thank you for that.
▶ 1:59:34One way I've been thinking about regulatory tailoring is through a more riskbased approach, focusing oversight on institutions that present clear concerns rather than burdening those that are well-managed and well capitalized. As Chairman Hill mentioned earlier in the hearing, it is similar to how health and safety inspector inspections prioritize restaurants with prior violations or higher risk operations like those serving raw seafood. That same principle is reflected in one of the bills noticed for today's hearing, the Smart Act, which offers targeted regulatory relief to smaller well-run financial institutions.
▶ 2:00:04M Tyer, am I correct that under current regulations, banks that are well-managed and or well capitalized are already eligible for extended exam cycles? I guess in other words, the concept of tailoring for good actors is already part of our regulatory It is, but it's not it's there's not very much of it and there ought to be more. What additional forms of regulatory relief should we consider for these institutions beyond what's proposed in the Smart Act?
▶ 2:00:30Well, I think that they should have um they should have expedite expedited processing of applications particularly at what I'll call normal way business as usual applications like branches. Um uh they should have expedited applications for uh acquisitions. They shouldn't be subject to frivolous um you know letters that then take it up to Washington. Things should stay delegated.
▶ 2:00:58Um and I I think they should generally be um encouraged in such a way so that they don't have to have you know these enormous compliance and riskmanagement staffs particularly if they're a simple business model. Sounds like a good plan. Um I want to finish with something that is near and dear to my heart. Mr. Rose's home buyer privacy protection act. Uh, I am currently going through the process of purchasing a home and I have had to have my credit run twice and each time I've had my credit run.
▶ 2:01:27Uh, I've gotten at least 200 to 300 phone calls within 36 to 48 hours. It is absolutely insane. I've gotten text messages. I mean, my my phone already has a inordinate number of phone calls because I give it out to 800,000 constituents. But to then get hundreds and hundreds of phone calls within 24 to 48 hours after they run my credit is just unacceptable. and we need to be able to opt in if people want additional opportunities for for Thank you. I yield back. Gentleman's time is expired. We now recognize the gentleman from Texas, Mr.
▶ 2:01:57Green, for five minutes. Thank you, Mr. Chairman. Mr. Chairman, the great Victor Hugo reminds us that there is nothing so strong as an idea whose time has come. But I would say that there's nothing so wrong as a bad idea whose time has come.
▶ 2:02:22For now some 100 days we've had to suffer bad ideas. 100 days in and the president with the aid and comfort of my colleagues across the aisle have decapitated the CFPB. It would be more appropriate to call it now the FPB, Financial Protection Bureau.
▶ 2:02:53the financial community will receive greater protection than the consumers. I have evidence of this. We find that on yesterday. The American banker published story. It is styled Wells Fargo exits another consent order.
▶ 2:03:20an asset is asset next goes on to indicate that Wells Fargo took the latest step out of purgatory on Monday when the bank said that a two 2018 consent order with the Consumer Financial Protection Bureau had terminated.
▶ 2:03:46Wells Fargo had agreed to a 100 or pardon me a $1 billion penalty. Uh that seems to be in question. There are other banks as well. 100 days in and you didn't stop there. You replaced independent regulators with dependent deregulators.
▶ 2:04:13There's an effort of foot to remove power. The only thing that stands in the way appears to be the stock market. You didn't stop there. You've within 100 days made an effort to turn our democracy into a plutoaucracy with executive orders ruled by executive orders with doge a department that
▶ 2:04:44is not a department because a president can't create departments with doge and a man with a chainsaw cutting into various agencies that benefit people greatly by removing personnel that cause the agencies to function efficaciously.
▶ 2:05:05So within 100 days we've experienced all of these executive orders that are adverse to the best interests of consu consumers and the American people. So Mr. Steel, you mentioned something about a separation of powers. I I'm intrigued with what you said because quite candidly I don't think rule by executive orders is what the framers of the constitution intended.
▶ 2:05:33Would you elaborate for just a moment on your commentary please? Thank you Congressman. I'd be happy to. Yeah. I mean, the way the president is governing out of the White House, Office of Management and Budget, also the Doge, as you mentioned, is trying to override the law by executive fiat essentially. And it's it's bad for the public. Trying to shut down the CFPB illegally is bad for consumers, but it's also bad for Congress. You all wrote these laws. You enacted them.
▶ 2:06:02You passed them. And this administration is trying to ignore a lot of these either through executive orders saying ignore the Equal Credit Opportunity Act. AIPA says whatever I say it means. He's really trying to seize the power of this body back for himself and say the law is whatever he says it is. Thank you.
▶ 2:06:23I will be bringing articles of impeachment soon because the president is devolving our democracy into a de facto dictatorship wherein he would be the de dictator. Uh we we have to take a stand. People need to know where you were when democracy was at risk.
▶ 2:06:49when the country that we know was literally being transformed into a country that we don't want to know. I yield back the balance of my time. Gentleman yields back. We now recognize gentleman from Tennessee, Mr. Rose, for five minutes. Thank you. And I want to thank Chairman Bar and Ranking Member Foster for holding this important hearing. And thank you to our witnesses for taking time from your schedule to be with us today. Chairman Bar.
▶ 2:07:16Uh I just want to start off, I know he's not in the room, but thanking him for attaching uh HR2808, the Home Buyers Privacy Protection Act to this hearing. I also want to take this uh opportunity to publicly thank Democrat colleague, my Democratic colleague, Congressman Richie Torres, who has been a steadfast advocate for this important legislation.
▶ 2:07:40The Home Buyers Privacy Protection Act aims to reform the practice of credit reporting agencies selling the contact information for mortgage applicants without the consumer's knowledge or approval. Information that a consumer has recently applied for a mortgage is often called a trigger lead within the industry. I have heard numerous horror stories, not different really than my friend uh Mr.
▶ 2:08:07Timmons just recounted of individuals of countless individuals who have received hundreds of calls and text messages just as Congressman Timmons described at at all hours of the day or night as the result of their information being sold without their approval simply because they applied for a mortgage seeking to become a homeowner. Even members of this committee, as we know, have told me about their own experiences with this predatory practice.
▶ 2:08:35The Home Buyers Privacy Protection Act would put a stop to these unwanted calls and text messages and other contacts, except in limited circumstances. The bill had over 90 bipartisan co-sponsors in the House, last Congress, and passed the United States Senate by unanimous consent. Think about that. It tells me that there are hundred guys across uh men and women across the way here who get it. Mr.
▶ 2:09:03Chairman, uh I ask unanimous consent to enter into the record an April 17th letter to the chairs and ranking members of the House Financial Services Committee and the Senate Committee on Banking, Housing, and Urban Affairs signed by 17 different organizations in support of the Home Buyers Privacy Protection Act.
▶ 2:09:25Without objection, I think it's important to note that uh I have worked closely with our bipartisan Senate partners to carefully craft the text of this legislation. I also want to highlight that my office also worked closely with the Financial Services Committee staff uh in this Congress on this text prior to its reintroduction. It is time for this vitally important piece of legislation to become to come to the House floor.
▶ 2:09:49Looking at the future of this legislation, it is essential that we that the text of this bill is not altered in a way that prioritizes the profits of credit reporting agencies over consumers who simply do not want to be bombarded with phone calls and text messages. I look forward to working with my colleagues on the committee and in the House to ensure this bill's passage, swift passage by the full house.
▶ 2:10:13Staying on the topic of mortgage trigger leads, I am pleased that Michael Ratcliffe is testifying today as I believe that you will be able to share some valuable insight into the need for trigger lead reform. Mr. Ratcliffe, can you discuss why mortgage trigger leads can be so detrimental to both consumers and to their mortgage Yes, it's very topical because just last week, my next door neighbor sent me the screenshot of a text he had received.
▶ 2:10:42It appeared to be from our bank. It said, "Click here to see more information about your mortgage with CFSB." He thought it was a scam and a fishing attempt, but it was a trigger lead. You know, we get we my wife and I just purchased a home and we received a mailbox full of the mailers. And on that, it used our bank's name. The name of the company did not appear. So, it's deceptive. It It absolutely is.
▶ 2:11:09And you know, I I'll I'll give uh props to to Congressman Timmons here. He is a member of Congress and a lawyer uh and a very smart young man. And you know, when you see someone like that having to struggle to weed through all of these messages, you describe yourself. You're you're a very knowledgeable financial services industry uh uh you know, professional.
▶ 2:11:35And I will tell you from my own experience with these things, no matter how savvy you are, it can be difficult to wade through these things. And it's happening for most people at one of the highest stress points in their lives. Most people maybe buy a home once or twice in their life. And so then to be inundated with all these offers, I think it's really oppressive. And I think the American people deserve uh some relief here. And I see that my time is expiring. Thank you, Mr. Radcliffe. And I yield back. Gentleman yields back.
▶ 2:12:04We now recognize gentleoman from Ohio, Miss Bey, for five minutes. Thank you, Mr. Chairman and ranking member. Uh, timing is uh everything. And so, in a followup to my colleague, Mr. uh, Rosen, I'm one of those individuals signed onto his bill. So, let me just say I want to make a quick uh, note about the Home Buyers Privacy Protection Act. Uh, this bill, as you have heard, is about putting consumers back in control of their personal information.
▶ 2:12:31And right now, when someone applies for a mortgage, their data can be sold without their knowledge, leading to certainly unwanted calls and and much confusion. This bipartisan bill ends that abusive practice while preserving legitimate offers of credit and ensures home buyers can focus on achieving the dream of home ownership without confusion and um affecting their privacy.
▶ 2:12:59So, I am proud to be a co-sponsor and thank you, Mr. Rosen, uh, for talking about this bill. Uh, let me now go to you, Mr. Ratcliffe. Uh speaking about another bill, my bill expanding opportunities for MDI act which previously passed the House by a unanimous voice vote would codify the Treasury's Department mentor protege program to encourage partnerships between large banks and
▶ 2:13:29community financial institutions including MDI. Glad I'm seeing people shake their heads. They're aware of this. Uh I am proud to have an MDI in my district, the Adelfi Bank, which would benefit from this bill by codifying this program would also help community financial institutions across the country because their increased capacity, improve their relationship, uh lending, business model, and even become financial agents
▶ 2:14:00to treasury. Can you discuss how community banks like yours would benefit from my bill and help small financial institutions better serve their constituents in their community? I regret I can't actually speak to your bill in specific um as to how our bank uh would benefit from it. Um and we are not a minority depository institution. Um but I would be happy to circle back offline after I review it. Okay.
▶ 2:14:30Thank you. Uh let me go to you, Mr. Steel. Many of my colleagues on this committee and on both sides of the aisle have long been strong advocates of the CDFI fund, which as you probably are aware, President Trump directed to be reduced or eliminated in his March executive order.
▶ 2:14:50CDFIs, as you all know, are vital institutions uh at the front lines of providing financial services to communities that need it the most, operating in all 50 states and in every congressional district uh that we have.
▶ 2:15:09CDFIS also deliver financial services and products to rural communities, veteran populations, military-based communities, minority groups, lowincome groups, underserved areas. You get where I'm going with this.
▶ 2:15:23While we are here today to discuss the importance of community banking and the need to end regulatory overreach, can you discuss how this disastrous executive order directing the elimination of CDFIs would hit the smallest financial institutions the hardest? Absolutely, Congressman. I'd be happy to. You know, the order itself displayed a shocking ignorance about the CDFI fund itself and the CDFI industry.
▶ 2:15:50the idea that there's some profleacy here and they're doing a lot of non-essential things. The fund is focused on serving the certified CDFIs and MDIS. And CDFI certification is valuable on one hand because um it assures these institutions are really genuinely serving low and moderate income communities and that they are missiondriven. It means they get access to the financial assistance program.
▶ 2:16:15So they're getting that government capital that then can the third piece is be leveraged because CDFI certification and government investment is a good housekeeping seal of approval for private capital that these are strong missiondriven lenders. They're doing good work in their communities and offering responsible financial products and services. So it's a way of crowding in this private capital and really reaching the hardest to reach communities.
▶ 2:16:39So, it's it's an incredibly efficient and impactful program and it was it was again shocking and disappointing to see them try to go after it. Thank you. I have a few seconds left. Let me go back to my first question for everybody and it can be a yes or no. Uh while uh Mr. Ratcliffe, you said we get on a offline. Miss, would you all agree that there is a benefit like many of our other banks across the country have done by having a mentor protege uh program?
▶ 2:17:07Would you be open to doing that in your institution? We can go right down the line. Yes or I can't speak on behalf of our member institutions, but it sounds like a very thoughtful idea for um Okay. So, that's a almost Yes. Okay. On behalf of our institution, yes, we would be very Okay. I'm at a law firm, so I I'm not sure I I get it. General, it's probably not for me. Okay.
▶ 2:17:35I I will just say real quick when I was at Treasury, we were very focused on this particular issue, both getting more government deposits, but also the technical tell me my time is up, but technical assistance and the mentoring program as well. Thank you. Gentlewoman's time is expired. She yields back the gentleoman from California, Miss Kim, is now recognized for five minutes. Thank you, Representative Fitzgerald, for yielding. And I want to thank Chairman Bar and Ranking Member Foster for holding today's hearing.
▶ 2:18:03And thank you our witnesses for joining us today. You know, for the past few years, I have heard firsthand how abusive mortgage trigger leads can create a painful process for prospective home buyers. So, I completely agree that we must take steps to address this issue and provide a relief to our home buyers.
▶ 2:18:25I am concerned though that the home buyers private uh privacy protection act which is noticed in today's hearing goes too far and as a result would hurt market competition and consumer choice. So I hope that my friend and colleague from Tennessee can work with me to craft a revised bill that strengthens consumer choice, preserves market competition, and still secure home buyer privacy. Uh let me now shift uh gear now.
▶ 2:18:55In County, there has only been one bank formed since 2021. And in Southern California, only four new banks were formed since 2021. And across California and the country, we're facing a banking crisis because of overburdensome regulations.
▶ 2:19:18Today's hearing is the first of many that will result in legislation that provides banks with regulatory relief and will jumpstart bank formation. Fewer banks in our communities result in less competition, reduce capital formation and decrease access to banking. Mr. Redcliffe, let me ask you a question.
▶ 2:19:42You know, when a community loses its banks, what are the wraparound services that are also lost for that When a small rural community loses a bank, they often are left with only payday lenders or online lenders. um they lose the ability to get a relationship with a lender that knows their business, who can tailor the lending to their needs and they're left with cookie cutter options. Yeah.
▶ 2:20:14So obviously we are here to provide uh more access to banking and make sure that uh we are taking care of our uh community needs. So I wholeheartedly agree that these are services that we cannot afford to lose. So I want to focus now on something Chairman Hill touched on earlier about a functional appeals process.
▶ 2:20:36Uh so let me ask you uh Miss uh Tyer um can you speak to the lack of data showing that banks utilize the appeals process and what that low usage may mean? There are multiple reasons, but I think there is a fear of retaliation um by the examination team. Um and not all examination teams retaliate. Let me be clear about that. But there is a fear.
▶ 2:21:05There's also a fear that the appeals process might be stopped because of the threat of an enforcement order. And there's also just a a sense that the process itself is not independent and is not fair. Um I I don't think that banks should be appealing every exam finding. I think appeals should be rare but they should be fair. Well, thank you.
▶ 2:21:32You know, I also want to make sure that we do not forget about the Boso 3 endgame proposal and the damaging impacts that it would have for consumers and banking As written, the Bosler 3 proposal would inhibit US investment by foreign banks. As a result, uh there would be a reduction in the products and services that are offered to our local communities.
▶ 2:21:57So the question to you uh Miss Flowers is that as agencies begin to look at the Bosel 3 capital framework, would you agree that they should pay attention to the unique aspects of uh foreign banks as they finalize the framework? Absolutely. They should be looking at the uni unique aspects of every category of banks and the unique risk profiles but also the structures that they use to provide financial services.
▶ 2:22:22And there were certainly aspects of the Basel 3 proposal that would have unfairly impacted uh foreign banking organizations that are providing services in the way that the operational risk charges were applied to them. So that's something they should definitely reconsider. Well, thank you very much. Um that's all I have for today and I want to yield back the balance of my time. Gentleoman yields back. We now recognize the gentleman from California, Mr. Vargas. Five minutes. Thank you very much, Mr. Chairman.
▶ 2:22:52And I appreciate the opportunity. Again, I want to thank the witnesses here. Um I for my colleague, I would say that I think the and I think I know that the IMF and the US Bureau of Analysis just stated that California now has become the fourth largest economy in the world, surpassing Japan. So, everybody likes to beat up on California, but we're doing all right. I have to tell you this, uh I do HR2808 in front of me. Um it's been spoken of a couple times here.
▶ 2:23:21It's uh sponsored primarily by Mr. Rose and it's I think it's a good bill. I read the bill. I know the bill. But I asked the question, I'll ask you who would enforce it if it was put into law. If if we have no CFPB, I I don't see many many enforcement mechanisms for it. So yeah. Yeah. It's kind of interesting. It's a good bill, but who the hell's going to enforce it? There's nobody at the you know, the CFPB. I mean, you got a good bill here.
▶ 2:23:51Most people say it's good. Someone wants to tweak it, that's fine. Who the hell is going to enforce it? I mean, I mean, that's the situation we're in. You know, Ronald Reagan very famously said during the second debate in 1980 against Jimmy Carter goes, "There they go again." And there they go again. I mean, once again, deregulation. We see what happens every time. You know, financial institutions take it too far. Once again, they get reckless. Once again, there's a calamity.
▶ 2:24:21Once again, taxpayers have to bail out the banks. That's why they we passed all these laws. Now, I wasn't here when they passed the laws, but they've worked well. It's interesting. I didn't realize that no Republican on this committee was here at the time. That that really is shocking one, but they do have somewhat of amnesia. I think here we go again. I mean, it's just the same thing with the deficit and the debt.
▶ 2:24:47If they pass the bill that they want, their big bill, once again, the deficit's going to go up and the debt's going to increase and they're going to be shocked, shocked that it happened. This is shocking that they're shocked. Of course, they're not shocked. They know exactly what's going to happen. So, the the CFPB still once again, you know, the return on investment over 21. Could you comment again on that? We've commented, but I I think it's so important to nail this point because I think it's such a ridiculous cut that they're doing.
▶ 2:25:15And this is the one group that really has returned a lot of money to the public. Could you comment on that? Absolutely. Over over its lifespan so far, at least according to the CFPB itself, it's returned $20 billion to consumers. We we know that. Massive savings there. Um we also know that it deals with consumer complaints. So when a consumer feels like they've been cheated, they file a complaint at the bureau. The bureau turns back to the institution and says, "What are you going to do to fix this?
▶ 2:25:42What's the story here?" They've saved consumers money that way. We don't really know um how much they've prevented from happening. That could have been bad that it could put money back into consumers pockets. But I did mention those two rules that would have collectively saved consumers $15 billion a year and it costs t taxpayers. It's coming from the Federal Reserve system, but it it costs $800 million a year. So massive return on investment um in proportion to the resources that it that it needs.
▶ 2:26:12And I have to tell you, I think it's exactly when we need it to be the strongest. I mean, I I said there they go again and you know, history is going to repeat itself. But one thing that one thing that is unprecedented here in my opinion, and that is a conflict of interest that we see today, it was spoken of a little bit today with the memecoin and some of the crypto interest that the president and his family have. This has never been seen before and especially on this scale in American government. It's just shocking.
▶ 2:26:42I I guess, you know, since everyone expects it out of this administration, it to me it's still shocking. It shocks the conscience that we have this. I mean, who's going to be the cop on the beat here, Mr. Steel? Well, it's a great question, and as I said earlier, I I cannot think of a regulatory agency that's going to want to go after crypto or stable coins. If the president and his family are doing it, they're going to be fired. You can you can bet on that. But I think it's even broader than that.
▶ 2:27:11That's the problem with having Elon Musk come into the government and all his business interests as well. They could their agencies could be fired or We have laws against this. The conflict of interest is just incredible. The opportunity for graft is unbelievable. Now, I hope that doesn't happen, but I I don't see how we're going to police it. So, with that, uh again, I I'm shocked, but I do yield back. Thank you. Gentleman yields back. Chair now recognizes himself for five minutes for questioning.
▶ 2:27:40Uh, camels is a supervisory framework to standardize how financial institutions like banks and credit unions are assessed by regulators for their safety, soundness, and overall health. However, bank examiners placed kind of a disproportionate weight on the quote unquote management component when determining a bank's camel's rating. uh even though the rating often reflects subjective impressions rather than a concrete financial indicator.
▶ 2:28:08Miss Flowers, how does this uh over reliance on a subjective assessment of management lead to misaligned uh supervisory Thank you for that question. And I think it's really important um if you're overly focusing your exam framework on uh the minutiae of governance and management issues which can really run the gamut from IT vendor management and a lot of um sort of immaterial risks that are very unlikely to impact the safety
▶ 2:28:38and soundness of a financial institution. Then you're focusing supervisory attention away from the true risk that they should be focused on like credit risk, liquidity risk, interest rate risk, those types of things. So by focusing a lot of attention on the most subjective and uniquely subjective a aspect and component of the management frame of the camel's framework you redirect supervisory attention away from material financial risk.
▶ 2:29:03So if you would shift towards a more objective kind of transparent criteria um could that improve both the accuracy of the ratings and and um I guess the overall safety of the banking system. It would certainly improve the accuracy of the ratings. The camel's framework should be a framework that assesses the financial condition and integrity of an institution, focusing it away on subjective measures of risk.
▶ 2:29:28Um, including the minutia that allow examiners to engage at at best in sort of a management consulting practice and at worst in politicizing risks. Um, takes away from their focus on core issues of safety and soundness. So in your testimony, you described how the management component has been used in practice to kind of measure the level of reputational risk uh in a bank's lines of businesses.
▶ 2:29:54So can you describe uh how this reputational risk has been used by federal regulators to debank entire uh industries really sectors industries uh and how could the current camel's framework and the management component uh could be changed or how could it be changed to to address this?
▶ 2:30:16So reputational risk is sort of a derivative or ancillary to other risks that supervisors are better equipped and have tools to address. Reputational risk is very hard to anticipate. It's very hard to address and as you said it can be used inappropriately and in political ways because it's unmed from any kind of standard in legality. Um it can be used to go uh to to to ding a bank for practices that are in fact legal.
▶ 2:30:44Um you know we've seen this as folks have been discussing today targeting certain industries depending on depending on you know the political millu. Um if we take away the ability to focus on risks that are not tied to the financial safety and soundness and refocus our supervisors on material financial risk then inevitably we move away from um an amorphous concept that is really just derivative of the risks that are truly important. Thank you.
▶ 2:31:11Over the past decade, we've seen a steady decline in the number of small banks operating in the United States. We've talked about this on the committee many times. Uh, a lot of it is the complex and burdensome regulatory environment from DoddFrank to actions by Biden era regulations. So, uh, Mr. Radcliffe, can I just ask you really quickly?
▶ 2:31:32Uh, could you discuss the consequences uh that having fewer banks for communities across this country uh has had an impact and will have an impact I think on communities. Certainly in our state alone, we've dropped below a 100 charters now for state banks and we will end up with some communities that do not have a bank at all, which is going to limit consumer choice.
▶ 2:31:57Um I think we'll continue continue to see consolidation due to the regulatory burden and the barriers to entry and what we've seen is when there is a single financial institution in a community often times if that moves on uh it has a direct impact obviously on commerce and the way small businesses function and operate in that community. Is that right? Yes. They have to go to other towns to get banking services.
▶ 2:32:25So we and you'll end up with a banking Very good. Thank you so much. I'll yield back and now recognize a gentleman from Illinois, Mr. Casten, for five minutes. Thank you, Mr. Chair. Um Mr. Rackliff, this is sort of a random question for you just in your capacity as a CEO. Um scale of 0 to 10, how confident are you about the state of the economy a year from now, 10 being the best? I'm not an economist by any stretch of the imagination. Oh. Oh, I'm just saying as a CEO, I'm curious.
▶ 2:32:55Would you I can speak for our local economy and our local economy is doing quite well. Okay. Well, I I I asked the question because, you know, I think all of you deserve an apology. The topic today is not in the top 50 of the issues that are really stressing the economy right now. But you've been called in here today because my colleagues across the aisle would can either choose to praise the naked emperor's clothing or talk about something else. And we got something else today.
▶ 2:33:22Um, I asked the question to you because Apollo Capital Management um just released a report um today saying that CEO confidence has dropped to five on a scale of 0 to 10. It was seven just a 100 days ago. Um it's the steepest drop I can see in the numbers. Um Goldman Sachs while we were sitting here just released a report saying that the United States um will have the highest inflation rate and the lowest economic growth of any developed country in the world in 2025.
▶ 2:33:51I would remind you that we had a booming economy that was the envy of the world. Check out the cover of The Economist just before Donald Trump was elected um of where we were sitting at that point. While we are sitting here today, the consumer confidence report came out. We are down 22 points in consumer confidence in the last three months. Mark Xandandy has pointed out that every time we have fallen by 20 points in two months, a recession is guaranteed.
▶ 2:34:16Those are all things we could be talking about on the Financial Services Committee if we gave a damn about the state of the economy and regulation, but apparently we're not going to do that. The heck of it is we've all been back in our districts and we've all been hearing these same stories.
▶ 2:34:32I met with a housing group when I was home who said that they are finding it harder to finance projects because their investors, many of whom are international, are saying that they want a 10% additional equity in US investments because of the regulatory risk in the US economy that they won't take that much debt. I subsequently met with one of the GIBs, not Goldman Sachs, but this is two GIBs now, um, and asked them if they're seeing the same thing across their portfolio.
▶ 2:35:01And they said, "Yes, there is a broad increase in concerns in the international community about being exposed to regulatory risk and went on to express significant concerns that we are sitting in an economy where people are running away from equities and are running away from treasuries." That's not supposed to happen.
▶ 2:35:18It's happening because the rest of the world is saying, "Thanks to Donald Trump, I do not want exposure to the US economy." Miss Flowers, you know, I don't want to name the other company I met with because I don't know if they want to be up here, but two GIBs, a lot of these, these are all members of yours. Can you speak to what BPI members are seeing about the state of the economy right now and whether you're seeing that broader regulatory risk as they think about investing in the United States economy?
▶ 2:35:42Um I also am not an economist and I think that you know um trade policy and international finance are sort of outside of the remmit of uh of our focus. We're focused on the substance of credential bank regulatory policy. So I'm I'm not asking to be controversial. I'm not an economist either. When people are running out of equities and running out running out of treasuries, is that not a massive five alarm bell that there's a problem in the US economy? Again, I can't speak on behalf of my members.
▶ 2:36:12It sounds like you've talked to some of them. Um, Mr. Steel, um, you had mentioned in your opening remarks, and all of these stresses are driven by the tariffs. This is entirely, it's not a self-inflicted wound. It's a Trump inflicted wound. You had mentioned in your testimony that AIPA may be illegal. Um, can you expand on that a little bit? Sure. What what I meant was um AIPA does not explicitly say in the statute the president can impose tariffs under that particular law.
▶ 2:36:41It meant some tools. It's not clear tariffs are one of them. That's number one. Number two, it is supposed to be used in an emergency. That's when it's supposed to be invoked. It's not clear that a persistent trade deficit, if it wasn't an emergency two or three years ago, why is it suddenly an emergency now? Okay. Um, so just on its face, um, it seems like a mislication of the law and not for its intended purpose, which was international sanctions and kind of armed conflict. And I'm sorry to cut you off, but I got 30 seconds. I have a last really easy question.
▶ 2:37:10How long does it take for the Earth to rotate on its axis? A year. No, no, not around the sun. Rotate on its axis. Uh, I don't know. A year around the sun. How long before when the sun sets and then the sun comes down? Yeah, there you go. Okay. Uh, 24 hours. 24 hours. Okay. Anybody any disagreement because the House the Republicans recently passed a rule that said a day is no longer 24 hours so that we can't actually declare this an emergency.
▶ 2:37:37This is not a serious body that is refusing to address these problems and changing the definition of a day so that we can't even do oversight. I yield back. chair now recognizes myself for five minutes for opening questions. Um, I find it interesting we we're getting criticism on Donald Trump's tariffs. I guess running deficits from here on out is the right answer that the Democrats have.
▶ 2:38:08Um, and Mr. D, I heard your comments on CFPB. Um, that group is one of the most rogue groups I've ever heard of, dealt with. banks complained about them continuously to be able to be funded and present the federal budget uh deficit by just creating a number is not right and hopefully we're going to be dealing with them.
▶ 2:38:31Um, how does one sizefitall regulatory system affect banking services particularly in the rural areas that many areas are underserved right now but banks can't go there because of uh different things and Miss Flowers I'll start with you. Sure.
▶ 2:38:49If you have one sizefits-all regulations applied to banks of all sizes and complexity, then for the less risky banks that are smaller, you're going to have uh regulatory burden that doesn't have an offsetting benefit to the community and their ability to lend. Mr. back. Along those same lines, it we devote an inordinate amount of staff time and dollars towards the regulatory burden and it limits our ability to offer products and services.
▶ 2:39:21Spar think of two banks. One is 80% uninsured deposits. The other is 80% insured deposits. Makes no sense to regulate them the same. two different animals, isn't it? Two different animals, Mr. Steel. So, I actually agree that regulators need to focus more on the risks of particular institutions.
▶ 2:39:47My would be they don't tailor enough right now because you have basically GIBs and everyone else. So, I actually don't disagree that there could be more tailoring in the rules. Thank you. Um, how is there a credible uh framework to measure reputational risk in y'all's opinion? It's been a open source for a lot of people. A lot of question how would y'all Miss Flowers I'll start with you. How credible is it?
▶ 2:40:13I don't think that anything that is unmed from a legal standard from the laws and from a materiality standard is really credible in terms of not being objective and being um just subject to total discretion. Mr. Akliff, it's inherently subjective and what we crave in all of the camel's components is clear guidance and a clear rulebook by which to play.
▶ 2:40:41I think experience has shown that it doesn't add anything to real material financial risks and it just can't be objective. Mr. Ste, I think what the public thinks about a financial institutions got to play a role. Banking is about trust and the public trust and people trusting their money is safe. And so there's there's got to be a factor here.
▶ 2:41:07I I get it's harder than measuring a specifically quantifiable capital requirement and a ratio like that, but how how the public views an institution I think is incredibly important in the banking industry. Well, I want to thank all of you for coming. That's all the questions I have unless anyone else uh has questions this meeting. Oh, the gentleman from Massachusetts, Mr. Lynch, is recognized for five minutes. Thank you, sir. Thank you, Mr. Chairman.
▶ 2:41:34Uh, you know, we have one single federal agency whose sole mission is to protect Americans consumers. That's the Consumer uh Financial Protection Bureau. And less than two weeks ago, the Trump administration and Elon Musk illegally fired 90% of the employees at that agencies.
▶ 2:41:55This this included 48 487 supervisors, leaving about 50 staff to supervise 36,000 banks, credit unions, mortgage lenders, student loan services, payday lenders, auto finance companies, debt collectors, money service businesses, and other financial providers across the country.
▶ 2:42:21Notably, the entire office of the military service members affairs unit, which is dedicated to protecting and empowering ser military service members, veterans and their families, was eliminated. You know, I not long ago had a chance to get down to Fort Hood down Texas. 70,000 of our our our best and brightest down there, all all patriots.
▶ 2:42:46And if you look outside the base, there's nothing but uh auto uh you know, car dealers and uh payday lenders and they're all hovering around that base. Those 70,000 young people, a lot of young families down there, uh a lot of our young soldiers, uh men and women who who don't have a lot of sophistication.
▶ 2:43:08They're they're so young and they're being exploited every single day by by people that are trying to, you know, give them payday loans that are unconscionably high in and interest rates. And and regrettably, those service members and their families are often targeted by those predatory payday lenders, auto lenders, and debt collectors. And now the office charged with protecting them is gone.
▶ 2:43:33To make matters worse, the CFPB previously employed 210 veterans on their own staff, including three who served in the Vietnam Vietnam War area. And almost all of those have been illegally fired by President Trump. And according to the Treasury Union's lawsuit, the first wave of reductions in force notices appeared to target and impact disabled veterans and the second wave focused on all veterans in general.
▶ 2:44:03So these are men and women who have dedicated their lives to serving their country and then chose to continue protecting Americans notably their brothers and sisters in arms. And it is shameful how little regard this administration is showing right now for for our veterans when you when you couple this with the thousands layoffs of of employees at the VA that is happening right now and that is and more are scheduled. Mr.
▶ 2:44:34Steel, talk about the the the consequences that eliminating the CFBB workforce and especially the military service members affairs unit in terms of these these young soldiers that are being prayed upon by by some of these uh payday lenders and also uh auto dealers that are that are selling them cars, but they have these ownorous and egregious uh deals to to to pay back those loans at high interest rates. Sure.
▶ 2:45:03So I I mentioned earlier I used to work for a member uh in the Senate from Ohio and there's Wright Patterson Air Force Base down in in in Dayton in the same way Fort Hood and it was it's the same situation there. Payday lenders, autotitle lenders all right across the street from the base there waiting for there to be some sort of financial stress or strain on these service members and their families in order to swoop in uh and try to try to give them predatory loans. It's it's stressful on the families. It causes distraction.
▶ 2:45:34Uh it reduces force readiness. Some of them might have to leave the service because they can no longer afford uh the salary there. They got to go find a job and go do something else. It it weakens our armed services not to have healthy uh and robust um financial protections for for those service members. Thank you. One more question.
▶ 2:45:57The Trump administration has just dropped pro-consumer lawsuits and halted enforcement activity against JP Morgan Chase, Wells Fargo, Bank of America for alleged payment scams on the app on the app zel and another against Capital One for allegedly cheating millions of consumers out of their interest payments. And earlier this month, my Republican colleagues passed a resolution to resend a CFPB rule to allow them to supervise big tech payment providers.
▶ 2:46:27What does that do to the financial landscape for the average consumer? Well, it basically says there's no protection here. It tells the companies all bets are off. There's no there's going to be no one enforcing these laws here. Uh and it leaves consumers at risk. The gentleman yields. Gentleman from Pennsylvania, Mr. Muser is now recognized for 5 minutes. Thank you, Mr. Chairman. Thank you to our witnesses. Um, M.
▶ 2:46:53Tyer, just to come out of the gate, what do you think of the the comment that was just made by U. Mr. Steel last his last comment. I'm sorry. You have to remind me what he just said. Okay. Why don't we You know what? Let me just dive into uh banks. Community banks are highly regulated, right? They've been highly regulated for a long time. They were certainly highly regulated prior to the last four years under the Biden administration.
▶ 2:47:21Uh do you feel that uh the Biden administration somehow came in and added regulations to the community banks that that were helpful? And was the CFPB helpful?
▶ 2:47:35would community banks, if you ask community banks, a thousand of them, uh, to rate the the CFPB under the Biden administration on a scale to A to F, I I know what grade they would give as I've talked to many, somewhere in the neighborhood of a D or a D minus. What what's your thoughts on that, M time? Sure. And I I just remembered, Graham, what you said. I think um, our advice to clients is the consumer laws still exists.
▶ 2:48:03the states will be enforcing um and you'll get no argument from me about the protection of the military because I'm an army mom. When we get to community banks and the Biden administration to answer your second question, I think a lot of community banks will tell you that they haven't seen the CFPB during the Biden administration. They can't they may find it hard to grade because the CFPB hasn't been around. Remember the um they're they're only seeing 10 billion and more.
▶ 2:48:32So when I say community banks here, it's the larger community banks because the Biden administration CFPB was focusing mostly on non-banks and unbanks. Well, um, Mr. Radcliffe, even though perhaps you didn't see a CFPB agent, which is a little surprising, but you still had to abide by what they were out there, uh, regulating.
▶ 2:48:53What What are your thoughts on the CFPB as it was under the Biden Yes, that's one of our challenges is that even though we're not subject to their direct supervision, we're a Federal Reserve member bank. Uh we still have to abide by all of the guidance published by the CFPB which eats up our compliance resources. Has M. Flowers or or Mr. Ratcliffe, has the CFPB been helpful in uncovering fraud?
▶ 2:49:19I mean, what have they actually been helpful in doing besides what which is a true story? uh a CFPB representative went into a local bank and asked how things were going and were they being privately regulated and they said, "Well, not really. It's been very uh burdensome. In fact, we had to add three new compliance officers and this is a bank about your size." And they said, "Well, that's wonderful. We're we're creating jobs." So, uh Mr. Radcliffe, can you answer that?
▶ 2:49:50What I'm sorry, go back to the original. What have they been helpful to you or what burdens have they created? Um, each year of my career, the regulatory burden has gotten greater and the capital outlay to cover that burden has gotten greater. Okay. Uh, what about improvements? Have you thought about what what you'd like to see in the new CFPB? Less guidance and less burden would be nice.
▶ 2:50:19maybe less ideological guidance and more clear lines of of regulations. We would like a clear playbook by which to follow the rules. Yeah. M flowers, what are your thoughts on that? Sure. I think one of the honorable members described the CFPB under director Chopra as rogue. Um I think that the volume of guidance to Mr.
▶ 2:50:40Radcliffe's point that was issued that was unmed from legal and regulatory requirements themselves was astronomical and we applaud the CFPB review of that guidance to make sure that it is within the laws and regulations that they are empowered to enforce. Um this you know the banking the federal banking agencies outside the CFPB do continue to examine banks over 10 billion for compliance with consumer laws and regulations.
▶ 2:51:04So there is a cop on the beat and in most cases for most banks more than one because most banks have more than one federal regulator as well. Um we do believe that there's a role for the CFPB in uh in regulation of non-banks that are engaged in traditional banking Right. And that's certainly the feedback I receive that they'll have one uh inspector come in and they'll uh state that things are in in compliance and and the next next year they'd come in or even sooner than that and say something other.
▶ 2:51:33Uh, do you think we're wrong in trying to reform the the CFPB? I mean, based upon my four years here and the mess or the the problems that the community banks in particular have with it, uh, I think we're very justified in trying to get things right so they can do the job that it's intended to do as well as deliver help community banks, not hinder them. M. Flowers? Yes or no? You think that's a good idea? I do think it's a good idea. And I yield back, Mr. Chairman. Thank you. Okay.
▶ 2:52:02I'd like to thank all of our witnesses for the testimony. Without objection, all members will have five legislative days to submit additional written questions for the witnesses to the chair. The question will be forwarded to the witnesses for their responses. Witnesses, please respond no later than June 4th, 2025. The hearing is now