▶ 0:00:004,500 today. You know, when I was a business owner starting and growing my our small business, I saw the value of having a diverse banking system with a wide distribution of institutions by size firsthand. Having multiple banks in the community strengthen the negotiating power of our small businesses and the many others in our area by forcing financial institutions to compete with one another for our business. Strong competition in the banking system has been shown to lead to better terms, better interest rates, and services for American communities.
▶ 0:00:30I don't think there's a single member of this committee that doesn't believe that we should use our positions here to support small community banks and credit unions. To do so, we should enact policies that support those institutions as well as the community development financial institutions and minority depository institutions that step in to fill the gaps left by other firms. And today, these institutions also face un uh unprecedented economic reg and regulatory uncertainty brought on by the Trump administration's new policies.
▶ 0:01:00The president has doubled down on the market wrenching tariff policies in from his first term that directly impact the farmers and the rural communities that many members including myself represent as well as paralyzed manufacturers and small businesses who work with our community banks. Examiners of these institutions are being laid off in the name of efficiency when staff shortages at the credential regulators have been cited by the inspector generals as an area of concern.
▶ 0:01:27We see a move to cut off funding for the CDFI fund which has provided more than 12 billion dollars of support access to to credit and to support access to credit in unbanked and underbanked communities. Meanwhile, the Consumer Financial Protection Bureau has effectively been shut down, meaning that small community banks are are being supervised for compliance with consumer protection laws.
▶ 0:01:50While the biggest banks have no oversight at all in this area, it's easy to say deregulation is the solution to the sal challenges that community banks and credit unions face. But that sentiment ignores other reforms that would provide benefits to community banks without risking their safety and soundness. One area that is ripe for reform is deposit insurance.
▶ 0:02:10Following the collapse of Silicon Valley Bank, there was a a flight of nearly $120 billion of deposits from community banks and two large banks that were seen as too big to fail. Reforms to the discount window, restoration of NCUA's emergency central liquidity fund authorities, and efforts to address the high cost of technology for small banks and credit unions are other areas that I feel we could find by bipartisan solutions for.
▶ 0:02:35We have an experienced panel before us that has firsthand experience with the merger and denovo processes and I look forward to your testimony today. Thank you chairman. I yield back. Gentleman yields back. Uh the chair now recognizes the chairman of the full committee, Mr. Hill, for one minute. Thank you, Chairman Bar. Today's hearing will continue advancing our making community banking great again set of proposals.
▶ 0:03:00Our financial institutions need consistent and timely guidance during the bank merger review process. They need the tools at their disposal to make informed decisions about pursuing or withdrawing applications without wasting time and money navigating changing and opaque standards. We must reform the regulatory framework in a way that encourages new bank entrance to enter the market.
▶ 0:03:23We can accomplish this by lowering unnecessary barrier barriers, modernizing capital and compliance expectations, and restoring a pipeline for community financial institutions that fuel our economic growth. Legacy rules from DoddFrank and recent regulatory trends have discouraged market entry, reduced banking access, and favored consolidation over competition. This is all at the expense of consumers, particularly consumer choice and those in rural and underserved areas.
▶ 0:03:53I appreciate Chairman Bar's leadership and I look forward to our panel discussion. I yield back. Gentleman yields. The the uh chair now recognizes the ranking member of the full committee, Mrs. Waters, for one minute. Thank you very much, Mr. Chairman. Good afternoon, everyone. Republicans want faster bank mergers, which will wipe out community banks and credit unions and leave just a few mega banks to serve our constituents.
▶ 0:04:19Trump's regulators just rubber stamped the Capital One and Discover merger, which will lead to more consumer harm. Democrats support the formation of new or denovo banks, and I'm pleased Mrs. Young is testifying. Mrs. Young bravely responded to lending discrimination by suing the Consumer Financial uh Protection Bureau.
▶ 0:04:46I do believe And so, uh, I would just like to say that I'm very pleased that Miss Young is here today and I've been paying attention, uh, to what the gentleman, the chairman has been trying to do. Uh, but because this protection uh, bureau uh, the CFPB uh, was uh, basically challenged uh, by Miss Young. Uh, we're finding gentle lady's time is expired. Gentle lady's time is expired.
▶ 0:05:15Uh I will listen and I look forward to hearing from the uh witnesses today. Today we welcome the testimony of Mr. Keith Costello, president and CEO of Locality Bank. Miss Mary Oige, president uh and CEO of Bank Miami. Uh Miss Amanda Alexen, partner Simpson Thatcher and Bartlett LLP. Uh Mr. John Burlaw, senior fellow and director of finance policy competitive enterprise institute. Uh and Mrs.
▶ 0:05:44Rashanda Young, founder of JBZ, Inc. We thank you for taking uh the time to be here. You each will be recognized for five minutes to give an oral presentation of your testimony. Without objection, your written statements will be made part of the record. Mr. Costello, you are now recognized for minutes. Chairman Bar, Ranking Member Foster, members of the committee. Thank you for the opportunity to speak with you today.
▶ 0:06:10I'm honored to share my perspective on the value that Denovo banks bring to our economy and our communities. I spent nearly 40 years in banking and I'm currently the chairman, president and CEO of Locality Bank. We launched it in Fort Lauderdale, Florida in 2022, recently exiting Denovo. It was the first new bank opened in South Florida since 2009 when I also co-founded Broward Bank of Commerce.
▶ 0:06:40What drove me to start both banks was simple. I was inspired by entrepreneurial bankers who had the courage to leave safe, comfortable corporate roles to build something local, meaningful, and community focused. I saw firsthand how much more responsive and impactful a bank can be when headquartered in the community it serves, not just a branch of a larger outofmarket institution.
▶ 0:07:07Community banks are small businesses that serve other small businesses. Starting and running one gives you a deep appreciation for the challenges entrepreneurs face daily, something that can't be replicated by working in a large corporate financial institution. So why aren't there more denovo banks? The answer is largely economic. Starting a new bank today is not financially viable for most entrepreneurs or investors.
▶ 0:07:33And the return on investment is not competitive with other options. Since the DoddFrank Act, regulatory burden has increased dramatically, capital requirements are higher, approval timelines longer, and compliance costs are steep. And these burdens fall hardest on the very banks, community banks, that did not cause the financial crisis.
▶ 0:07:56As a result, we've seen lending shift outside of heavily regulated banks to finte private money lenders and merchant cash advance firms. These players don't offer the relationship-based community focused service that small businesses need.
▶ 0:08:13My motivation to launch locality bank was reinforced during the pandemic when I was on the sidelines due to a I received call after call from local business owners who couldn't access PPP loans or even get a call back from their bank. That was a wakeup call. I began to look for reasons by studying the local banking market. In 2015, there were 11 banks headquartered in Broward County. By 2020, there are only three.
▶ 0:08:44Community bank assets had dropped from 11 billion to just 600 million. The same thing had happened in many other communities across the country. We responded by raising $38 million from local citizens and business owners to launch locality bank. In three years, we've grown to 300 million in assets. But it wasn't easy. Our capital requirement was double what it was to open a similar bank 13 years earlier.
▶ 0:09:11And because of regulatory costs, we can't profitably offer consumer banking or residential mortgages, services that should be part of a full-ervice HR478, the Promoting New Bank Formation Act, would alleviate the capital and regulatory obstacles I've identified. I thank Chairman Bar for introducing this bill and the committee for passing it.
▶ 0:09:35HR478 proposes tiering capital requirements for denovo banks, addressing the very real challenges I laid out in raising capital. It propo proposes a more reasoned approach by regulators in responding to changing business plans, giving the many appropriate reasons a bank would need to deviate from the plan.
▶ 0:09:56In closing, if we want more denovo banks and all the community value that they bring, we must make the economics Let's unleash the power of free enterprise. The same force that built this country. If that happens, we won't need congressional hearings to discuss why new banks aren't forming. They'll already be open for business. Thank you for your time and your leadership, and I look forward to your questions. Thank you, Mr. Castello.
▶ 0:10:25Miss USA Tegi, you are now recognized for five minutes. Chairman Bar, Ranking Member Foster, and distinguished members of the committee. Thank you for the opportunity to appear before you today to talk about my experiences as a community banker. I am the founder, president, and CEO of Bank Miami, a newly formed Denovo Bank headquartered in Miami, Florida.
▶ 0:10:47With over 20 years of banking experience, I have seen and been involved with both Denovo formation and been both the acquirer and acquiry in a merger and acquisition deal. I am passionate about the pivotal role bankers play in supporting the needs of our communities and the dreams of our clients. I'm sharing my story in the hope that it will pave an easier path for others to do the same in their communities.
▶ 0:11:09Bank Miami opened its doors almost two months ago on March 17th, a formation process that took twice as long as we initially thought it would with a number of challenges along the way. I will outline a few in a moment to showcase how some small changes can go a long way in denovo bank reform. When we began making the business case for Bank Miami, the need for more banking services in our market was clear. From 2008 to 2023, the number of banks headquartered in Miami Dade dropped from 42 to just 18.
▶ 0:11:37Even as the population and economy exploded, Florida's population grew nearly 15% between 2010 and 2020. And Miami saw billions in new business wages. Yet, there hadn't been any denovo banks since 2008. In addition, Miami is a unique market with both domestic and international influence. Standardized banking doesn't typically work for much of the county's population. Yet, the majority of the banks that offered bespoke banking solutions were acquired during that time.
▶ 0:12:03It was a result of mass consolidation in our market that led me to realize there was a real opportunity for a community bank that focused on customtailored banking solutions. Community banks are the heartbeat of our banking system and without them small businesses will be gravely affected. Merges and acquisitions are healthy for markets but without new banks forming communities are left underserved. There are many different barriers of entry. However, I think the biggest challenge is raising capital for a denovo bank under the current rules. We had to raise over $32 million to receive our charter.
▶ 0:12:33We hit about 75% of our goal rather quickly, then took about another 6 months to finalize and complete our raise. Only after we cleared the cleared the minimum threshold did many new potential investors come forward and even more so since we opened our doors. That's why a capital phase and period as proposed in Chairman Bar's bill would be an excellent solution for banks that have the clear need in the community yet may need more time to finalize their capital raise. It would allow banks to open sooner, meet market needs faster, and bring in investors more efficiently.
▶ 0:13:04Another challenge for Denovo Banks is that we cannot accept capital until the charter application is accepted by our regulators. Since there is no clock on how long regulators have to accept an application, we cannot give potential investors certainty on timing. Many investors who give verbal commitments end up putting their capital to work in other investments due to the wait time causing denovo banks to have to find additional investors and delay in the capital raise process.
▶ 0:13:28Moreover, since founders cannot count on a timeline for acceptance of an application, much less approval, it can be difficult to estimate and manage costs. To apply for the charter, we must front significant expenses, particularly when it comes to building the right team and have to pay them to sit on the sidelines waiting for approval to begin operating. that goes on for months. This delay causes the initial organizational expense to be significantly higher as each month goes on, requiring more and more capital in the process to offset the higher organizational costs.
▶ 0:13:57I support the efforts of the sponsors in this committee in passing HR478. The bill would provide more regulatory capital and lending flexibility to facilitate denovo bank creation, encourage investment in these banks, and promote their viability. In particular, the provision directing federal banking agencies to issue rules that provide for a three-year phase in of capital standards would lower one of the primary bar barriers I outlined in my statement, raising capital.
▶ 0:14:22The bill would also allow denovo banks to request permission from the FDIC to deviate from the approved business plan. While that has not been a problem for Bank Miami yet, it certainly would provide flexibility for us through the three years of denovo status that remain ahead. Local economic circumstances change and we must have the ability to adapt so that we can succeed. Today, there are 4,487 banks in the United States, nearly 50% lower than that in 2005. Of the banks active today, only 85 were established after 2010.
▶ 0:14:53I'm proud to be one of those 85, but there should be more of us. I'm grateful to the committee for your sincere interest in a robust, competitive banking industry that serves our customers and communities. I am hopeful that the necessary reforms will be made by Congress and federal and state regulators to support that outcome. Thank you for your time and attention and I look forward to your questions. Thank you. Miss Alexen, you are now recognized for five minutes.
▶ 0:15:20Chairman Bar, Ranking Member Foster, honorable members of the subcommittee, thank you for having me here today. I appreciate the committee's leadership on this issue and giving me the opportunity to share my thoughts and perspectives as someone who has helped guide parties through the bank applications process. Could you pull your microphone a little closer? Thank you. Through the bank applications process for over 20 years. I am a partner at Simpson Thatcher where I represent banks of all sizes on regulatory matters including mergers and acquisitions.
▶ 0:15:49I'm here today in my individual capacity and my views don't necessarily represent those of my firm or my clients. My perspective on bank mergers and denovo formations is somewhat unique because of my background. In addition to my years in private practice, I began my career almost 25 years ago today working for Chairman Jim Leech in this very room. I also spent almost 10 years in the legal division of the Federal Reserve reviewing applications including through the financial crisis.
▶ 0:16:18I submitted a full statement for the record and want to focus these remarks on a couple key topics. First, the diversity of the business models that we have in our banking system is one of its great strengths. In 2025, customers have more choices than ever with respect to where and how they bank. Another feature of our banking system is that it is in constant transition.
▶ 0:16:40Keeping up with this changing environment and maintaining diversity within our market requires continuous streams of new market entrance as well as the ability for parties to engage in business combinations that enhance their competitive impact. Although many straightforward merger transactions are processed in the normal course within a few months, too many transactions are languishing well beyond the normal processing periods. These delays expose both both parties to escalating risk.
▶ 0:17:10As someone who has spent material times on both sides of applications processing, I can tell you that there are a few key reasons why applications are delayed. I would appine that most all of these can be readily addressed through thoughtful combination of action by the federal banking agencies and targeted legislative actions. A number of otherwise straightforward transactions are held up by outmoded or misused agency procedures.
▶ 0:17:38This committee has already correctly identified that flexibility within these procedures renders the statutory and regulatory time periods practically moot without any sense of urgency. It is easy for the applications process to drag on or just to simply take a backseat to other more pressing agency matters.
▶ 0:17:58actions such as the proposed shot clock legislation, automatic agency escalation of applications when they've been pending for a certain period of time, similar to what the FDIC enacted last year, and perhaps set calendars for decision makers to act on applications could make a material difference in times. Next, the agencies must find ways to expedite the review of public comments. This is one of the biggest culprits for long processing periods.
▶ 0:18:27While it is important to consider timely and substantive comments, the receipt of a public comment should not add months to processing or immediately trigger heightened agency actions. Simply adjusting agency rules to allow staff to make decisions with respect to which comments can be handled in the normal course and which deserve more detailed consideration would dramatically reduce processing times.
▶ 0:18:53Third, the federal banking agencies must work to rightsize information expectations. Applications have never been lengthier or more detailed. At some point, one has to ask, who's reviewing all of this information? Is this information nice to know or need to know? And against what functional measure is the information evaluated? Lastly, the agency leadership and application staff must take action to avoid duplicating the supervisory process.
▶ 0:19:21Routine supervisory matters, whether existing or new, should not be roadblocks to transactions unless those matters directly and materially implicate the proposal or management's ability to safely effectuate the transaction. The common sense suggestions that I have discussed here and in my written testimony could help rationalize the applications process and support a more dynamic industry that can better serve the needs of all Americans. I appreciate this opportunity and look forward to any questions.
▶ 0:19:55you. Uh, Mr. Berlau, you're now recognized for five minutes. Chairman Bar, Ranking Member Foster, and honorable members of this subcommittee and this committee. Thank you for this opportunity to present testimony on behalf of my organization, the Competitive Enterprise Institute.
▶ 0:20:16This is a hearing on the critically important topics of denovo banks and bank mergers that are both vital parts of reaching consumers and small businesses in our financial system. CI is a Washington-based free market think tank founded in 1984 that studies the effects of regulations on job growth and economic well-being.
▶ 0:20:39At CI, we have long championed private sector innovation that serves all Americans and have warned about government red tape that contributes to the problems facing the nation's unbanked and underbanked population in both rural and urban areas.
▶ 0:20:57We are concerned about the burdensome regulatory barriers that have been erected since the financial crisis of 2008 to the formation of new or denovo banks and more recent barriers erected and now thankfully being knocked down to bank mergers that would benefit consumers and entrepreneurs. Let me start with denovo banks. In every business sector, new entrance are essential to the functioning of a competitive free market economy.
▶ 0:21:27In this hearing, I look forward to learning from my fellow witnesses who are recent founders of Denovo Banks about their innovative financial products and services they are providing to their communities. Previously to this committee and in my writings, I have pointed to the example of the Bank of Burden in the heart of the Amish country of Pennsylvania as an example of new banks providing practical, if not what many would consider the most technologically sophisticated
▶ 0:21:57innovations to serve their communities, including drive-thru lanes for horses and buggies that the Amish use. that that bank grew from 17 million to more than 1 billion in less than 10 years in assets. While the Bank of Burden and the two banks of my fellow witnesses are certainly success stories to be celebrated, they are three of only a handful of new banks approved by the Federal Deposit Insurance Corporation since the 2008 financial crisis.
▶ 0:22:26In 2023 and 2024, just six denovo banks were approved each year. In some of the years following the financial crisis, no new banks were approved. And by contrast, in the four decades before the crisis, the FDIC approved more than 100 new banks in most years. This was the case even in the late 80s and early 90s at the height of the savings and loan crisis.
▶ 0:22:49And there may be multiple causes for the decline of new banks, including the increase in general regulatory compliant costs from uh the DoddFrank law. Still, we know from the testimony here from uh uh denovo bank founders and an aspiring denovo bank founder that there are that the FDIC is imposing unreasonable burdens both in the process and upfront capital of denovo applications.
▶ 0:23:17That is why legislative efforts such chair such as chairman bar's promoting new bank formation act which passed the committee recently with bipartisan support are so needed. The chairman's bill would move federal banking agencies toward a system of phased in capital that would allow denovo banks to build capital as they gain customers rather than having to meet a nearly impossible burden for massive amounts of capital upfront.
▶ 0:23:46And both Congress and the regulatory agencies also need to remove unnecessary red tape that hampers beneficial mergers of existing banks. Changes in policies on mergers pushed through last year at the FDIC and office of the comproller of the currency both of which thankfully have begun to be reversed would have made mergers of banks much more difficult and timeconsuming.
▶ 0:24:10Mergers and acquisitions are most often a healthy part of capitalism's competitive process that brings innovation and dynamism to industries and in the banking sector are necessary according to former regulators such as Sheila Bear and Tom Honig to help prevent failures and to allow regional banks to better compete against mega banks.
▶ 0:24:30Both mergers of existing businesses and the creation of new businesses are essential parts of a competitive market and a competitive financial system in which a variety of entrepreneurs create products and services for a variety of consumers, enabling a financial system and economy that is resilient and beneficial to all Americans. Thank you again for inviting me to testify and I look forward to your questions. Thank you, Miss Young. You are now recognized.
▶ 0:25:04Chairman Bar, Ranking Member Foster, and distinguished members of the committee. Thank you for allowing me the opportunity to speak with you today. Again, my name is Rashonda Young. I am the founder of the proposed Bank of JBZ in Iowa, which will be a state chartered denovo bank designed to address the systemic inequalities and discrimination that I've witnessed and personally experienced in banking over more than 20 years.
▶ 0:25:29I'm a landlord, a real estate developer, and business consultant with the Small Business Development Center. Through those roles, I've seen firsthand how deeply unjust lending practices impact minority, women, and immigrant-owned business owners, not just financially, but emotionally and physically due to the amount of stress that these situations add to their My personal experience that got me to the point of really praying for a solution to the banking
▶ 0:25:59problems that I was having involved a multi-billion dollar local community bank that held all of my real estate assets. When I started working with the bank, a good friend of mine was the vice president at the bank. He knew the problems that both my dad and I were having with obtaining access to capital to grow our businesses. He introduced me to the commercial loan officer at the bank and we embarked on a great relationship for the next six years. I had been with the bank seven years in 2019 when I called for a simple request.
▶ 0:26:29My friend and loan officer had both left the bank and I was told by the new loan officer that they did not want me at their bank and if I decided not to move my accounts that they would foreclose on me and take everything I own. This new loan officer did not just threaten me. He also began filing illegal documents to try and make good on his threat. For 16 months, the commercial loan officer and others at the bank, including the CEO, tried to illegally steal my properties that I had worked so hard for.
▶ 0:26:58It was only after involving the media and exposing documentation of the bank's misconduct that a settlement was After enduring those 16 months of intense and unnecessary stress, I prayed about what I needed to do to make sure that this does not happen to others. I heard very clearly that I needed to start a bank that treats all people with dignity and respect. I did not accept the task of starting a bank lightly.
▶ 0:27:26I immediately reached out to a banking professional who became my co-founder. We downloaded the FDIC guide to starting a Denovo bank, engaged banking consultants uh to help guide us through the process, and received a checklist involving 74 items that we needed to complete in order to actually charter a bank. That alone can be daunting.
▶ 0:27:46Pair that with average pre-opening expenses of $800,000 to $ 1.5 million and postcharter capital needs of at least $20 million and most people would abort mission. We initiate engagement with the FDIC in January of 2021. Our overall experience has been favorable. They have been responsive to our questions and willing to meet with us to help keep us moving along with the process. We also began our engagement with the Iowa Division of Banking in 2021.
▶ 0:28:15We quickly learned that denovo banks are rare. Iowa's last denovo bank charters were issued in 1997. No one who is currently at the Iowa Division of Banking has ever gone through the denovo charter issuance before. As kind as the Iowa regulators are, there are many things that they are learning right along with me and my team. That is a bit unsettling for us.
▶ 0:28:36our banking attorney has been called on uh to give guidance to the Iowa banking Um, another challenge is also opening as an MDI. MDIs are rare, representing roughly 3% of banks in the United States. MDIs meet critical needs in low and moderate income communities, yet few regulators have deep experience with them, and there are limited resources to support the process.
▶ 0:29:05We need greater technical assistance for both banks and regulators to make MDI formations a more process. Starting a a denovo is very expensive and it's an arduous process. The guidelines around how capital can be raised and who it can be raised from generally accredited investors poses a barrier to entry. These requirements need to be adjusted. Finally, I just want to address the ongoing need for strong banking regulations.
▶ 0:29:33Not all banks act act ethically act act ethically and it's not just the big ones. Smaller community banks and credit unions also engage in discriminatory practices. That's why I joined the lawsuit against the CFPB to enforce section 1071 and require data transpar transparency on lending to women and minority owned businesses. Collecting and reporting this data may cost banks a little bit more, but it protects consumers from potentially devastating financial harm. Thank you.
▶ 0:30:02Thank you for your testimony all and we'll now turn to member questioning. The chair now recognizes himself for five minutes. Uh let me start with Mrs. uh Alexson and your important testimony that the receipt of a public comment should not add months to processing or immediately trigger heightened agency action.
▶ 0:30:21And and it's an important uh comment, I think, because we hear from banks a lot uh about pressure in connection with their merger applications to enter into pledges with community groups on meeting specific investment and lending goals. Some have even used the word extortion in describing these tactics. They fear community groups will file negative comments on the merger, thereby slowing down or even even jeopardizing the transaction.
▶ 0:30:47Miss Alexson, do you agree that agencies should approve bank mergers promptly solely based on whether an application is complete and meets the key statutory criteria? And when you answer that question, um, keep in mind that one of the things that we hear a lot is that these negative comments filed by community groups after a merger is merely announced, uh, should not be a cause for a public hearing or be relevant to a regulator approving a deal, especially when they've
▶ 0:31:17already been rated as having an outstanding or satisfactory CRA rating. Thank you for that question. I mean, public comments are one of the main holdups in applications processing. I I just I don't see um these things as being mutually exclusive. I think the banking agencies can give due consideration to public comments and still process them in a timely manner.
▶ 0:31:42The statutes, each of the statutes, the bank merger act, the bank holding company act, change of control allow for public comments that's built into the statute. So, but it's in the discretion of the agencies how they are considered and under what processes. So, I think as I said in my testimony, there's some really for like easy things that they can do to streamline that process and make sure that comments that are substantive and are relevant are given due consideration and that other ones can be expedited. Thank you. Yes.
▶ 0:32:12and and and again um I would view and I would hope the agencies would view with great skepticism uh comments from community groups uh that are uh porative about an institution that that has an outstanding CRA rating. Um Mr.
▶ 0:32:28Uh, Burlaw, uh, I thought your testimony uh, was very important when you said acquisitions by strong banks of weaker ones can prevent failures while protecting communities from the disruption of banking services that inevitably comes with liquidation of a failed bank. Frankly, that's exactly why I named my legislation the Bank Failure Prevention Act.
▶ 0:32:51Can you expand on why a shot clock um and uh avoiding a long drawn out merger review process is important for financial stability and failures? I think um thank you for the question chairman bar. I think the shot clock is important both with denovo banks and bank mergers. You obviously you don't want to take just like a business you don't want a government agency to take forever. Who knows you know what could happen with the financial stability in the community.
▶ 0:33:20The shot clock doesn't require a yes or a no, but it requires an explanation from the agency and say in the case of a denovo or a merger application of what they can do better, I mean that provides more certainty to entrepreneurs into Well, thanks.
▶ 0:33:36And as we as to the extent we we saw some instability in the sector after the Silicon Valley uh bank, uh you know, I think if we want to protect the deposit insurance fund, allowing for healthy mergers to happen and not let those applications languish is very very important uh for safety and soundness of the system. Um, Ms. Alex, one more question.
▶ 0:34:00Last year, the OC finalized new policies that revised the criteria used to evaluate bank the bank merger applications, including eliminating the OCC's expedited review process and streamlined application procedures. Additionally, the Department of Justice under the Biden administration announced that it was formally withdrawing from the 1995 joint bank merger guidelines. Can you discuss how these moves discouraged healthy merger activity that would have promoted competition in the banking sector?
▶ 0:34:28And do you think that preventing the OC from promuggating a similar rule in the future would best ensure that the merger review process will continue to allow healthy mergers? Yeah. So, so as someone who works at an agency, it's very difficult drafting any sort of guidance or rule making, every word means something. And so when you're putting together a proposal like that in the hopes of creating transparency or expediting the process, there can be unintended consequences.
▶ 0:34:57those particular uh pieces of guidance created some presumptions that bank merger transactions were negative. Like you're you're creating a presumption that you're starting out behind like instead of starting in a neutral position, you're starting behind the eightball. And so every applicant has the obligation to satisfy the statutory factors, but it makes a big difference if you're starting behind or or not. Thank you very much for your testimony. Uh the gentleman from Illinois, the ranking member of this subcommittee, Dr.
▶ 0:35:27Foster, is now recognized. Uh thank you, Mr. Chairman. Uh Miss Young, I'd first like to thank you uh and the rest of our witnesses for being here and for sharing your stories. You know, I found um Miss Young's story particularly compelling. The obstacles that you faced during your time as a small business owner have clearly influenced your decision to enter the banking industry.
▶ 0:35:48You've experienced instances of blatant racism and discrimination that no business and no person should have to endure in any situation, let alone when trying to just finance your business. After those experiences, not only did you push the CFPB to implement section 1071 of DoddFrank Act to increase transparency for small business lending practices, you also went a step further and decided to start your own bank.
▶ 0:36:13uh could you talk a little bit about how these experiences influenced your decision to form your own bank and how they influenced the business plan for your Yes, thank you for your question. So, what I realized early on was that because of the illegal things that were tried to be done to me or that were done to me, you can't always legislate a person's heart.
▶ 0:36:40And so legislations may be put forth and I think they're very necessary. You're still going to find people who are going to try and circumvent the system. We don't want to circumvent the system. We want to follow the system. We want to follow the rules. We want to make sure that every person, no matter what their race, creed, color, anything, it does not matter. We want to make sure that they're they're treated with dignity and respect.
▶ 0:37:07And as much as like I say, I believe that regulations are very necessary, there are people who will circumvent the system. And so with our business plan, we're we're highly focused on making sure that each person, individual, business, it doesn't matter that they are able to evolve their theirelves financially um as a result of working with us. We don't want it to be just a numbers game. We wanted to actually have impact for the people and communities that we serve.
▶ 0:37:38Yeah. Thank you. You know, I'm a scientist and it's really very difficult to fix a problem if you don't have the data to understand it. Uh do you believe the 1071 rule would help to pre prevent others from experience the same sort of discrimination that you faced? I do believe that the 1071 rule is um very necessary in helping prevent others um from enduring what I did.
▶ 0:38:02And so having that enforcement, not just having it on the books, but having it enforced, it it it more than, you know, just puts a a slap on somebody's wrist, you know, in terms of the bank. I mean, it really is going to make them do the things that they're supposed to do um for fear that, you know, they're going to be fined or, you know, that they're going to have negative consequences. Yeah. Yeah.
▶ 0:38:28What one of the things that's tough to design a law that might prevent that is you know in things like um I'll say realtor steering people on the basis of race um you know there thousands millions of realtor customers so it's easy to set up a testing program to find out if there's a systemic problem here the number of customers for even you know small banks and large banks is just not that large so you don't have the statistics to set up that sort of system so I think you have to I don't think there's an alternative
▶ 0:38:58to do pretty broad-based information collection on the front end. It would be nice if someone came up with a better system. But I think um I was very disappointed that President Trump and and the Republicans have really worked as hard as they can to overturn that rule. It'd be nice to live in a world where we didn't need it, but I think we're going to need to know get that information to know how to fix it.
▶ 0:39:20Um let's see the you know the well actually this is to I guess all of our our witnesses you know small community banks and new institutions face many challenges especially when it comes to competing with the larger peers. Um, one area that I believe is critical for small banks and credit unions to compete relates to technology. And I think that a lot of what's driving the consolidation of banking is simply the difficulty of you don't have the scale to compete on the technological front with the the bigger players.
▶ 0:39:51And consumers have come to expect things like mobile banking apps, online banking services that can take significant resources to stand them up if you have to do it by yourself. Um, so you it's typical to turn to thirdparty vendors, but you know, the the cost of of setting up a a new account with a thirdparty vendor, getting all the training for your um for your employees is not small.
▶ 0:40:14And and so um you know, I had mentioned it when we were talking earlier, you the the possibility that there could be a um a useful way of sort of safely subsidizing your technology costs for denovo startups. So, I'm nearly out of time, but I'll be asking for the record if there's some sort of voucher program or something that we might come up with that would really take a big burden off of this and and not be abusable, which is the the danger with any subsidy. Gentleman's time is expired.
▶ 0:40:41The chairman of the House Small Business Committee, the gentleman from Texas, Mr. Williams, is now recognized. Thank you, Mr. Chairman. Mr. Costello. Uh, in your testimony, you mentioned significant hurdles that you face when starting a bank. From capital challenges to navigating consistently changing regulatory environment, starting a new bank has only become more and more difficult to do. So, Denovo banks play an important role in our financial system.
▶ 0:41:04They serve as lifelines for small businesses, provide a relationshipbased lending to rural areas, and ensure that local economies aren't left behind. Yet without meaningful reform, we risk losing their communitydriven lenders that many of my constituents and myself included in Texas, we rely on that. So, Mr. Costello, can you expand on the challenges you've faced your face when starting the bank and how those barriers impacted your ability to raise capital and serve the needs of your local community?
▶ 0:41:32I think uh so I started a bank in 2009 and then just started one recently in 2022. the difference when I started that first bank in 2009 I was required to raise $12.5 million of capital the second bank in 2022 the capital requirement was double in the same city in Fort Lauderdale Florida so and just prior to my opening in 2022 there had been another gentleman who tried to start a bank in the community and and couldn't get the capital
▶ 0:42:02to raise it and had to abandon the uh the charter attempt So for many community and regional banks, mergers are are a way to stay viable in a complex and costly regulatory environment. We saw a lot of that this past administration. These banks often look to combine resources in order to invest in technology, expand product offerings, and better serve their customers.
▶ 0:42:24So when done responsibly, bank mergers can enhance competition by allowing smaller institutions to grow and support a more diverse and resilient banking ecosystems. As we've heard today, the current review process is slow, opaque, and unpredictable. Regulate regulatory agencies have the ability to still stall mergers without issuing formal details, leaving the banks in limbo and discouraging future transactions. You've talked about that. And this uncertainly narrows strategic options for banks in all sizes and further contributes to market concentration.
▶ 0:42:55So, Miss Alexson, could you elaborate on how a transparent and timely merger review would process uh would enhance the competition in the banking industry? So, there's a number of reasons why people want to engage in a merger or acquisition transaction and you guys have mentioned a number of them. So, economies of scale is important, expanding products and services important, expanding your geographic footprint is important.
▶ 0:43:21So having a timely process um is important to those things because you're you enter into a purchase agreement and you have staff, you have money that you're laying out and the longer the process goes on, the more those banks become at risk, right? You lose employees, you lose money and it creates uncertainty and it also during that time period it can create a situation where who knows what supervisory situation or economic changes might develop.
▶ 0:43:50And so a deal that made sense a year ago might not make sense today. So having that process be timely so that they can execute their strategic vision and become have more competitive impact in their market I I think is critical to a healthy system. Good. So over the past several decades the US banking landscape has changed dramatically. In 1984 there were 14,000 banks and today that number has fallen below 4,000.
▶ 0:44:18Now, while some degree of consolidation is natural, the pace and scale of this decline raises serious concerns about the long-term health of our financial system. A lot of these been community banks, right? And people like me, we need that and it hurts the ability to borrow and particularly when it comes to excess competition and choice in local communities. Now, regional and community bank numbers are falling. At the same time, there is a lack of banks entering the market.
▶ 0:44:43So uh Miss Ustji uh what do you see as the most significant factors contributing to long-term decline in the number of banks in the US in which lacks gives opportunity to small business to grow and thrive? So I think back uh before the financial crisis there was probably the same amount of mergers and acquisitions occurring but you had denovo banks replacing them. Um after the financial crisis only 85 banks uh since 2010 have been formed.
▶ 0:45:11Um, you know, the over um the overabundance of capital requirements is significant. I think at least in our story, we had to raise over 32 million to get our doors open. And I think that's the biggest challenge today. And having that ramp up period of allowing potentially 6% to start and get to 8% by the end of the three-year period is a lot more achievable to many uh to be able to achieve uh you know, more denovo bank Thank you. Thank you.
▶ 0:45:40I yield back, but also want to thank all of you for lending to Main Street America. Great system we got. So, thank you very much. I yield my time back. Gentleman yields. The gentleoman from California, Miss Waters, is now recognized. Thank you very much, Mr. Chairman. Miss Young, it's good to see you again.
▶ 0:45:59I remember uh when we last spoke and I have a great appreciation that you've taken time out one more time uh to travel to Washington DC to share your story with our committee. Too many entrepreneurs face discrimination when they seek to get a loan from a bank which is unlawful and not right.
▶ 0:46:20I appreciate that you responded by filing a lawsuit with the Consumer Financial Protection Bureau to compel them to finish their work on section 1071 of DoddFrank, a provision that Ms. Velasquez and I fought to include so that small business uh lending uh that they the lending has the same transparency, the fairness and competition as mortgage lending.
▶ 0:46:49And when you kept pressing forward to launch your own bank so that you could provide a fair service for your neighbors uh that you and yourself you yourself and your neighbors did not get. Now I want to ask a question or some questions about your bank application process as I like to introduce what I believe should be a bipartisan legislation um to address your challenges.
▶ 0:47:15Michelle, in your testimony, you referenced that the FDIC new bank or denovo bank list involves 74 items. While I imagine there were good intentions along the way to add more items, it seems like no one has taken a fresh look at that checklist to know what is helpful or necessary uh to approving a bank. Would it be helpful if Congress required our banking agencies to review and streamline some of those requirements?
▶ 0:47:42It would be very helpful if they had to review and streamline those requirements. And thank you. I think we got this from you. Okay. I want to thank you, Miss Young. So, you also raised concerns about communication and lack of expertise with the denovo process that the IVA banking regulator had since none of the staff was around when the last new bank was chartered in 1997.
▶ 0:48:07Would it be helpful if Congress required federal agencies to set up a denovo advisory panel where applicants in new approved banks can regularly meet with federal and state banking regulators to give them feedback on ways to improve the application process? That would also be very helpful. Yes. Thank you very much. Okay. You mentioned challenges you faced as a new minority depository institution and eligibility criteria you must meet.
▶ 0:48:35Would it be helpful if Congress required the creation of a denovo mentor protege program where any denovo applicant could be paired with a similarly situated bank that recently went through the denovo process and could share advice even if they were in a different state. That would also be very helpful. Well, thank you again uh for sharing your story. There are other concerns you have raised.
▶ 0:49:02Now, I plan to address all of what you have advised us in legislation, and I hope that Republicans will work with Democrats to support the creation of a variety of new depository institutions in a safe and sound way, including rural banks, MDIs, credit unions, and community development financial institutions all across the country. Thank you so very much. I want to say something to Mr. Barlo.
▶ 0:49:32It is good to see you once again. Um, you testified before our committee in 2021 and endorsed my bill that that was expanding financial access for underserved communities act, quote unquote, which allows credit unions to expand their field of membership to banking deserts where banks have closed branches. Do you still support my bill? And do you think this committee should mark it up? I do indeed.
▶ 0:50:00uh we need all types of financial institutions, banks, credit unions, all of the above. So yes, ve very very much the the bill is the bill is still needed for a variety of choices for consumers and competition. Well, I want you to know between you and Miss Young's presence here today, I'm beginning to like this committee a little better. Thank you. Thank you. So very much. I yield back. Gentle gentle lady yields back. The gentleman from Georgia, Mr. Louderm Milk is now recognized. Well, thank you, Mr.
▶ 0:50:30Chairman. Thank you all for uh attending today. Very important subject, especially uh in my home state of Georgia, which uh has has suffered greatly uh since the 2008 uh financial crisis with very very few new banks uh coming in, leaving a lot of the areas of uh our state underbanked or some without even a local uh small bank branch in the area.
▶ 0:50:56Um, first I want to start off talking about uh asking a question about the office of controller the of the currency. Um, under uh acting director Rodney Hood, he recently reversed a a sue era policy that delayed the approval of bank merger applications. While the rule was only in effect for a few months, we heard a great deal of concern from the banking Um, Mr.
▶ 0:51:22Birdaw, what were tangible effects of the OC's 2024 final rule on bank mergers and why is it so important that banks have clarity on merger policies and Well, it was a it was a chilling effect that uh banks had uncertainty about whether they could it it shifted the burden to banks including small community banks as as far as uh as far as that they would have to justify the merger uh to the OC rather than the
▶ 0:51:52previous policy of letting this um uh go uh a merger go through unless the OC found significant problems. And it's good now that it's been rescended and that the Senate after the Senate uh passed the uh uh CRA resolution, but you know, you as Chairman Bar said, you need to prevent a future OC from having that come back. So, it's vital that the House finish the work and uh pass that CRA resolution to stop the rule. Thank you, Miss Alex.
▶ 0:52:21Do you concur or do you have anything you'd like to add to that? Yeah, I agree that it created a chilling effect. Um it's just but I also want to add that we do have to be careful with these wild swings in policy. You know certainty in policy is really important in banking. It's true on applications processing is true in supervision.
▶ 0:52:41So I think everybody agrees that they want banks to operate in a safe and sound way and they want mergers to be reviewed in a in a thoughtful manner but we just can't keep swinging one way and the other like we need to stay in the middle of the road. Well, that's what I'm hearing even from uh other businesses. It says, you know, if you're going to regulate me, just let me know what how you're going to regulate me and stick with it. You know, um Mr. Castello, on the denovo formation side, we've all heard how difficult it is to form a new bank in 2025.
▶ 0:53:10This is a real impact on access to affordable credit. In Georgia and nationwide, consumers are turning to less tangible forms of credit for their business needs, even if they might qualify for credit at a community bank. Is this something that you've seen in your own communities? Uh yes, we have seen that and I think due primarily to the fact that there just aren't as many community banks in our community.
▶ 0:53:34Um and so we've seen these unregula or lightly regulated, let's say, uh not regulated like we are. Uh they've become more prevalent and I think you know the businesses that utilize them find the costs are higher, right? you don't have that relationship that you have at a community bank and I think most would prefer and the businesses that I talk to when they find out that we have a community bank in Fort L happy to deal with us.
▶ 0:54:04Do you see that uh that is also not having these community banks the lack of denovo banks impacts consumers in the small uh dollar loan arena? Absolutely. Yes. uh you know those same people uh citizens they would come together and actually many times a lot of those people would form banks uh previously right or a family would start a bank right when the capital requirements weren't so high so I think you know the thing that I like the most about HR478
▶ 0:54:34is the requirement to study for a study it because I think all of the procedures are so outdated and really need to be addressed and brought uring since we're talking about especially uh rural areas which are very uh especially in Georgia the areas agricultural areas are way underbanked and uh uh some of the counties it's may be one bank branch in the whole county how important are fintech partnerships in terms of competitiveness for
▶ 0:55:05small banks they're very important and we still have to compete with the largest banks no matter where you're located so in order to do that this that's a requirement really. You have to create these fintech partnerships in order to have a viable technology base which more and more people especially younger people are really that's their main uh way that they access financial services. Okay. Thank you. I yield back. Mr. Gentleman yields. Gentleoman from New York, Mrs. Velasquez is now recognized.
▶ 0:55:37Thank you, Mr. uh chairman and ranking member. And I want to thank all the witnesses uh for being here today. Miss Yon, as you know, ranking member Maxine Waters and I were the authors of section 1071. And I want to thank you for sharing your story. Mission, some of the arguments we have heard against section 1071 were the same arguments that were made when Honda was implemented.
▶ 0:56:08Isn't that correct? That is correct. And now banks implement HDA every day. Correct. Mission, could you explain now section 1071 and how could it actually increase lending in underserved markets? Absolutely. So, one of the jobs that I have is uh as a consultant for small business owners.
▶ 0:56:36I work with uh a high number of immigrant business owners and what I am finding is they will be very qualified. I I help them with their plans, with their financials. And a lot of times it may be language barriers or just a bias with the lending officer.
▶ 0:56:56And I will get phone calls from the office uh when they're with the lender and the the lender will say, "Well, I can't understand them." And so then I'll start to help translate and then I will get a phone call from the lender denying them. the applicant. There has not been one case where the applicant has gotten a phone call, a letter, or anything letting them know that they've been denied.
▶ 0:57:23And so, by not even having to prove that you are meeting with these people, you're not even proving that you're meeting with them. You're not pro you're sending them nothing to say that they've been denied. section 1071 and enforcing that would help a whole lot because I hear you access for that for that answer. Now you are on the other side. You own a bank.
▶ 0:57:49Do you think the section 1071 disclosure requirements are difficult to comply with? We're still in the process of chartering the bank. However, uh as we talk with compliance officers and um other bank mentors that I have now, it is it is something that is difficult, but it's necessary. So, even though it is difficult, we don't mind, my team and I don't mind having to comply. Thank you, Mission.
▶ 0:58:17Well, President Trump campaigned on lower prices. He has advanced massive tariffs not only on China but practically every country on earth. Despite what some may try to argue, these tariffs are paid by US consumers and businesses.
▶ 0:58:38In 2018, as a small business owner, you raised concerns with the relatively smaller tariffs that Trump imposed back then. Do you have any concerns about this much larger tariffs being imposed on other countries and what it means for small businesses and farmers across the country? Absolutely. I do have concerns with that.
▶ 0:59:06Last week, the Trump administration announced a trade deal with the UK with little detail and a 90day pause on tariffs with China. They have also imposed and lifted or created exemptions to tariffs with Canada and Mex and Mexico multiple times. You have been a small business owner.
▶ 0:59:29Wouldn't you agree that small businesses need certainty and the erratic on again off again tariff policy from the Trump administration is making it difficult for small businesses to negotiate with suppliers set costs and production targets and forecast for the future? Yes, that is something that I'm experiencing with the business owners that I work with. Thank you and I yield back. Gentleman from Tennessee, Mr.
▶ 0:59:58Rose is now recognized 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 to be with us today. Um I I shifted gears a little from what I had planned to do because of a call I got from a constituent this morning and and I so I'm going to launch in.
▶ 1:00:17I am concerned that ongoing financial institution mergers and consolidation are having an adverse impact regarding access to cash, which despite the rise in digital payments, remains a vital component and driver of our consumer spending based national economy. This concern is especially acute in the face of the persistent and widespread wrongful denial of banking services for our nation's independent ATM operators.
▶ 1:00:46These mostly small to medium-sized businesses are a prime example of America's hard-working entrepreneurs who now account for the majority of ATMs deployed throughout the country, often the only ones serving smaller rural communities uh most dependent upon cash access.
▶ 1:01:05Unfortunately, my understanding is that virtually all the largest national banks and most of the regional and community banks and credit unions across the country continue to categorically deny ATM businesses access to essential banking services based upon the wholly inaccurate misimpression and historic regulatory misguided direction that these entities present an elevated risk of money laundering or other illicit activities.
▶ 1:01:34I know firsthand from the intensive work done on this subject previously with the financial regulators and my former colleagues Blaine Luke Meyer and Carolyn Maloney that there is zero evidence um of any illicit activities by this industry sector that would justify the wholesale categorical denial of banking services to which they continue to be subject.
▶ 1:01:56Just today, as I foreshadowed earlier, I learned that Service First Bank in Nashville is closing one of my constituents, PAL Group USA LLC's accounts after almost a dec decade simply because they um that constituent is a an ATM operator. Beyond competition, federal banking agencies are also required to evaluate other statutory factors under the Bank Merger Act, such as convenience and needs.
▶ 1:02:23It is my strong belief that federal banking agencies when reviewing a bank merger should review whether banks provide services to independent ATM operators. It is also imperative that when federal banking agencies are examining a merger anti-moneylaundering compliance that no bank suffers adverse consequences simply for serving independent ATM operators. Mr. Costello, you've worked at a number of banks throughout your career.
▶ 1:02:52Did any of the financial institutions you worked at provide banking services to independent ATM operators? So my experience has been that we view every business as a business. We don't say to any particular business despite what kind of as long as it's a legal business we are happy to talk to them about banking them. That's good to hear. Mr.
▶ 1:03:16Castello, thinking about the financial institutions you've worked at, was the decision whether to provide banking services, I think you've answered this, to independent ATM operators based upon individual account by account analysis as required by regulations. And did you ever get pressure from federal regulators to unbank uh a customer simply because they might be involved in a in a business like that? So no, I never was pressured by a regulator.
▶ 1:03:45Unfortunately, uh, in a prior Congress, Mr. Lukemire and Miss Maloney and I learned that the regulators were in fact in fact applying that pressure systematically, in fact, had it in the examiner's guide, that these uh categories of customers were uh considered to be higher risks. And so, uh, I hope I hope that we're not seeing a continuation of that with the current activities of the reg regulators.
▶ 1:04:12Uh, Miss Alexson, as someone with experience with complex mergers and acquisitions, do you believe that it is appropriate for federal banking agencies to examine whether bank uh whether banks provide services to independent ATMs as a part of the bank merger act review process? I mean the convenience and needs of the community is already a statutory factor that they can take into consideration a wide variety of topics.
▶ 1:04:38I mean I haven't heard I I haven't specifically seen that specific thing be considered in connection with an application but it's something that they can do if that's a material issue in connection with that particular transaction or a particular issue in that market. Have you ever seen other uh maybe categorical uh issues like this where the bank regulators have maybe not served community needs and interest with respect to the way in which they review bank mergers?
▶ 1:05:09The gentleman's time has expired. Could you respond for the record? Thank you. Uh yield. The gentleman from California, Mr. Vargas, is now recognized for five minutes. I thank the chairman very much and I very much thank the witnesses for being here. Thank you very much.
▶ 1:05:29I am read that the hearing today is called competition shaping the future of bank mergers and denovo formation. One of the things we we seldom talk about are unions. And credit unions are interesting because they seem to serve the community. They seem to be in areas that are banking deserts. They seem to be close to the people.
▶ 1:05:55But anyway, I I throw that out there because we talk about the formation of banks is very important. I agree we need more of that. But at the same time, it seems like there's this whole segment of financial institutions that we don't talk about. I know that the conflict between the banks and the credit unions, nobody likes each other, but the truth is that they're there and um and I and I think they're very po important. So secondly, I do want to talk about a little bit of the dissonance that I hear here.
▶ 1:06:23So when the hearing started off, I wrote down some of the comments that the chairman made saying that mergers were good. They're very good and reasons why he believed that they were good and gave some I think some important reasons. But then I heard most of the testimony here. The testimony wasn't about bank mergers or acquisitions.
▶ 1:06:44really was the value of small banks, small community lending, being close to the community, which seems different than having a bank become bigger and bigger and bigger until it gets ultimately bought by the biggest banks. Isn't there some dissonance here? I mean, uh, Mr. Castell, you I I read your background.
▶ 1:07:05you successfully created or or founded two banks at my understanding and both as CEO you were able to exit those banks I assume by acquisition or by merger I'm not sure and then you did talk about some point there was a non-complete non-compete clause so give you more empath to to work on this banking situation so why don't you comment on that because again there seems to be some some disconnect here sure I'd be happy to so in I guess in my comments It's also I
▶ 1:07:35talked about the the value of the free enterprise system. So the value to create a business, start a business, be able to lend money in local community, but also grow that business and then eventually maybe sell that business and make money for your investors and for your people that work at the bank. So I think that dynamic process of taking a business and I did it twice. So then I went out and I started another denovo.
▶ 1:08:00I I think that dynamic process uh needs to occur to keep the the system. So, uh, I understand that, but if you take it to its logical conclusion, I mean, you you start one bank, it's successful, you start a second one, successful, you're on your third one. How I hope it is successful for you and for the people you represent. But wouldn't it then be more efficient just to allow a big giant bank to bank all these these groups? I mean, just allow them to swallow up all the small banks, the community banks. I mean, wouldn't there be efficiency there? They talk about technology.
▶ 1:08:30You talk about I don't think so personally. think every everyone has a place. But it seems like the logical conclusion if you believe in, you know, this sort of unbridled capitalism that you just talked about, well, just keep growing it and selling it to the bigger guy until the biggest guy owns everything. Well, that's not what I advocate at all. That's not what I said at all. What I'm talking about is No, but I mean that's that's the logical conclusion of growing a business. And you may think that's a logical conclusion. I would Well, I do. I I do.
▶ 1:08:59If you if you keep if you keep being effective and efficient, I mean, I'm a car guy. I could tell you way back when in the 1910s or so, you had a whole bunch of different car makers, you had like 20 of them in the United States. Now we're down to about four. Why? Because the big ones bought everything up. As they got bigger and bigger, they got more effective and efficient at building cars. So the Packards are gone.
▶ 1:09:21You know, you don't have Duesenbergs, you don't have Cords, you don't have a whole bunch of cars that used to exist because there was, you know, there was no Franklin, no Morgan, no Stanley Steamer. None of these cars exist anymore because the natural conclusion was they kept growing bigger and bigger and bigger. Um, you know, then now you have Tesla competing, but again, it took so many decades. But hey, I'm going to go to somebody else now because I do want to talk about CDFIS. The CDFIs are proposed to take a big hit.
▶ 1:09:49Now, Young, could you comment on that because I think that that's problematic. Yeah, definitely. So, the CDFIS uh play a critical role, especially when it comes to micro lending. Uh and so with the cuts that are are being proposed for CDFIS, it will um it'll put additional needs on banks and credit unions to serve populations that CDFIS. So, my time is up. I just wanted to say again, I I I believe in small banks.
▶ 1:10:18I believe in community banks. I believe in credit unions. But there's some dissonance in some of the comments that were made here in my opinion. Thank you. The gentleman from Pennsylvania, Mr. Muer, is now recognized for 5 minutes. Thank you, chairman. Thank you uh to all of you very much. Uh thanks to some very strong appointments to the Fed, OC, uh the FDIC, we finally have an opportunity to reshape banking regulations that promote competition, reduce costs, and expand access to capital.
▶ 1:10:48Uh drawn out bank merger reviews by regulators and the lack of denovo charters have stifled entry, shrinking new bank formations from 132 per year uh from 2000 to 2009 to fewer than six per year since 2010. Today we can build on the Trump administration's push for better and more competitive banking.
▶ 1:11:09It starts by creating hard deadlines and application reviews, the return of expedited approval pathways, clear rules, uh, and incentives from new mutual banks, and checking your ideology at the door. Uh, Miss, uh, Usugi Tigi, I'm Usatigi. Um, there's been only one mutual bank formed in the last 50 years.
▶ 1:11:33Can you explain why Denovo mutual banks are so rare and how can we fix this Thank you for the question. Um I'm not quite sure why those folks would choose not to go that path. I know there was a huge crisis in the 80s and so many folks now I think want to be part of either a state regulated bank or the OC um just based on familiarity. I mean, that's the banks that most of us have been a part of.
▶ 1:12:01And going through this process, it's tedious enough that you want to make sure that you're aligning yourselves with regulators that understand your business plan and will be supportive of the application process. Um, it took us over 19 months from the time that we had decided to start uh Bank Miami to opening. And so being very closely aligned with regulators that have that same opinion and and understanding of the process to make it all the faster is quite significant and important. All right. Thank you, Miss Alexon.
▶ 1:12:31Why are other models for bank formation preferred under current rules and what tools should Congress give mutuals if we'd like them to be formed To be just to clarify, you're talking about the a mutual charter. Yes. Okay. So that's a specialty type of charter that's very common in the Massachusetts area. Um that those are charters that are owned by like individuals. So it's it's a different than a normal commercial bank charter.
▶ 1:13:00They're they're difficult to organize because of the disclosure obligations and the reporting that comes along with that. So they are it is a little bit clunky. Um those rules haven't been updated in a very long time. They used to be supervised by the office of thrift supervision which obviously was eliminated during DoddFrank and they've been decreasing in size over time. So I think that they're just not a priority for either the OC or the Federal Reserve. All right. Thank you, Mr. Cassello.
▶ 1:13:28How and why do regulators stall merger applications indefinitely without issuing formal So that can be very problematic in uh for any bank obviously when you're operating in that period of time between the approval and when everybody knows that there is a merger occurring that there's talks occurring uh it's very hard to operate your business uh in that environment when there's that much uncertainty hold on to your employees rumors all these things it's a
▶ 1:13:58really difficult situation for any bank to go through so why do they do it just for the purpose of I keeping it from happening I I have no idea. Well, hopefully we can change that. Can you describe the single biggest cost a bank faces? I guess it's obvious when a reg when a regulator lets a merger sit in limbo for 90 days. Yeah, it's definitely going to impact um you know the situation and I I think anything Yeah. Yeah.
▶ 1:14:28I think the hardest thing is being able to hang on to your employees during a period like that. Yeah. and customers. Yeah. Okay. That that certainly makes sense for all businesses. Uh Mr. Ber Berlau, can you describe the Trump administration's OC's 15-day deemed approved pathway?
▶ 1:14:47This is involving mergers, mergers and acquisitions or uh I'm I'm to tell you the truth, I'm not that familiar with it, but I like the fact that Chairman Hood um rescended the policy of the Biden administration against mergers. And I I'm interested in learning in learning learning more about that.
▶ 1:15:04And I think if uh generally it's it's good to uh loosen the uh uh relax the red tape around mergers and acquisitions so that you know you can have regional banks actually uh compete with uh be able to compete with mega banks and for safety and soundness regions. As I said, the B administration removed the pathway, but we'll um we'll move on, which kept mergers from from taking place. Um Mr. Chairman, my time has expired. I yield back.
▶ 1:15:35The gentleman from Illinois, Mr. Castton, is now recognized for five minutes. Thank you. And I appreciate the chairman calling this this hearing. Um I think this is the second one. I forget if it was this term or last, but the last time we had a hearing on this topic was with regulators, so I appreciate having practitioners on the other side of this. Um, I want to follow when we had the regulators here before, one of the pieces that struck me as interesting was this tension between bank stability and antitrust enforcement. And I guess I'd love to start with you, Miss Alexen.
▶ 1:16:05Um, when were when you were at the Federal Reserve, was there when you were reviewing a bank merger, was there a standard protocol? Like, you know, you've you've got the bank stability jurisdiction, DOJ has the antitrust. Was there a standard protocol that you guys worked together? Was it situation specific without getting into the details like how does how do the the two separate regulators balance that tension on the competition factor? Yeah. Yeah.
▶ 1:16:31So the under uh federal law uh the there's dual jurisdiction over the competition factor on bank merger transactions. So the Federal Reserve or the other primary regulator that's handling the bank level merger transaction reviews the competitive implications of it and the Department of Justice reviews it separately and they have slightly different approaches to it but in the end they try to they usually come out close enough together.
▶ 1:17:00So let me so I've got I got two questions that I struggle with and and maybe Mr. Castello is the best for this but if you've got want to chime in as well. So, let's let's imagine that you've got a a town with two regional banks in it, two small local banks, they want to merge together. Yeah. Locally, that's an antitrust concern. Yep. Right.
▶ 1:17:19On the other hand, if if that growing bank needs capital and says, "Well, if I if I merge with a bigger out of town bank, it's not an antitrust issue, but now I've hurt now I've got one fewer community bank." Yeah. Right. So, I mean, maybe Mr. Castello, I'm not asking you to like just divulge your long-term plans, but if you were to grow, would would you not have a bias to look for an out of town buyer? Uh, I don't think so necessarily.
▶ 1:17:46Uh, you know, Fort Lauderdale, Florida is Broward County. Okay, maybe you're in a big enough urban, but then I guess in Miss Alex like how how does the how do the regulators think about that tradeoff because isn't that going to, you know, hurt like the the smaller communities and therefore banks? So this is actually an issue that was debated in the original bank merger act in 1960. So this issue was isolated a long time ago.
▶ 1:18:10So the mergers are right now the way that they're reviewed for competitive p purposes is through their local market. So if there is a concentration there it it triggers a heightened scrutiny. So there's going to bias in favor of the out of town. Yeah. So there is a bias against an out of town buyer but it doesn't rule it out completely if there's reasons for it. So like if that smaller institution is having some trouble or if there's like some really legitimate reasons for it, they can overcome that. No, I don't mean to be so short, but I'm watching this clock.
▶ 1:18:40So, let me then get to the bigger one that we've had, you know, whether it was JP Morgan buying First Republic, um, USB buying Credit Swiss. When a when a bank is about to fail and there's a bank run, we seem to ignore all antitrust concerns because we need to get this quickly into a bank that has the capitalization, has the sophistication to move quickly. And and I'm not saying that's wrong, right? I mean, goodness knows that all of us who have been through a banking crisis have appreciated that. But are you aware?
▶ 1:19:10Has there ever been a time in history when we've said we need the GIB to buy this, but then we need to have some kind of a discouragement process on the back end so that so as not to concentrate. So devestures are a remedy that are often used in banking. But but I mean as as stapled to the to the deal, right? Because if we're sitting there saying we need you to do this right now. Lehman Brothers is failing. we need you to take over Lehman Brothers, but we need you to discourage yourselves of those assets and get down to the asset level.
▶ 1:19:40Right? Then um I off the top of my head, I can't think of that situation, but in just regular merger and acquisition transactions, devestaturures are a solution that are frequently used when there's concentrations and you're trying to preserve local, but then you've got to have like after the fact, right? You have to have a signed purchase agreement before the agencies will act on it. Okay. Well, Ed, welcome and we're tight on time. You either or Mr.
▶ 1:20:03Burla because it feels to me to be inherently anti-competitive if we're providing a, you know, essentially a one-way arbitrage risk that the big banks are the only ones who can buy in a merger like if we could have some protocol to say that when when we do that as necessary, it'd be good to have some kind of a mandate. Um, the last thing and I was going to ask you Mr. Burla, but maybe I'll just make the statement for the record and you can write in if you feel differently. Having spent a long time in the electric industry, I would be very cautious around some of these shot clock rules.
▶ 1:20:32We've had a lot of public utility commissions that have been mandated that they have to approve rates within a finite period. And what it ends up doing is giving a huge advantage to the person who can file the most complicated, hard to digest hearing, which gives a big incumbency advantage and hurts smaller players unless we staple that to significantly expanded funding for the regulators to do the enforcement. Um, gentleman's time is expired.
▶ 1:20:59You can respond for the record written for the written record. Yeah, time is expired. The gentleoman from California, Miss Kim, is now your thoughts. Five minutes. Thank you, chairman and ranking member for hosting this hearing. And I want to thank all the witnesses for joining us today. As I've said before, I am gravely concerned with the decline of community banks across our country and specifically in California.
▶ 1:21:25Over the last few hearings on this topic, we have learned that a reduction in banking services can result in decline in small business lending and increased costs that are forced upon the consumers. So unfortunately um the current banking regulatory climate has disincentivized mergers that would preserve banking services and the formation of new banks. Mr.
▶ 1:21:50Cost, I know that you have founded not one but two uh banks over the last 20 years. So I want to ask you what were the biggest differences in the regulatory regime that you experienced when you founded your bank bank locality bank in 2022.
▶ 1:22:09So I think the biggest So first let me say you know instead of going the den denovo route in 2022 we were trying to buy a bank because it would have been easier to go out and buy a bank than go through that whole process but we couldn't and so we decided to do the denovo route but the uh the biggest issue for me was the capital requirement was double what it was uh just uh you know a few years earlier 13 years earlier.
▶ 1:22:40And uh I would also say it was interesting because the bank in 2009, the denovo period became seven years at that time after the great financial crisis and then fortunately was reduced back to to three years which is what we just went through. But I also question you know who who determines that three years who determines seven years. Um where do they come up with uh these denovo periods?
▶ 1:23:06And I think that's an a thing that should be looked at as well along with capital. Yeah. Let me focus on that the business plan that you are required to submit for a new bank formation. Uh I understand that these plans are expected to uh endure from submission to three years of operation. So Mr. Castillo um through your experience how often does there arise a time when a leadership team may need to refine a business plan?
▶ 1:23:36Well, I think we all know in business that nothing is static. Things are constantly changing. During the time that since we operated, you know, we went through the SVB failure and uh the deposit crisis. So, I think you're constantly having to in any business update your business plan.
▶ 1:23:52So, the more uh I think the the faster we can have regulators uh react to those changes uh would be a lot easier for So how do re regulators react when you inform them that you need to make a change? I think it depends on the change. Obviously we didn't have any real uh structural changes. We didn't enter any new businesses.
▶ 1:24:15U so most of our changes revolved around modifying our budget and I would say that other than for the length of time it took they were responsive. So, Miss Usati, uh, are you hesitant to change your business plan at uh, Bank Miami because of the the concerns that we're discussing? So, we're only two months old, so I haven't had to uh, been presented with that problem just yet.
▶ 1:24:42But, you know, as Keith mentioned, you markets change and, you know, not to say I'm hesitant. I have a great relationship with the regulators, but how quickly they respond is a concern because sometimes on a whim, we'll get presented with a new opportunity that we want to have an answer um to be able to act quicker that may actually help strengthen the community bank and without having a clear timeline on response and honestly having to recreate a whole new business plan.
▶ 1:25:09at some cases depending on how um big of a change it is it could be you know I don't want to say detrimental to the bank but it could significantly impact the potential of new earnings and gathering more capital uh through that process. Thank you. You know as someone who founded and operated my own small business uh changing my business plan was not a sign of increased risk but a testimony to my adaptability and desire to succeed.
▶ 1:25:34It is disappointing to hear that some of the regulators may not see it the same way. Now I want to shift gear and highlight the importance of diversity in banking business models for consumers. So Mrs. uh Alex alexen sorry um when a consumer has access to large midsize and community banks and uh credit unions how do these options benefit a consumer? It it's just a variety of choices.
▶ 1:26:01Each of those institutions offers different sets of products and services. Some are competitive with each other, but they often you can just pick and choose for yourself like one-stop shop, you know, it's not one-stop shopping, but you can you can choose between different parties for different financial needs. And also, I think we have to consider other non-banking fintech providers or just non-banking providers too. All of these provide different financial services options that people can pick and choose for all of their different needs.
▶ 1:26:32Gentleoman's time has expired. The gentleman from Texas, Mr. Green, is now recognized for five minutes. Thank you, Mr. Chairman. I thank the witnesses for appearing and um having been a litigator for some point in my life, we engaged in a process known as vor dire or vir depending on where you're from. I'm told it's a French term that means to speak the truth.
▶ 1:26:56Hence, this will become a truthtelling moment for you members of panel. If you believe that invidious discrimination in banking exists, meaning that some people get discriminated against simply because of the way they look, color of skin. If you believe that it exists, kindly extend a hand into the air. Take a photograph of that please sir.
▶ 1:27:26Keep your hand up please. Ma'am I have in my office a series of pictures and I have have under these pictures ask me about this picture. I was interviewed yesterday and I had to go through about a dozen of them to explain the pictures.
▶ 1:27:44Let the record reflect that but one person, Miss Young, believes that invidious discrimination exists in I would challenge my colleagues across aisle to engage in a testing process to get the latest empirical evidence of what Miss Young has experienced.
▶ 1:28:07What I have experienced a brief vignette some years ago when I was a lawyer went in and received a loan paid it back early, never late with a payment. Went back to get a second loan. The loan officer at that time denied us loan. Four lawyers denied the loan.
▶ 1:28:37paid a loan back early, never late. The query was why and the answer was because you shouldn't have received the first loan.
▶ 1:28:50Invidious discrimination in Can any of you on the panel recall or recount a time in the history of this country when we had sufficient number of banks? Would you get the shot? Please let the record reflect that no one can recall or recount a time.
▶ 1:29:18Can anyone explain to me how this that we are currently considering as it relates to the d theo banks, how it can improve and help us with minority banks, banks in black neighborhoods and Latino neighborhoods.
▶ 1:29:41Yes, it'll probably help us with rule others, but can you give me some rationale as to how it's going to help us get more black banks, please? Green. Um, yes, I I believe I can. I I can I welcome your words, sir. Just be tur and laconic pity and concise. Thank you. Um, well, yes, I think this would um uh I'm not familiar with the specifics of of Mrs. Young, all of Mrs.
▶ 1:30:10Young's application, but I think she was talking about some of the same things as rural banks face. Um, the lack of, you know, requiring too much upfront. I understand, but if if I may please. Yes. If I may intercede, and you're being very kind to me, so I I don't mean to be rude, crude, and unrefined, but um that won't help with the problem that black people have with banks. It really is a money problem.
▶ 1:30:37How how does that help us get more people who can raise this large sum of money necessary to start a denovo bank? I don't know that it would solve all the problems. I I'm not talking about all. Let's talk about one in particular that we all seem to have who are if you need less money in front and you have phased in capital. I think that would help.
▶ 1:30:58Um yeah, what if you if you have phased in capital like the bill does rather than having to put like say um I think the gentleman here mentioned like say 4 million and then it was twice as much the others. I think you know all of the sort of entrepreneurs outside the system who have trouble raising that kind of money and I I concur with you that phased in is better.
▶ 1:31:22I prognosticate that with phased in, you won't phase in very many banks that will be owned by African-Americans. You, it looks good on paper, but when you're talking about millions, it doesn't benefit people who don't have millions. And this has been a problem for us since our arrival here. We've integrated things, but we've not integrated the money. Gentleman's time everything and that includes the money.
▶ 1:31:52Gentleman's time is expired. The gentleman from North Carolina, Mr. Moore, is now recognized for five minutes. Thank you, Mr. Chairman. You know, for decades, America's community banks and credit unions have served really as a critical lifeline for small businesses, for rural communities, and for working families. But one thing that struck me is that the ability to form new banks has nearly vanished. Uh some interesting statistics. From 2000 to 2009, over,300 new banks were chartered in the United States.
▶ 1:32:21That's an average of 132 per year. But get this, since 2010, only 88 new banks have been formed. Uh some states haven't even seen a new bank chartered in years. But that's not because there's, you know, less demand uh or anything like that. It's it's the need for community oriented banking remains high.
▶ 1:32:42What the problem is from what I understand is the current regulatory framework uh that instead of promoting competition it actually entrenches incumbency and discourages innovation and natural and organic growth. Uh my understanding is it's now prohibitively difficult for new entrance to to navigate the process uh to raise sufficient capital and achieve long-term viability. questions just a moment ago had to do with about, you know, different banks, about folks who maybe have been either underserved or underrepresented being able to have banks and so forth.
▶ 1:33:13And so what it what it looks like to me is that part of the regulatory framework that's in there actually is part of the problem that is reducing the incentive for banks to for new banks to form and for banks to grow. Uh so my first question would be to uh uh to m Miss Yuze and I apologize if I mispronounced your name. I'm sorry. Uh, but you've helped build new banks from the ground up.
▶ 1:33:38Uh, what are the most burdensome or outdated regulatory barriers that you faced in securing a Thank you for the question. Um, I still believe that capital is the number one challenge of denovo banks. the high amount of capital that is required nowadays is much larger than many of uh people can can put to work back before the financial crisis as as Mr.
▶ 1:34:05Costello has attested and my prior organization we only had to raise about one-third that and so I think the biggest barrier of entry right now is the capital component. I think the second one in terms of regulatory uh scrutiny I I like we've had a great relationship with our regulators. I do believe the process is is burdensome. Uh the application process and in some ways is duplicative between both agencies.
▶ 1:34:29I think streamlining that could be very efficient in in producing I think more opportunity for people to form new banks. But the cost too is significant because we don't have a set timeline. You know, usually you need to identify a CEO, a CFO, your your chief banking officer along those lines and you need to pay them to be part of this.
▶ 1:34:49And so the longer the application process is drawn out, the longer or the more expensive the organizational expenses become, which then in turn requires more capital to hit those minimal capital requirements. So I think streamlining the process and you know making sure there's set deadlines of when a regulator needs to accept an application or at least respond to the acceptance of an application uh could be very beneficial in new bank formation. Do let me ask you this.
▶ 1:35:17Do you think that a requirement that federal agencies publish annual public reports detailing the number, you know, the status and the processing timelines of depository charter applications, holding company approvals and deposit insurance request help bring transparency to the current process and identify where the reforms are needed? I think it could help, but I think the biggest challenge is really that period of time from when an application is submitted to when it's accepted.
▶ 1:35:44There are timelines already in place once an application is accepted to once it needs to be responded to on an approval process. But that initial time fra time frame is really the biggest challenge on the unknown and as I understand even after a bank secures the approval the regulatory environment uh really remains challenging for the first three years for example new banks are subjected to heightened scrutiny.
▶ 1:36:05I believe they have to seek approval uh prior approval for any changes in senior management subject to the enhanced reporting obligations and often required to maintain capital levels that are significantly above regulatory minimums. And so this level of regulatory micromanagement really crushes innovation and makes entrepreneurship and banking an uphill battle. Mr. Costello, you were involved in one of the last banks chartered in Florida.
▶ 1:36:29In your experience, how do these postcharter rules affect your ability to grow, attract talent or adapt to market demands? Yeah, it's a great question. I'll say when you become a new bank, you're subject to an exam every six months. And then on top of that, you have internal audits, external audits. We would go from one exam and we'd exit one exam and we'd start another one. And I'd also like to echo what Mary said. The regulators we dealt with have been great. It's the regulations that need to be changed.
▶ 1:36:58The gentleman's time is expired. The gentleman from South Carolina, Mr. Timmans, is now recognized for five minutes. Thank you, Mr. Chairman, and thank you to each of the witnesses for joining us today. Today's hearing is important as Congress and regulators consider how current rules impact mergers and acquisition acquisitions in the banking sector, especially for midsize banks. Complex overlapping regulations make the M&A process costly and timeconuming, often discouraging midsize banks from pursuing strategic mergers.
▶ 1:37:26To ensure a competitive and resilient banking sector, we need to reassess these regulations and create a more streamlined process that allows mid mid-size banks to grow and better serve their communities. A barbell banking system dominated by very large and very small banks could reduce competition, threaten financial stability and harm consumers and businesses.
▶ 1:37:45Last year, the US Chamber of Commerce published a white paper titled, "At anti- merger regulatory proposals threaten US financial markets, which underscores the importance of bank M&A for the stability and growth of our financial system." Uh, Miss Alexson, given the current competitive landscape, can you elaborate on how bank mergers and acquisitions contribute to financial stability and consumer choice?
▶ 1:38:07Specifically, how might the Biden era M&A guidelines disproportionately affect midsize banks potentially leading to a barbell banking system dominated by large national banks and small community banks? Yeah. So, strategic combinations diversify banks product offerings and geographic reach of banks and this allows banks to provide more products and services to a wider array of people and that creates a more stable and diversified funding base and an asset mix.
▶ 1:38:37And that leads to a safer and sound a safer and more safe and sound bank. But it also enables particularly midsize banks to while simultaneously being able to continue to compete in the local market that they grew up in, be more viable competitors to larger institutions. Thank you for that. If midsize banks continue to face disproportionate regulatory hurdles in the merger process, what are the potential long-term consequences for access to credit?
▶ 1:39:08Well, it stifles business growth, right? And it also forces more in more borrowers and more customers to to financial products that are outside of the regulatory system like we see the growth in private credit is one of those places. And while those are all, you know, viable financial services, we have to think in the future, like what direction is our bank regulatory system going?
▶ 1:39:35As more and more things get outside of the system and our banking system becomes smaller and smaller, our ability to make sure that it operates in a safe and sound way collectively decrease. Thank you for that. As we consider rolling back many of the overbearing regulations from the Biden administration, it is crucial that we focus not just on identifying the issues, but also on finding practical solutions to address them. By doing so, we can create a regulatory environment that supports growth and innovation while ensuring that consumer protections remain intact.
▶ 1:40:04The OC's 2024 merger guidance document is a key place to start. By eliminating the expedited merger approval process, the Biden administration removed important efficiencies that were already built into the system. I could easily spend my entire five minutes outlining the numerous provisions in this guidance that slow down the merger process and place unnecessary burdens on institutions seeking to grow or consolidate responsibly. But I want to ask you, Mr.
▶ 1:40:27Costello, regarding the OC specifically, which other rulemakings do you believe are most negatively impacting the bank merger process and what practical solutions would you recommend to help help this space thrive? So I would defer to uh Miss Alex Alex on that question really. I don't have a lot of experience with OC and Well, I can I can answer that. So there's a there's a couple different things and it's true across the different banking agencies.
▶ 1:40:57um the they need to think a little bit harder about their internal processes and the types of information that they get on applications and how it's considered and their decision-making chain throughout their organization. So, there's some really easy things that they could do to streamline that.
▶ 1:41:14like the Shock legislation is a is a good step in that direction, but internally they could create more expedited processes, dedicated applications, calendars, and and change their delegation criteria to speed up processing. Thank you for that. Finally, I'm glad to see Chairman Bar's bill, the Financial Institution Regulatory Tailoring Enhancement Act, included in today's hearing. This bill rightly acknowledges that a one-sizefits-all regulatory approach does not work for our diverse financial system.
▶ 1:41:42By raising the asset threshold from 10 billion to 50 billion, it ensures that smaller and regional financial institutions are not burdened with the same complex regulations designed for the largest systematically important institutions. This targeted relief will allow community banks and credit unions to focus on what they do best, serving families, small businesses, and local economies while still maintaining strong oversight where it is truly needed. With that, thank you, Mr. Chairman. I yield back. Gentleman yields. The gentleman from Wisconsin, Mr. Fitzgerald, is now recognized for five minutes. Thank you, chair.
▶ 1:42:12Uh, Miss Alexon, uh, as consolidated trends continue in the banking sector, uh, we should be supporting mergers that enable regional banks to grow and better serve their communities in the face of regulatory and market pressures. But as Congress considers reforms, can you explain how bank mergers, especially those involving kind of the midsize regional banks, help promote a healthier, more competitive banking system? Sure.
▶ 1:42:38There's a number of reasons why midsize banks enter into combinations, but um those strategic mergers can create economies of scale that offset regulatory and compliance costs. And this creates space for more innovation and investment in systems and technologies that we all know are essential moving forward.
▶ 1:42:57As I just noted before, it also creates it diversifies their product offerings and their geographic markets and that creates a more stable diversified funding base and asset mix. That just creates a more stable strong financial institution and that in turn allows them to be more competitive against large banks with national footprints.
▶ 1:43:19But it also simultaneously allows them to keep um their stay competitive within the local geography that they grew up in. So in your role uh as you advise financial institutions, do you think it's time we modernize how competition is evaluated in the bank mergers to reflect a broader range of financial service providers in the market so decisions are based on real world dynamics? Yeah, I I believe that there's a general consensus that the current analysis used to review the competitive factor should be modernized.
▶ 1:43:50Um, I talked about this a little bit in my written testimony, but we've clearly transitioned away from a a very competitively isolated uh banking market into something that's totally different. And the historic approach that the agencies used, including the Department of Justice, to evaluate mergers is completely defend dependent on market deposits.
▶ 1:44:11So, we need to look at a wider array of competitors um non-bank competitors and online deposits in order to get a true accurate picture of what the competitive market looks like. So, chairman, this is the point in the hearing where I promote my own piece of legislation and that is why I plan to introduce the bank competition modernization act which would categorize credit unions, fintexs, farm credit companies uh from the per for the purposes of concentration analysis and bank mergers.
▶ 1:44:39Uh the bank competition modernization act brings muchneeded reform to how bank mergers are reviewed by making sure regulators consider the full scope of today's competitive financial landscape. Uh right now community and regional banks are being evaluated as if they're the only complete uh piece in these regions ignoring the massive growth of credit unions fintech uh and farm credit institutions that offer similar products.
▶ 1:45:05The bill ensures that all major players are accounted for in merger reviews, creating a fairer, more accurate process. By modernizing these outdated standards, we can reduce unnecessary regulatory roadblocks and support local banks and promote financial systems. Um, I I'll just ask a final question uh of MC of Miss Alexson.
▶ 1:45:27Can can you discuss some of the implications of the OC and the FDIC's 2024 guidance and uh how would that have had on what what effect would it have had on bank merger application reviews uh if it had not been for the Trump's administrators the recisions that that now are happening. So those policy statements created a chilling effect on on bank mergers.
▶ 1:45:55It it it's not the only factor that led to a decrease in bank consolidation over the last number of years. There's been economic factors that have been have supported that as well. But having inconsistency in policies with respect to bank mergers only only created more insecurity with whether or not to proceed with a transaction. They're costly. They're time consuming.
▶ 1:46:20if you're not going to get favorable treatment, then um it it's nerve-wracking for institutions to proceed. I think the other thing that those uh policy statements did is they kind of created a presumption that parties were starting from a negative position. So, if you're filing an application and everybody's starting from a neutral position and you have to justify your factors, that's that's how the system has always worked.
▶ 1:46:44But if you're starting from behind, if you're if there's an assumption that the transaction is bad to begin with, I mean, it's just the further you have to travel. And um I just I it's very difficult to draft guidance. Every word means something. It's like legislation. Every word means something. And so I think just guidance has to be very careful that you're not inadvertently creating presumptions like that. Thank you very much. I yield back. The gentleman yields.
▶ 1:47:12First, I'd like to thank uh all of our witnesses for your testimony today and taking time to come and be before the committee. Without objection, all members will have five legislative days to submit additional written questions for the witnesses to the chair. The questions will be forwarded to the witnesses for their response and witnesses please respond no later than June 20th uh 2025. With that, this hearing is adjourned.