▶ 0:37:36Committee on Financial Services will come to order. Without objection, the chair is authorized to declare a recess at any time. Today's hearing is entitled DoddFrank turns 15: Lessons Learned and the Road Ahead. Without objection, all members will have five legislative days within which to submit extraneous materials to the chair for inclusion in the record. I now recognize myself for four minutes for an opening statement. Good morning.
▶ 0:38:00Today's hearing is focused on reviewing DoddFrank's realworld impact and its unintended consequences over the past 15 years. Our colleagues across the aisle often criticize today's banking system, but rarely do they acknowledge that it's a direct result of the policies they enacted after the 2008 financial crisis along party lines. DoddFrank was sold to the American people as a sweeping fix to prevent another crisis.
▶ 0:38:29Yet over time, it's become clear that this approach has not delivered as promised for Main Street. Instead, history shows that it punished community financial institutions through its one-sizefits-all mandates, shifted activity outside the regulated banking system, created new and unaccountable agencies like the CFPB, and prioritized duplicative compliance and regulatory issues, and most importantly, regulation by
▶ 0:38:59enforcement over actual consumer protection. These smaller institutions did not cause the crisis, but they've been forced to navigate new compliance burdens and divert resources away from serving their communities and toward satisfying Washington bureaucrats. The law created new agencies like the CFPB, which has operated in with unprecedented autonomy and minimal accountability to Congress or the American people. For 15 years, we've lived under the shadow of DoddFrank.
▶ 0:39:29This law didn't just reshape banking. It rewrote the rules for our capital markets. It handed the SEC sweeping new powers that have led to regulatory overreach, costly disclosure mandates, and mission creep into areas like corporate governance and executive compensation. Areas historically governed by state law and protected by the business judgment rule. For 15 years, these policies have burdened the US public companies while giving foreign competitors a leg up.
▶ 0:40:00Even worse, private uh foreign private and issuers were exempted from many of the most burdensome DoddFrank disclosure requirements. We all know that healthy competition and innovation drive economic growth, creating more opportunities and better financial services for all Americans. Instead of burdening institutions with excessive red tape, we should be empowering them to serve families, small businesses, and local communities.
▶ 0:40:26That includes small and midsize companies trying to raise capital or grow through public market access. Unfortunately, the complexity and cost imposed by DoddFrank helped fuel the long-term decline in US initial public offerings, discouraging companies from going public altogether. As we examine the last 15 years, I hope we can do so with clear eyes. It's also time to take a hard look at the rules that never made sense in the first place.
▶ 0:40:55rules that sit on the shelf and create needless uncertainty for market participants just waiting for some new unelected bureaucrat to dust them off and put them to work. That's not how our system should work. We must work together to craft thoughtful bipartisan reforms that restore balance, foster growth, and protect consumers. I look forward to a robust and productive discussion today.
▶ 0:41:20I'm grateful to our panel for being with us and I'm hopeful that we can chart a better path forward for all Americans through financial oversight and through reform of DoddFrank. I yield back. I now recognize the distinguished ranking member of the committee, Mrs. Waters, for five minutes for an opening statement. Uh, thank you very much, Mr. Chairman. Good morning, everyone.
▶ 0:41:45Before I discuss today's hearing topic, we just got news that inflation has jumped to 2.7% as Trump's tariffs have started to take effect. This is another reason Trump's reckless tariffs and attacks on the Fed's independence are so dangerous and consumers and small businesses will pay the price.
▶ 0:42:07It's striking that with this hearing we are marking the 15th anniversary of the DoddFrank Act legislation enacted in the aftermath of the 2008 financial crisis which unfolded under a Republicans's watch with President George W. Bush's administration. And yet this same week, Republicans in Congress are repeating the same mistakes that triggered the crisis in the first place.
▶ 0:42:36It's as if they have learned nothing from the painful lessons of 2008, the wave of foreclosures, the millions of jobs lost, and the devastation of countless families watching their entire life savings vanish in a blink of an eye. Unfortunately, over the past 15 years, Republicans spend more time trying to undo DoddFrank than they have spent time trying to protect consumers and investors.
▶ 0:43:04They've done more to fight for interests of the same Wall Street CEOs whose reckless actions destabilize our economy than fighting for the main street and workingclass Americans who power our economy. There's no clearer example of this than what we're witnessing just this week.
▶ 0:43:25Republicans are pushing two particularly dangerous bills that will unleash frisky cryptocurrency into our mainstream financial system without proper guardrails to protect hardworking Americans. If that sounds familiar, it's because it is. The rise of complex, poorly regulated financial instruments was precisely what sparked the 2008 crisis.
▶ 0:43:53But these crypto bills don't just risk another economic meltdown. They're also riddled with loopholes that President Trump the that gave him the green light to continue his crypto scheme that so far has netted him $1.2 billion. Yeah. He owns crypto companies now. He owns crypto companies. Melania owns crypto companies.
▶ 0:44:22his son's own Bitcoin companies. Um, they're mining Bitcoin coins right now. It's appalling that this Republican le Congress can sit idly by and enable this blatant scream scheme and cash grab, especially after just voting so hard to hand Trump and his insiders a massive tax giveaway.
▶ 0:44:46This is more of the same taken from hardworking Americans to further enrich billionaires and crypto insiders. That's why I have joined with ranking member Lynch in leading Democrats in week where we are outlining the true economic cause of these dangerous bills.
▶ 0:45:06deregulating crypto and enable a con by the most corrupt president in the history aren't the only ways that Republicans are setting the stage for another 2008 style crisis. They're also working with the Trump regime to gut a core pillar of DoddFrank, the Consumer Financial Protection Bureau. This is incredibly dangerous.
▶ 0:45:30The Consumer Bureau was created to ensure a federal watchdog monitors big banks to protect consumers from the abusive practices and holds institutions accountable for ripping off consumers. But now Trump and the Republicans are making good on their promise to delete the agency.
▶ 0:45:50From slashing CFPB's budget in half to firing dedicated staff are halting lawsuits that would return stolen money to victims from them. They're dragging us back to the dark days before DoddFrank when consumers had no one looking out for them in the financial marketplace committee. Democrats are committed to defending the DoddFrank Act from Republicans 15-year campaign to repeal the law.
▶ 0:46:16We will also continue fighting against reckless deregulation that favors mega banks and big tech over community banks and credit unions that puts our taxpayers at risk. We still we will still see what happens when Republicans allow Wall Street, big tech, big crypto to police itself. Spoiler alert, it will not end pretty for our constituents. And with that, I yield back. The gentleoman yields back.
▶ 0:46:46I now recognize the vice chair of our full committee, Mr. Heisagga, for one minute for an opening statement. Thank you, Mr. Chairman. On 4th of July, President Trump and and congressional Republicans delivered on a promise to pass legislation that helps all Americans. There's a stark difference between the One Big Beautiful bill and the DoddFrank Act. The One Big Beautiful bill will increase economic opportunity for those who need it most. It'll strengthen our economy by slashing red tape and will make lasting reforms to the financial system.
▶ 0:47:14DoddFrank empowered big government bureaucrats and agencies like the Securities and Exchange Commission with sweeping unchecked authority. It allowed agencies to promote woke ideology and ESG mandates while straying from their core Now, by reigning in the reach and the footprint of organizations like the CFPB, Republicans and President Trump will end regulation by enforcement. We will end burdensome regulations that harm every one of our constituents. in the financial services.
▶ 0:47:43Republicans will promote innovation and consumer choice that has been stifled under Democrat leadership. As I always say, I wasn't here for the passage of DoddFrank, but I've been living with the echo effects of it since 2011. With that, Mr. Chairman, I yield back. Gentleman yields back. Today, we welcome the testimony of our allstar panel. The Honorable Ken Benson, president CEO of the Securities Industry and Financial Markets Association, former member of Congress from Texas and a member of this committee. Miss Lindseay Johnson, president CEO of the Consumer Bankers Association, Mr.
▶ 0:48:12Tom Quadman, chief of government affairs and public policy and the Investment Company Institute, Dr. Paul Kubak, senior fellow at the American Enterprise Institute, and Dennis Keller, co-founder, president, and CEO of Better Markets. We thank each of you for taking time to be with us today. Each of you will be recognized for five minutes to give an oral presentation of your testimony. And without objection, your written statements will be made part of the record. The Honorable Ken Benson, you're now recognized for five minutes for your oral remarks.
▶ 0:48:40Uh Chairman Hill, Ranking Member Waters, and distinguished members of the committee. Thank you for the opportunity to testify today. My name is Ken Benson. I'm president CEO of Sith Mon. US securities markets are the deepest and most liquid in the world. They're also the envy of the world. In the US, 75% of commercial activity is financed through our capital markets, significantly more than any other developed economies. In fact, I just spent the last week in Europe meeting with UK and EU financial regulatory officials, where both jurisdictions have prioritize development of their capital markets to spur investment and economic growth like that we have here at home.
▶ 0:49:09Vibrant and healthy capital markets allow companies to invest in plant and equipment, spurring job creation and economic growth. and American workers prepare for their retirement directly and through investment vehicles such as 401k accounts uh providing investment capital that fuels our economy. Again, if you look around the world, virtually every other nation looks in the US as a model for our robust uh capital capital markets and investment system.
▶ 0:49:30Therefore, it's critical for policy makers to tailor regulatory policies to ensure transparency, investor protection, and mitigate legitimate market risk without unnecessarily disrupting or constraining these critical markets. Further, Congress has an important role to play beyond simply enacting the laws. It is important for Congress to periodically review previously enacted statutes to determine effectiveness, adherence to legislative intent and impact on the market. So, I commend the committee for holding this hearing.
▶ 0:49:54Beyond question, our markets and related participants are among the most regulated sectors in the US economy, but not without cost. The post208 financial crisis regulatory and supervisory reforms culminated in the DoddFrank Act were the most expansive financial regulatory action since the 1930s. The act comprised 16 titles and approximately 400 rulemakings significantly expanded the number and breath and intensity of regulatory and supervisory requirements with with which uh the UN US financial sector is subject.
▶ 0:50:22I brought my tabletop copy with me. Um there are changes these changes have significantly reduced the probability that a major banking organization would fail during an extreme shock while also reducing the potential contagion and cost if such a failure were to occur. In particular, uh, large banking organizations have more and higher quality capital today than pre- crisis, which provides them with larger buffers against failure if they experience unexpected losses.
▶ 0:50:47Though many of the DoddFrank reforms have made the US financial system more resilient and less prone to shocks, we believe that appropriate tailored regulation should balance the dual goals of enhancing financial stability and investor protection while supporting the flow of investment capital to end users. The financial sector can continue to be well regulated, well capitalized, and resilient even with recalibration of certainly unnecessarily burdensome regulations. If banking organizations were permitted to unlock more of their capital liquidity, additional lending and financing to consumers and businesses would provide for greater levels of economic expansion.
▶ 0:51:16Zip has expressed deep concern about the Basel 3 in proposal that was issued in 2023 by banking regulators not only because it would significantly increase aggregate US bank capitals beyond their current historically robust levels but because it inappropriately targets banking organizations capital markets activities for some of the largest increase. These impacts are in turn greatly exacerbated by overlaps between the frame these frameworks and the Federal Reserve stress testing regime. This is not only about the ability of banks to lend.
▶ 0:51:43Uh large bank deal broker dealers comprise a significant market share of a nation's securities and derivatives markets and when combined with foreign banking operations comprise about 90% of the market. So the knock-on effect is quite extreme. It's also not just about large banks. Non-bank affiliated and regional broker dealers and asset managers all subject to robust rules and oversight by federal market regulators have been subject to enhanced regulatory and compliance burden.
▶ 0:52:08The cost of compliance has increased, according to one study, by over $50 billion annually. Many of our smaller broker dealer members have reported the need to merge due to increased compliance costs. Over the last 15 years, the number of registered broker dealers in the United States has declined by 30%.
▶ 0:52:26Further, some regulators have interpreted uh as have some regulators have interpreted certain provisions of the DoddFrank Act as a license to establish uh new rules outside the original intent of the statute, notwithstanding the lack of any obvious market failure. The US financial system is significantly stronger and more resilient than it was uh before DoddFrank was passed in 2010. That's a good thing.
▶ 0:52:51However, Sithman believes that it is now appropriate to evaluate whether certain components of the regulatory framework developed under the mandates of Dodd of DoddFrank are excessively conservative, impose costs on the US economy, our financial markets, and on Main Street that outweigh their benefits. We appreciate the committee's interest in exploring these important questions on this 15th anniversary of DoddFrank. I yield back. Gentleman yields back. Miss Johnson, you're now recognized for five minutes for your oral presentation.
▶ 0:53:19Thank you, Chairman Hill, Ranking Member Waters, and members of the committee. I appreciate the opportunity to testify on behalf of the Consumer Bankers Association about the lessons learned from the DoddFrank Act. My name is Lindseay Johnson. I'm president and CEO of CBA, the only national trade association focused exclusively on retail banking. CBA and our members work to promote sound policy to enable consumers individualized approaches to finance their own American dreams.
▶ 0:53:47CBA member institutions account for nearly two million employees across the country, extended roughly 3.4 trillion in consumer loans and provided nearly 173 billion in small business loans last year alone. The vast majority of our members are more than 10 billion in assets, making them subject to CFPB supervision and enforcement. The DoddFrank Act was enacted to address vulnerabilities in the US financial system exposed in the 2008 financial crisis.
▶ 0:54:14DoddFrank raised capital requirements for banks, established mortgage underwriting requirements, heightened oversight of systemically important institutions, and consolidated federal consumer protection authority into a brand new federal regulator, the CAPB. It's important for Congress to continually refu review statutes to ensure that they're meeting their intended purpose, to know any unintended consequences such as unnecessarily increasing cost for businesses or consumers, and to understand how markets have evolved and where certain standards may no longer be appropriate.
▶ 0:54:45While this is true for all titles of the DoddFrank Act, my comments will focus on title 10 of DoddFrank, the creation of the CFPB. American consumers deserve a credible, durable CFPB that executes on the statutory mission, heeds the bounds of its statutory authority, and addresses true market failures and consumer harms. Unfortunately, the political shifts at the bureau have been seismic from administration to administration. To some degree, bureau policy will inevitably reflect differences in political philosophies.
▶ 0:55:15However, numerous actions by the bureau's prior leadership have raised important questions about whether it prioritized politics over people. We expand on these and other issues in great detail in my written testimony, and we're working with the bureau's current leadership to address many of the most egregious concerns. This committee has a critical role to play to make more permanent reforms that can reboot the bureau into a credible, durable, and more stable regulator. In my written testimony, I addressed three key issues where Congress should focus its review of the bureau.
▶ 0:55:46First, ensuring the agency follows the law. Second, addressing true impacts of regulation on consumers. And third, focusing on fact-based policies and on true consumer harm. The most direct action Congress could take is to clarify in statute the bureau's vague and largely undefined UDEP authority. The bureau has in the past regularly expanded its authorities or illegally interpreted the statutory provisions to meet its own objectives.
▶ 0:56:13There are even examples where the bureau sought civil monetary penalties retroactively for previously undefined violations. Now, even after 15 years, the CFPB still hasn't clearly explained what abusive acts and practices are and how they're distinct from unfair and deceptive acts. Unfortunately, this has placed all entities that the bureau regulates at risk of inadvertent non-compliance, stying lending and innovation for consumers.
▶ 0:56:39It's imperative for Congress to pass Congressman Bar's rectifying UDEP Act to provide the needed clarity and definitions of CB's UDEP authority so regulated entities know what is and is not permitted and how they can comply. Second, the bureau must consider the true impact of its actions on both consumers and regulated entities. Today, the bureau is not required to perform a rigorous costbenefit analysis to ensure the actions it's taking outweigh both the financial costs and the cost to consumers.
▶ 0:57:07The transparency and CFPB costbenefit analysis act would eliminate this concern. The bureau also needs to take into account the cumulative impact on the numerous oversight agencies for banks. Legislation to review the impact of overlapping regulations and impacts on consumer access and overall economic e activity would greatly benefit consumers without diminishing the supervision and examination of banks. Lastly, it is critical for the CFPB to be facts and datadriven in its regulatory focus.
▶ 0:57:36The bureau's complete database, a tool that could provide important data beneficial to both consumers and regulated entities to help resolve problems early, is structurally flawed. The tool should be improved as duplicative duplicative, frivolous, and fraudulent complaints currently plague the system. Draft legislation released by this committee on the bureau's complaint database would significantly improve that process. Thank you again, Chairman Hill, for the opportunity to testify.
▶ 0:58:03We stand ready to work with you and the committee to achieve thoughtful and effective change to ensure the bureau is a strong and durable consumer protection regulator. I look forward to answering any questions you may have. Gentleoman yields back. The gentleman, Mr. Quadman, you're recognized for five minutes for your oral remarks.
▶ 0:58:19Chairman Hill, Ranking Member Waters, members of the committee, thank you for holding this hearing and for your leadership on keeping America's financial markets the global glo gold Prior to the financial crisis, many raised concerns that the US financial regulatory architecture was out of date. Indeed, issues such as blind spots and lack of coordination hampered the ability of regulators and policymakers to address the crisis.
▶ 0:58:43Congress through the passage of the DoddFrank Act sought to the response to the crisis but ignored many of those issues. Instead, the DoddFrank Act added floors onto an old house that was built on a rickety foundation. DoddFrank in certain areas sought to eliminate risk, but really you can't eliminate risk. You can only transfer it elsewhere. DoddFrank also did not allow regulators the flexibility to meet future market developments and investor needs. DoddFrank did get some things right.
▶ 0:59:12Transparency around the derivatives markets actually addressed a critical part of the financial crisis. The creation of FSAC, which is a codification and expansion of the president's working group, was an important step forward in coordinating regulators. However, Congress largely delegated to agencies uh to flesh out the details of the bill. In some cases, regulators naturally sought to fill the void of ambiguity and expand their powers.
▶ 0:59:39Some examples include FSOC's attempt to designate non-bank financial institutions uh through systemic risk uh was a mismatch in implying and attempting to imply bank-like regulations on a uh business model which were not banks. Similarly, on money market fund reforms, FSOC sought to subvert a majority of the SEC commissioner's judgment in the path forward.
▶ 1:00:06The CFTC created a duplicative regulatory regime on community pool operators without investor benefit. The Vocal rule, which is a prohibition on proprietary trading by banks, in its implementation, the regulators actually included regulated funds. Even though it's not part of DoddFrank, but does exert influence on DoddFrank policies. The Financial Stability Board, which is largely made up of central banks and finance ministers, directs pressure on policy makers in other areas.
▶ 1:00:36These are these issues can be fixed. The Foc Improvement Act, which was introduced by Congressman uh Foster and Heisinga, would actually have a activities-based approach to systemic risk regulation. We would be happy to collaborate with the committee on clarifying language both on community pool operators and the Vulkar rule.
▶ 1:00:55And furthermore, we believe that this committee and Congress should exact oversight over the activities of American regulators within the Financial Stability Board and should also make sure that there's a Team USA approach while also broadening representation of other agencies within the discussions at the FSB. Furthermore, this committee and Congress should also ensure that we're addressing the needs of the market for today and tomorrow as well as where investors are going.
▶ 1:01:22We believe it is important for congress to pass the growth act which was introduced by congresswoman van do dine and su to remove a punitive tax on investors. We believe it is long past time to mandate e delivery for investors and we think it is very important for legislation introduced by congressman heising and sherman uh to move forward with this common sense approach. Furthermore, there needs to be modernization of closed end funds.
▶ 1:01:49We think it is important with legislation that was introduced by Congresswoman Wagner and Congressman Meeks that will allow for access of private capital in highly regulated funds as well as ending uh activist campaigns. Lastly, ICI after a three-year effort in uh issued a report earlier this year reimagining the 1940 act with 19 different recommendations for how the 1940 act can be modernized.
▶ 1:02:18that the 1940 act has not been reviewed by Congress in 30 years. We think that's an important step forward and I want to submit this for the record. We look forward to working with you all on these issues and I'm happy to take any questions you may Thank you, sir. Dr. Kupyak, you're recognized for five minutes for your oral remarks. Thank you, Mr. Chairman, Chairman Hill, Ranking Member Waters, and distinguished members of the committee. Thank you for convening today's hearing and for inviting me to testify.
▶ 1:02:47I'm a senior fellow at the American Enterprise Institute, but this testimony represents my personal views and research. As the DoddFrank Act work as the authors intended, the goals in the acts preamble include financial stability, improved accountability and transparency, an end to too big to fail, to protect the American taxpayer by ending bailouts. But in March of 2023, the federal government was forced to take emergency measures to bail out the banking system.
▶ 1:03:17The crisis occurred when depositors withdrew their funds wholesale after recognizing that large unrealized interest rate losses had effectively rendered their banks insolvent. The crisis was averted when the Treasury instituted a blanket deposit insurance guarantee for failed banks and funded a 25 billion first loss backs stop for a Federal Reserve emergency lending program needed to bail out the banking system. The Fed's term funding program provided banks with emergency liquidity.
▶ 1:03:47It made nearly 10,000 loans on bank collateral that had very large market value discounts as a consequence of increased interest rates. The program loaned banks the full par value of their collateral for periods up to a year and by some estimates lent banks about 20 billion more than the market value of the collateral they pledged and all at favorable rates.
▶ 1:04:10The decision to ensure all depositors in the failed banks created very large insurance fund losses compared to the losses under an FDIC leasecost receiverhip. Federal bank regulators failed in their oversight responsibility but still made the large banks banks that bore no responsibility for the poor management at the fail institutions pay for the large insurance fund losses.
▶ 1:04:34DoddFrank orderly liquidation authority gave authorities the power to take SVB's bank holding company into an FD FDIC receiverhip, liquidate its assets and use the proceeds to reduce the SVB insurance fund losses and yet it was not invoked. It's possible that authorities did not invoke OA because OA funding was precluded by the congressional debt ceiling which was also a problem for FDIC failed bank receiverhips.
▶ 1:05:02The receiverhip's funding needs exceeded the balance in the deposit insurance fund. Because the congressional debt ceiling was binding, the FDIC could not borrow from the Treasury. The receiverhips were forced to borrow from the Federal Reserve discount window and pay a penalty interest rate 70 basis points over Treasury borrowing rates on hundreds of billions of dollars in loans.
▶ 1:05:26These additional insurance fund losses were just passed on to the large banks through special diff assessments without much if any public discussion. So much for improved accountability. The large unrealized interest rate losses that caused the March 23 crisis could be could have been detected as losses grew throughout 2022.
▶ 1:05:46As I show conclusively in my written testimony, the FSOC and its federal banking regulator members could have used their extensive prompt corrective action powers to proactively impose remediation measures. Yet, they didn't. Indeed, the past 15 years have demonstrated that the FSOC has little ability to detect and mitigate actual systemic risks.
▶ 1:06:08On several occasions, the FSOC completely missed actual sources of systemic risk, and on others, they falsely identified firms and activities as a systemic risk. The most recent example is the is the so-called Brown Industries crusade launched to advance a political agenda rather than to address any demonstrable financial sector risk.
▶ 1:06:29The political nature of the FSOC's activities raise the cost of financial intermediation as FSOC policies change each time a new party assumes executive The DoddFrank regulations also impacted financial intermediations particularly for large complex financial institutions. To be fair, changes in intermediation patterns al also reflect changes in Federal Reserve monetary policy and the outpaced growth in Treasury debt.
▶ 1:06:55The largest banks increased their use of deposit funding while reducing their use of subordinated debt, federal funds borrowing, and federal home loan bank advances. These changes replaced active monitoring by lenders with skin in the game with regulatory monitors. The largest bank's share of investments to loans to businesses and consumers also declined as they substituted liquid federal government guaranteed securities and federal reserve interestbearing deposits.
▶ 1:07:22Smaller banks not subject to DoddFrank enhanced supervision did not make these adjustments. By many measures, many objective measures, the complex provisions and regulations in the DoddFrank Act did not work as their authors intended. I look forward uh to your comments and thank Gentleman yields back. Mr. Keller, you're now recognized for five minutes for your oral presentation. Good morning, Chairman Hill, Ranking Member Waters, and the members of the committee.
▶ 1:07:51Thank you for holding this important hearing and for the invitation of better markets to testify. While the focus today is the DoddFrank Wall Street reform law, that law cannot be properly discussed or understood without reviewing the devastating financial crash that started in 2008 that made the law so necessary. That was the worst financial crash since the great crash of 1929. And it caused the worst economy since the Great Depression of the 1930s, which is why it was called the Great Recession.
▶ 1:08:17The damage caused by that crash ruined the lives of tens of millions of Americans, crushed small businesses and community banks, grievously damaged our economy and financial system, ballooned the country's debt, and undermine the pillars of our democracy, which depends upon an economy delivering rising living standards and broad-based prosperity. Just a few facts to illustrate the horrific scope of the damage caused to Americans from that crash.
▶ 1:08:4213 months after the September 15th bankruptcy of Lehman Brothers, the U6 unemployment rate reached 17.2%. Throwing more than 27 million Americans out of work. 16 million foreclosure filings happened during the Great Recession, causing millions of families to lose their homes. 40 plus% of homes in the United States were underwater, meaning their mortgages were higher than the value of their homes for years after the Lehman bankruptcy.
▶ 1:09:0810 years passed before the unemployment rate in the United States returned to pre208 crash levels. And after eight years after the Lehman bankruptcy, 90% of the American people were poorer at the end of 2016 than they were in 2007 by 17 to 34%. It's also critical to remember that the 2008 crash was an avoidable man-made financial crash and disaster that didn't have to happen.
▶ 1:09:35It only happened because too many elected officials, policymakers, regulators, and others who should have known better listened to the financial industry's siren song of deregulation, which as in the Greek myth, inevitably resulted in a catastrophic crash.
▶ 1:09:50That deregulation and crash resulted from too many believing the financial industry's claims that its interests overlap with the public interest and that the industry is primarily focused on economic growth, job growth, credit supply, helping community banks, small businesses, and disadvantaged groups. The industry continues to trumpet these issues. Indeed, it's the chorus for the siren song of deregulation. Those claims, however, are usually smokeokc screens behind which they hide their profit and bonus maximizing motives.
▶ 1:10:20That's fine for the private sector and that's fine for private companies, but that's not the public interest. The overriding lesson that should be learned and guide the road ahead is to reject that misleading but appealing deregulation song that the industry is singing again. It will lead to an even more horrific result in part because the country simply does not have the fiscal or monetary capacity to properly respond to another financial and economic crash.
▶ 1:10:48The truth is that the threat from too big to fail, too big to manage, too big to jail, and too big to regulate financial institutions remains alive, well, and getting much worse due to the deregulation juggernaut unleashed by the Trump administration. That was proved by the failure in bailouts of the three much smaller banks in 2023, which resulted from the deregulation in the first Trump administration and cost the country more than $40 billion in direct bailouts and more than $300 billion in all-in cost.
▶ 1:11:17Yet, the largest of those banks only had a little more than $200 billion in assets. In contrast, JP Morgan Chase alone has 3.64 trillion in assets. and the 15 largest banks in the United States have a combined 14 trillion dollars in assets. There is no chance these much larger much bigger too big to fail financial institutions can be resolved without destabilizing contagion and gigantic bailouts.
▶ 1:11:43Now everybody because everybody knows that even if many won't admit it. Regulators have tried to varying degrees over the years to increase the resilience of these financial institutions in the event of the inevitable stressful situations that will threaten their viability.
▶ 1:11:59Engaging in massive deregulation that significantly reduces the resilience of these gigantic financial institutions, knowing that they cannot be resolved virtually guarantees the next crash will be much worse than the 2008 crash and could well cause a second great depression. That's the bad news. The good news is it's not inevitable. It can be prevented. Indeed, we know how to prevent it because we did it for more than 70 years.
▶ 1:12:24From the major laws and regulations imposed on the financial industry during the Great Depression of the 30s until about September of08, the US did not suffer from a major financial crash. Importantly and finally at the same time during those decades when the financial industry was under the most robust regulation in the history of the world the US economy grew at historic rates and generated broad-based wealth creation.
▶ 1:12:49That proves that a strong regulated financial industry is not only compatible with but necessary to achieve above trend growth, stability, and broad-based wealth creation. Thank you. Gentleman yields back. We'll now turn to member questions. I recognize myself for five minutes for questions. First, uh let me say that in looking at the inflation report this morning, the core CPI prices rose by less than expected for five months in a row.
▶ 1:13:18And on a cumulative basis, inflation both headline and core are trending close to the Fed's target of 2%. So I think we continue to get uh inflation headed in the in the right direction in looking at today's report. DoddFrank uh back in 2008 2009 2010 during those debates I was a bank CEO during that time of a community bank.
▶ 1:13:44Uh and so I know very much what it was like before DoddFrank and post DoddFrank as a private citizen working in a private financial environment. And of course, DoddFrank's argument and everyone knows the best efforts by Congress was to try to prevent another financial crisis. But since it since its passage, the regulatory framework has grown significantly more complex.
▶ 1:14:08For example, the code of federal regulations that relate to commercial banking has expanded by 3,000 pages. Dr. Koopiaak, based on your experience, has DoddFrank's complex regulatory framework provided meaningful improvements to safety and soundness or has it created so much complexity and associated costs that it's unclear for both consumers, business, and the community banking environment to to figure out what the
▶ 1:14:38benefits actually were? How do you how do you parse that? Um the the regulations are have gotten in entirely complex and out of hand. I they don't and they don't work as is evidenced by the March 2023 crisis. Um I I don't understand this notion that there have been no there was no crisis for 70 years. I think there was an SNL crisis and a banking crisis in the '9s and before DoddFrank.
▶ 1:15:05We've had a lot of financial crisis over the years uh well before DoddFrank. But the regulations have gotten very complex and and they they don't actually address the risks in the banking system. As I as as I lay out in my written testimony um in tables, very comprehensive tables, the rules that they've created now don't even address interest rate risk, which is a is a is a basic risk. And the and the regulatory rules don't don't address that.
▶ 1:15:32And so while the regulatory ratios suggest that the banking system is solidly capitalized, once you take into account the fact that banks which were loaded up with treasury securities and other things had huge interest rate unrealized interest rate losses on their books, uh these complex regulations just don't tell you what what the real truth of the matter is. And I I appreciate that perspective. I mean, when you look at Silicon Valley, which uh Mr. Kupiaak, I mean, I'm sorry, Mr.
▶ 1:16:01Keller noted in his views, I don't I don't view DoddFrank having helped or hurt there. I mean, I think you had a gap in regulatory oversight by the San Francisco Federal Reserve that was embarrassing and the state regulator in Sacramento and terrible management who aren't paying attention to the most basic banking rules. I don't think you can point at any law change that caused the terrible outcome there. I really don't. We'll debate that off the off the off the deis.
▶ 1:16:30The regulatory bodies created by DoddFrank including CFPB and FSOC have created an estimated that I've read according to the American Bankers Association some $ 38 billion in additional annual annual pre-tax cost for banks with smaller institutions bearing a disproportionate share of that burden. Mrs.
▶ 1:16:50Johnson, do you believe that this expanded bureaucracy has improved financial oversight or has it resulted in so much excessive red tape stifled economic growth that it's ended up restricting credit and you've got bank credit committees more focused on the next week's compliance meeting than lending money to their customers? What what say you on that?
▶ 1:17:12I can say anytime that you've got banks who are spending more time and more money on compliance and understanding the compliance that's necessary from multiple different agencies, that is really problematic. And on the supervision side, at least from a bank perspective, you have consumer protection from the bureau, but we often hear from banks who've got three examiners in their institutions at the same time asking for different but similar information.
▶ 1:17:38It's just an incredible burden on these institutions and it really does take their attention away from things that they should be doing which is lending in their Thank you. Uh Mr. Vincent, may I turn to you on the capital market side of of DoddFrank and you can respond to me in writing, but I want to just ask you has the small institutions didn't create the financial crisis, but DoddFranks imposed this big one-sizefits-all burden. Hadn't that hurt our capital market system?
▶ 1:18:06I it certainly created some uh dysfunction within the system. So you're right, we've seen a mergers among smaller broker deals. You would expand for that in writing through congressman and thanks for being here today. We now I yield back and we turn to the distinguished ranking member of the full committee, Mrs. Waters, for her questions. Five minutes. Miss Keller, uh thank you for your testimony and reminding this committee of what a disaster and how costly the financial crisis really was.
▶ 1:18:35And after the housing crash where we saw mortgage brokers pedal no dock loans and other predatory products. Why is it so important for Congress to create the Consumer Financial Protection Bureau?
▶ 1:18:50That way, consumers of all stripes, students, seniors, service members, and more, had a federal cop on the beat, fighting for them to make sure that mega banks or payday lenders or other banned actors were not ripping them off. Uh, now, uh, I understand you served for four years in the Air Force. Is that correct? Thank you for your service to our country.
▶ 1:19:16Trump's CFPB has claimed that they're going to prioritize protecting service members and veterans, but I want your take on their actions. For example, Trump's CFPB proposed slashing staffing levels from 1,700 to 200 and proposed reducing CFPB's Office of Service Member Affairs to just one employee except the one employee they chose had already decided to retire, which would leave the office unstaffed.
▶ 1:19:46That office which we required to be set up in DoddFrank has been well respected across political spectrum with people like Holly Petraeus running the office before. How is it the CFPB supposed to protect service members veterans and their families if they have no staff in the office? Anybody who claims that the CFPB has currently manages protecting service members, veterans and their families is lying. You can't do it with one person.
▶ 1:20:16You need a full staff. And let me just give you a few few statistics. The median loss from fraud from January 2015 to October of 2019 to civilians, $658. To active duty members, $775. Milit retired military and veterans, service members, veterans, and their families are being disproportionately targeted by financial scams and financial predators, and they need a strong cop on the beat.
▶ 1:20:47And they need the Office of Service Member Affairs at the CFPB to be properly regulated. Since 2011, the CFPB has received more than complaints from service members and it has been responsible for recovering approximately $363 million in restitution for military and their families. One person isn't doing that. 10 people aren't doing that. We need a CFPB that is funded, staffed, independent, and an effective cop on the beat.
▶ 1:21:17Not just for service members, veterans, and their families, but for all Americans who were getting ripped off too often. Which is why the CFPB was the most successful financial consumer protection agency in the history of the country, returning 21 mill billion dollars B billion dollars to more than 200 Americans. Thank you very much. uh another lie uh told by the president of the United States of America about how he cares about veterans and how he's going to help veterans.
▶ 1:21:47Let me tell you something. All of this talk about deregulation, about over, you know, being consumed by regulation. It is because the rich, the big and the powerful do not want oversight. They do not want us to have legislation that will make them accountable. Let me just tell you something. When we take a look at what is going on right now, the president, take a look at what he's doing with crypto.
▶ 1:22:14The president of the United States has engaged in a crypto con of massive proportions. In just six months, he has entered into the following crypto ventures. The president of the United States owned dollar sign Trump memecoin, Trump digital trading cards, NFTts, world liberty financial, his crypto company that is launching the stablecoin USDI, American Bitcoin, a Bitcoin mining corporation founded by Eric and Donald Trump Jr.
▶ 1:22:44and Social Truth Bitcom ETF and Crypto Blue ETF. And even Millennia owns crypto. And I want to tell you as we sit here and listen to those who have been trying to destroy destroy financial CFPB, I was here and I know what was happening. We had no protection for consumers.
▶ 1:23:05And with DoddFrank, we were able to come up with ways that we could have consumers call in, have someone investigate their problem, help consumers who were being ripped off. I want to tell you, the big boys will keep ripping us off as long as we let them. And I tell you, we're going to be dealing with this all week. And so I am absolutely outraged by the way that they've tried to kill the Consumer Financial Protection Bureau. I'm outraged with the crypto gentleman's time is expired.
▶ 1:23:34The gentleman from Michigan, the vice chair of the full committee, Mr. Heisen, is recognized for five minutes. Thank you, Mr. Chairman. I'm going to jump right in. Mr. Benson, I'll start with you. Over the years, you've seen multiple iterations of the Financial Stability Oversight Council, FSOC. Uh, in the early years, post the great financial crisis, FSOC was given broad-reaching authorities to designate non-banks as systemically important financial institutions or cifhies. Under President Trump's first administration, the FSOC moved to an activities-based approach.
▶ 1:24:04This was in 2019, which I believe was appropriate uh especially in response to a uh the post MetLife debacle that had gone on. Uh four years later, 2023, under President Biden, the FSOC snapped right back to using an analytic framework for identifying and dealing with systemic risk. And as you can guess, Secretary Bessant, who is now the FPSC chair, uh might have a very different view on how FSAC will operate under his leadership. So, as you're familiar, Mr. Mr.
▶ 1:24:33Foster and I have once again introduced the FSOC improvement act. The bill would revise the flood risk assessment framework and designation guidance governing the the CIP designation process for non-bank financial institutions. Uh so here is the question. After 15 years, is it time for Congress to make these improvements? Is there enough data and use cases to show that uh how FSOC determines designations is not working or hasn't been working and has not worked in the past?
▶ 1:25:02and did they make the financial system safer and sounder which is what we would all like to see. Uh uh thank you Congressman. So uh we support uh the bill that Mr. Foster and you have have introduced. We've supported it in other iterations through previous congresses. So yeah, I think the time is overdue.
▶ 1:25:20Short of that, I would hope we would hope that uh uh the FSOC would revert back to the I think the 2018 uh activity- based uh uh uh process that you noted and and and and the problem here is the way it was constructed is trying to impose a bank-like regulatory structure over asset managers. We've had now 15 years to think about this. We've had 15 years of experience in the marketplace and I and there's data there to Yeah.
▶ 1:25:47We so I think we know you know that that activity space is a better approach. So we commend you all for the Mr. Quadman, do you mind commenting on Yeah, we would agree. I mean pingpong guidance is not a way to, you know, allow businesses to plan for the future. Um, so we do expect that the Trump administration will move back to an activitiesbased approach, but really we do need to have legislation that's going to settle this once and for all and allow businesses a certainty to move And so clarity is what you're looking Exactly.
▶ 1:26:16clarity in not in this week's clarity, Mr. Chairman, and the work that we've done, but clarity on this particular issue. Okay. I'm going to stick with you, Mr. Quad, because I want to talk about conflict minerals. Uh this is uh I know you something that you've worked on, I've worked on. Uh it's an issue that uh has been nearly a decade. I first started working on this with Congresswoman Gwen Moore. Uh and it's section 1502. Um I believe it was a failure then. I believe it's a failure now.
▶ 1:26:43Under the rule required by DoddFrank uh act, public companies are required to scour their supply chain for tin, tantelum, and tungsten and gold uh linked to militia groups in the DRC uh and the surrounding Great Lakes region. Uh however, uh there was a report 2024, this is one page of the 140 pages, I believe, or 120 pages of the 2024 GAO report, which I would like to submit to the record, Mr. Chairman, without objection.
▶ 1:27:09Uh well that report concluded that the SEC's rule under section 1502 of the DoddFrank Act hasn't actually reduced Congo uh violence in the Congo in the in the region. In fact, there's a small chart that I will point out to everybody. It's actually expanded. Uh it's expanded and and in fact Secretary Rubio and the Trump administration had to get intervene in the area in the last couple of weeks. So here's a here's a a quote from the report.
▶ 1:27:35The GAO found no empirical evidence that the rule has decreased the occurrence of or level of violence in the Eastern DRC. So here's the question. Sectionif section 1502 should absolutely be repealed in my opinion. But uh what have we learned about some of the other DoddFrank rules that may have been very well-intentioned but frankly haven't hit the mark? Yeah. Yeah. No, I think conflict min, you know, this is based on my previous experience, but I think if you look at conflict minerals, there are a lot of difficulties there.
▶ 1:28:05As you referenced, even the New York Times and Washington Post have had front page stories of how that provision actually made things on the ground even worse. Um, we also have the disclosure was kicked out by the DC Circuit Court of Appeals, yet companies still have to do all the collection around it, which actually then means that investors have to bear the cost of that. So, I think it's a good example of where you can have well-intentioned disclosures that don't hit the mark and don't provide investors with useful information. We should really take a very strong look at whether or not they should even be in place.
▶ 1:28:35But I also believe too of conflict minerals, what the Trump administration is trying to do there, as well as access to critical materials is important for American national security. Gentleman's yield back. Gentleman yields back. Gentleman from New York is recognized the ranking member of our small business committee. Thank you, Mr. Chairman, and good morning everyone. Thank you for being here.
▶ 1:28:56Um, if we're going to talk about DoddFrank 15 years later, we need to also look at the whole picture, uh, including the industry and Republicans attempt to weaken the original protections. So, Mr.
▶ 1:29:13Uh, Keller, can you explain the changes made to the DoddFrank Act by the passage of S2155 a few years ago and how those changes, particularly with regards to bank capital, left our financial system more Yes, thank you for the question.
▶ 1:29:35And I want to start by agreeing with the chairman that it was uh miserable management that primarily drove those banks into high-risk activities and un ended up resulting in their failures. Uh those were avoidable also. Management ran those banks into the ground and their boards failed to supervise them and the regulators frankly didn't do their job either. There was plenty of blame to go around and and there's been no accountability even now.
▶ 1:30:01Unfortunately, there was an attempt to pass legislation, as you know, to claw back executive compensation under those circumstances that never saw the light of day. But 2155 essentially eliminated either de facto or by requirement the credential regulations on banks with less than $250 billion in assets.
▶ 1:30:21We said better markets filed comment letters at the time talked about 2155 and then when it was passed and went to the regulatory agencies particularly the banking agencies we said in letters in writing commenting on the proposed rules at the time that if you implement this law the way you're going to do it you're going to have banks engage in higher risk activities and they are going to ultimately fail and there are going to be bailouts. So and that's exactly what happened. It was predictable, foreseeable and that's what happened.
▶ 1:30:49So it's not entirely accurate to say that Frank hasn't worked. Isn't a more accurate statement to say that changes made post dotfrank has weakened the original protections and caused vulnerabilities in our financial system. Yes. And it's not only true for 2155.
▶ 1:31:11As I detailed in my written testimony, the primary reason that DoddFrank did not work is because of the war that the industry and its allies engaged in to attack and undermine DoddFrank at every step of the way in the regulatory process. And then when they didn't win in the regulatory process, they ran to court and sued to try and win in the judicial arena. What they couldn't win in the regulatory arena or the legislative arena. This law would have worked. It had the authority and the power to do the job.
▶ 1:31:39As I detailed in my written testimony, it wasn't allowed to do the job. And that's why it hasn't been successful. Like this hearing right now. Since 2011, the CFPB has secured more than $21 billion of relief for more than $25 million consumers. And like other financial regulators, Congress provided it with an independent funding mechanism.
▶ 1:32:06Yet, this has not stopped the Trump administration and congressional Republicans from trying to destroy the bureau from within, including as part of the one big ugly bill which slashed the bureau's operating funding nearly in half. Can you explain the potential harm facing not just consumers, but the broader financial system by slashing the bureau's funding by such a large amount?
▶ 1:32:34I think the Consumer Financial Protection Bureau has proved almost on a daily basis its importance to Main Street Americans who are getting ripped off and discriminated against as a routine matter. Look at the cases that the CFPB has brought over the 14 years that it existed. These are against giant financial institutions that have settled cases for hundreds of millions of dollars. They're not doing that because they're generous.
▶ 1:33:00They're doing that because they broke the law and the highest priced best lawyers in America are representing these premier financial institutions and they're settling their legal violations. That's why the CFPB is needed. They need an effective cop on the beat and you can only have an effective cop on the beat if you fund them. You can't send cops into an inner city high crime area with no bullets, guns, or cars or flat tires.
▶ 1:33:27And that's what you're doing on the consumer protection beat here by crippling the I rest my case, Mr. Chairman. I yield Gentlewoman yields back. Gentleman from Oklahoma, the chair of our monetary policy task force, Mr. Lucas, you're recognized for five minutes. Thank you, Mr. Chairman. I too was one of the limited numbers of members of this committee who served on the DoddFrank conference committee and I remember our efforts to get a legislative agreement that appropriately addressed the economic turmoil our country was facing.
▶ 1:33:57Unfortunately, DoddFrank ultimately resulted in dramatic regulatory overreach that I could not support and we are still dealing with the consequences of the bill 15 years later. Many of the changes made during the time continue to damage our competitiveness and limit our economic growth. They don't account for the credit needs of farmers, ranchers, and main street businesses. Starting with you, uh, Dr.
▶ 1:34:27Kubac, in our country, we've assigned the Fed to deal with monetary policy and credential matters. We've also had this dual role, but after the passage of DoddFrank, their credential functions expanded dramatically and they have begun policing behavior they had no authority to do.
▶ 1:34:46As chairman of the task force on this issue, I have a concern that I continue to raise that the broadening of authority of the Fed's regulatory and supervisory roles ultimately politicizes the institution and threatens monetary independence. Dr. do you think mission creep from the regulatory side of the Fed complicates their role as our central bank? Yeah, clearly clearly and the climate change uh brought that to to the four uh in the last administration.
▶ 1:35:15The the the Fed the the the remitt that the Fed should uh regulate climate change risks in banks and things like that. And I think now they've abandoned that in in the newest administrations is another another example of the pingponging of the FSOC and the executive role there about designating things that really aren't systemic risk as systemic risks. And anyone who thinks that this was a negotiated bill, this was a slam dunk.
▶ 1:35:41I remember the opening day of the conference committee when the chairman of the conference, our financial services committee chairman, Barney Frank announced that we would not be using the House draft which represented a compromise effort in this committee and we picked up the Senate document. That's when we knew the fix was on as members of this body. Mr. Benson, as you know, DoddFrank altered the risk retention rules on securitized assets.
▶ 1:36:09In your view, what's the effect on the cost of and the access to crep, the access to credit if this tool is cost prohibitive for lenders? Uh thank you uh Mr. Lucas. So um the part of the problem with the with the changes in the risk retention rules was that uh there's so many different parts of DoddFrank that that overlap and and in particular the capital rules.
▶ 1:36:32So uh and and in particularly when we think about the stress test regime and the component of that the global market shock none of that has ever been adjusted to take into consideration the risk retention rules that were put into effect. So we have it I don't want to call it a double count we have double counts elsewhere but in effect we're we're scoring things according to to the pre pre-legislative rules. So it compounds the impact of the capital rules that affects the price on Continue you Mr.
▶ 1:37:00Hson, we have a new vice chairman for supervision at the Fed and I believe Vice Chair Bowman is perfectly suited for the role. What should Vice Chair Bowman look at in a Bosle reproposal to address the concerns raised by market participants after the last proposal? How should Vice Chairman Bowman re approach the fundamental review of the trading book in a Bosle re proposal?
▶ 1:37:24Uh so there are a number of issues that that that the Fed and Vice Chair Bowman should take a look at with respect to the fundamental review of the trading book. Uh some some issues that are inconsistent with uh with other participants in the Basil framework in Europe and and and the UK, but also uh uh how the Fed staff initially goldplated the proposal that would raise capital above already historic levels.
▶ 1:37:49and and and most importantly and I think uh vice chair Bowman has said that she intends to do this she has a conference next week with that the Fed is hosting is again to think about the interaction of all these rules if if the Fed agreed with us and who's to say that they should or they shouldn't if they agreed with us and and took all the suggestions that we put forth they would still have an ex exorbitant increase in risk waiting uh capital requirements on things like securization and the reason for that is because of the interaction with the stress
▶ 1:38:19test regime and that is a double count and that and and that's an area where the Fed really needs to take and we've had a lot of discussions with them about this to sort of look at that and and frankly I think the Fed themselves uh were shocked uh with what how their original proposal came out hopefully now they'll take that into consideration because this does have knock-on effect not just the mortgages but uh small business lending uh equipment financing things that are done through the securization market Mr. Chairman, we can do better than the status quo we have now.
▶ 1:38:48You gentleman time has expired. The gentleman from California, Mr. Sherman, the ranking member of our capital market subcommittee, you're recognized for five Thank you. Uh, I enjoyed the exchange between Mr. Cupnik and our chair. The chair points out that Silicon Valley Bank was terrible management as if that was a lightning strike.
▶ 1:39:13No, we have a system that says you buy long-term bonds. Uh if you they go up, you sell them. The bank recognizes an immediate profit and the board of directors gets a huge bonus. And if they go down, you can hide that loss and 99 times out of 100 you'll get away with it. And so bad management is from bad rules.
▶ 1:39:42And I've been in this committee for a long time saying we have to mark tomarket long-term debt held by banks. We're also the chair also says that we should allow state regulation to uh provide for corporations. That is a race to the bottom. And again, we have bad management because of bad incentives. a state legislature in a small state.
▶ 1:40:05They're focused on getting revenue for their state, not upon providing good corporate management uh and oversight uh for corporations that may have a little impact on their state. So, um we should not uh uh we we need to to deal with long-term debt on bank balance sheets. We need that the federal law to provide the rules for national corporations.
▶ 1:40:32Uh finally, we have a system with uh which doesn't give a uh investors the information they need. Uh 100 years ago when our accounting systems were designed or the the financial statements were designed um the vast majority of the value of a company was in its physical asset shown on its balance sheet. Today, the most valuable thing is intangibles, particularly the workforce.
▶ 1:40:58Yet, again and again, we don't require the disclosure of turnover rates, training expenditures, or anything else relevant to the workforce. And for several years now, I've been pushing for us to disclose the China risk because what's the good of knowing last year's earnings per share if you can't even get management to tell you how they'd be affected by a breakdown in the US China relationship?
▶ 1:41:24Today we're focused on DoddFrank and it brings the PSTD of the 2008 crisis when this committee said never again. History doesn't repeat itself, but it rhymes. We have an echo of 2008 in crypto week. Now, this is also tax evaders month and drug dealer facilitations year.
▶ 1:41:52Uh both bills rejected an amendment that I proposed here and to rules committee saying no bailouts for anyone in the crypto Those amendments were rejected and the crypto world is looking forward to telling its investors they're as bailout eligible as Bank of America. But what caused the 2008 collapse? It was the subprime and liars loans. What's a liar's loan?
▶ 1:42:22You agree to pay 1% more on your mortgage and the lender says, "Well, just tell us what your income is and you don't have to give us a W2. You don't have to give us a tax So, the financial system back in 2008 strained to provide financial services to those who turned to their mortgage broker and said, "I really make a lot. I'm just lying to the IRS or my ex-spouse.
▶ 1:42:51Well, history rhymes. Today we're going to this week we're going to deal with stablecoin. What is stablecoin? It's a money market fund that pays zero interest. A worse deal for consumers just like the liars loan is where you pay pay more on your mortgage. But what do they what does the stable coin offer?
▶ 1:43:10It offers hidden money so that you can uh uh defraud the IRS, your ex- spouse, engage in drug trafficking, etc. So, history does not repeat itself. It rhymes. And here you are back again trying to meet the trying to have our financial system meet the needs of those who want to cheat on their taxes, uh engage in illegal activity, etc. Mr.
▶ 1:43:38Benson, your letter to uh to the SEC talks about the separation of functions uh with vertical integration where a single platform can act simultaneously as the issuer, broker and exchange and custodian. Uh can you explain what the risks are of allowing that uh uh uh integrated structure in the crypto Gentleman's time has expired. Mr. Benson, you would respond to the the member in writing, please.
▶ 1:44:05The gentleoman from Missouri, Miss Wagner, who's the chair of our capital markets subcommittee is recognized for five I thank you, Mr. Chairman. Thank our witnesses for being here today. Under former chairman Gendler, the SEC repeatedly overstepped its statutory statutory boundaries, invoking authorities under DoddFrank in ways that neither align with the law's intent nor advance commission's threefold mission to protect investors, to maintain
▶ 1:44:36fair, orderly, and efficient markets, and to facil facilitate capital formation. In fact, Gendler's regulatory agenda undermined these goals. Under President Biden, everyday Americans in Missouri's second congressional district were told they would have fewer choices, increased costs, and less clarity on who they could ask for financial advice.
▶ 1:45:00In June of 2024, the fifth circuit unanimously vacated the SEC private fund advisor rule, which would have imposed significant requirements on private fund advisors and made broad changes to how private funds operate.
▶ 1:45:15The SEC claimed the authority to propose this rule through section 913 of DoddFrank which is focused on the fiduciary duty duty of broker dealers and investment adviserss who are providing advice to retail customers.
▶ 1:45:31In his decision again a unanimous decision, the court rightly held that section 913 of DoddFrank has nothing to do with private funds and the SEC should not rely on this section of the statute to regulate private fund adviserss and investors. Mr.
▶ 1:45:48Quad, how does the fifth circuit's ruling on private funds rule defi redefine this the scope of the SEC's authority under DoddFrank and what are the potential implications for future financial Thank you for that question uh Ms. Wagner, Mrs. Wagner. It's it's it's very important and you have to remember too we're also living in a West Virginia versus EPA world now. So the agency itself can't move forward without clear direction by Congress.
▶ 1:46:17And I would also say too, I think some of the legislation that this committee is considering in terms of unused authorities really needs to be looked at very closely. The predictive analytics rule is another one which is very misguided. I'm moving to that next. There we go. I'll I'll let you ask the question then. In a similar way to the commission's private funds rules, uh former chairman Gendler uh predictive data analytics pro proposal disregarded the limitations of DoddFrank section 913.
▶ 1:46:46Again, section 913 primar primarily focused on retail customers and personalized investment advice about securities. However, the proposal stretched this authority to cover broad investor interactions uh and technologies like predictive data analytics in which Congress never intended and that's the the heart of the matter here. Um I I would say let me move to Mr. Benson uh with legislative action. Mr.
▶ 1:47:15Benson uh what what action should Congress pursue to clarify the precise limits of this authority and prevent future instances of regulatory So first of all, we we agree with the with the court's decision with respect to the private funds. We were not a party to the suit, but we did file an AMA brief in support of the suit and and frankly uh and and in the case of the predictive data analytics, which we thought was not a very wellthoughtout rule, and we're glad it's now been withdrawn.
▶ 1:47:43Um, we actually think it was also unnecessary because frankly whatever concerns there might have been are already covered under reggg best interest and and so there's not really a need for that. That section 913 and I I was around too 15 years ago. Section 913 was highly negotiated between the House and the Senate, between uh then Chairman Frank and the chairman of the Senate Security Subcommittee uh Senator Johnson.
▶ 1:48:07And Congress's intent was very very narrow and very clear to the point that you're making, but it has been abused certainly abused by the SEC during Democrat leadership that we have seen over and over again. I I mean the courts have kind of reeled it in and so but that costs money. gets trickled down to to my Missouri retail investors, everyday investors. It is so infuriating to me that we've been litigating this for 15 years. Mr. Chairman, um let me move on.
▶ 1:48:35While the SEC was rightly challenged for exceeding its authority during the Biden administration, litigation contributes to a climate of uncertainty for investors and market participants across the country and costs. Businesses, particularly those in in innovative sectors like fintech, become hesitant to invest in new technology or business models if the rules of the road are constantly in flux. Mr.
▶ 1:48:58Quadman, to what extent did SEC's overreach and the court battles trigger ultimately stifle capital formation by creating an unpredictable operative environment? I'm about out of time. You may have to respond in writing, but this is important. One, number one, there's a chilling effect. Number two, and I'll I'll uh respond in writing about interconnectedness of rules, which is not considered either. Gentlemen, I yield back. Thank you very much. We now recognize the distinguished ranking member on our House Foreign Affairs Committee, Mr. Meeks from New York, for five minutes. Thank you, Mr. Chairman.
▶ 1:49:28I want to thank you for holding one of the most consequential pieces of financial services legislation. You know, I was in Congress back then during the height of the financial crisis when Lehman Brothers failed, when major insurers were about to go under, when President then President Bush had Secretary Pollson running to the House floor.
▶ 1:49:51I will never forget he ran and met me in the Democratic room on the floor trying to get votes saying that if we didn't do something immediately, our entire financial system would fail. They didn't have all the votes that they needed on the Republican side to get it done. So, they desperately needed Democratic votes.
▶ 1:50:19And one of the things that we talked about at that time was there was one voice because I remember during that people losing their homes, their credit gone, they're out, they're homeless, they're trying to find some, still couldn't get rent. And the idea was, the thought was we had everybody had some kind of coverage except one group.
▶ 1:50:43It was called the I surely wish there was apparel here that some of the consumers would be here to testify also who benefited 15 for the last 15 years from having a consumer financial protection bureau. Now I'm all for looking to see what we can do to improve.
▶ 1:51:10But one of the things that I think that we haven't seen since 2008, we had a once in a century pandemic that did not lead to contagion of the financial variety. The regional bank failures of 2023. You know what didn't happen?
▶ 1:51:30They didn't because of DoddFranks, the reforms in it, higher capital requirements, stress tech testing, and the vocal rule. It worked as intended. Even with the failed management, what you said, those practices that were put in place because of DoddFrank helped save more consumers who would have been victimized.
▶ 1:51:57Now, I'm really concerned and I look, you know, at ways that we can try to fix a bill because sometime bills change and move forward. One of the things that I was in favor of and I think that we could look at and I think Miss Johnson, you talk about this is how to get the politics out of this. Now, I was in favor and still am and I believe you are, Miss Johnson, and having a bipartisan commission.
▶ 1:52:22I think that uh the CBA has been talked about that so that we're not from administration to administration and things changing. I think that's something that we should be talking about here. I think that's really important. And I think you agree, Miss Johnson, there's a need. You recognize the need a CFPB. Is that not correct? And please say yes so that it's on the Yes. Okay.
▶ 1:52:52And I I think you also understand well my my question my first question is you know under the President Trump and Republican leadership they wanted to zero out the bureau an effort that was slightly mitigated by the Senate's parliamentarian. But what the administration tried to do was to cut the bureau staff by 90% in just 24 hours.
▶ 1:53:19Now, do you think that reflects a regulatory approach that is grounded in facts and data or is that just trying to get rid of an agency? Was this Yes, Miss Johnson. So, the the um I think what Congress ultimately did was a policy decision. Uh I'm sorry, a budget decision, not a policy decision. So, I'm just saying zeroing out. That was not done. Let me let me just go because I'm running out of time.
▶ 1:53:48I want to ask Mr. uh Keller, do you believe that the CFBP is being deliberately weakened under the guise of regulatory reform? And who stands to benefit from that?
▶ 1:54:02If that's the case, there's no question that the CFPB is being weakened, if not killed, for the purpose of benefiting the financial industry and making sure there is not an effective cop on the consumer beats standing up for Main Street Americans and having the power authority and funding to help them when they're getting ripped off. So, we would go back to where we were before, where there would be no one there for the consumer.
▶ 1:54:27It was named the Consumer Financial Protection Bureau to protect the consumer who has never had a voice before this Congress before. Thank the gentleman. Gentleman yields back. The gentleman from Kentucky, Mr. Bar, the chair of our financial institutions subcommittee is now recognized for five minutes. Thank you, Mr. Chairman. Let me uh start just where my friend from New York left off. Um I was uh encouraged to hear my my good friend from New York uh um embrace the idea of a bipartisan commission.
▶ 1:54:54We have that bill in uh our package of reforms and I would invite uh the gentleman, my good friend, to look at that to to co-sponsor. I'd love to work with you on a bipartisan commission reform. Also, uh the gentleman expresses concern about our one big beautiful bill which uh reduces the funding formula for the bureau.
▶ 1:55:14And I would encourage the gentleman and all my friends on the other side of the aisle to look at co-sponsoring my legislation that would allow them and us to reclaim the power of the purse over the agency, the Tabs Act, the taking account of bureaucrats spending act, which would restore Congress's bipartisan uh and meaningful oversight over the bureau so that we would control the appropriations.
▶ 1:55:37So, I think the gentleman's line of questioning is timely because it gives us an opportunity in in the Congress on a bipartisan basis to reclaim uh our oversight functions over the bureau. Um, Miss Johnson, let's uh talk about CFPB reform. Would you explain how my legislation, the taking account of bureaucrats spending act, which would subject the bureau to congressional appropriations, would enhance accountability and limit bureaucratic overreach?
▶ 1:56:05I think that for far too long the CFPB has not been accountable. We haven't had a commission. We haven't had consensus or dissenting views welcomed at the bureau. It's been by one director and oftentimes they've got kind of ruling by fiat. So Congress hasn't had the authority and the visibility into the bureau. I think that they will be more responsive if there is an ability for you all to control the purse And I appreciate your testimony endorsing my legislation to put some guard rails and definition around the abusiveness prong of UDAP.
▶ 1:56:34Why is that Look, Congress did create uh a an ex exceptional um standard for UDEP with the CFPB unlike FTC, unlike some of the other credential regulators. And for far too long, it is been undefined and entities that are regulated by the CFPB don't have the clarity needed to understand what constitutes as an abusive act or practice, what constitutes uh and how that differs from say deceptive or unfair acts and practices.
▶ 1:57:02And then in addition to that, the CPB has at times gone far beyond and really interpreted UDAP into things that it never was intended for. Oftent times it actually decides one day that something is illegal or that it's a UDEP violation when it was perfectly legal and acceptable and actually done uh by the entire industry the day before, then it applies retroactively uh penalties to different institutions. It's just wrong. Yeah. And it's wrong.
▶ 1:57:32It's it it denies Americans due process and it's why the bureau has such a a black eye. Um it can be reformed into a much more professional um agency. Uh and we that's also why we need to stop these roving fishing expeditions, these civil investigative demands uh with no uh statutory violation or regulatory violation even alleged just a fishing expedition with no due process. We need to reform that process as well. Mr. Benson.
▶ 1:57:58Um, as you pointed out, DoddFrank ushered in over 400 new regulations and granted regulators like the SEC broad discretionary authority. Nearly 15 years later, many of these powers remain unused. Uh, yet their mere existence creates regulatory uncertainty. For example, section 921A allows the SEC to ban mandatory arbitration clauses and securities contracts without any additional action from Congress. Uh, Congress has already weighed in on this issue.
▶ 1:58:26In 2017, we overturned the bureau's mandatory arbitration rule, not just on procedural grounds, but because the evidence showed arbitration delivers better outcomes for consumers than costly, drawn out class action lawsuits. That was a clear bipartisan me message. Regulators should not restrict arbitration based on ideological or political agendas. And that's why I introduced the Business Owners Protection Act to repeal these unused powers to provide legal clarity and enhance transparency and accountability at the SEC. Mr.
▶ 1:58:55Benson, how do these dormant but broad discretionary powers contribute to uncertainty and risk in the capital Well, certainly with respect to things like predispute arbitration agreements, which is a mainstay in the securities world, and and to your point is very investor friendly, very costefficient, and much much more costefficient than uh court litigation. um it is a little bit like a sword of damicles hanging over you.
▶ 1:59:18So I I we would agree with you that we're not sure why Congress felt the need to give the SEC the authority in this instance and and if you so we would agree with with repealing that. Well, you know, there's a lot of dormant, unused authorities. If it's been 15 years and the SEC or other regulators empowered by DoddFrank have not acted and Congress has sent a message to the contrary, we need to repeal uh those unused and dormant authorities. I yield Gentleman yields back.
▶ 1:59:47Gentleman from Massachusetts, Mr. Lynch, the ranking member of our digital assets, financial technology, and AI subcommittee, recognized for five minutes. Thank you, Mr. Chairman. I want to thank all of the witnesses uh for your willingness to come before the committee today. Mr. Benson, good to see you again, sir. Uh welcome. Uh I want to associate myself with the remarks of uh the gentleman from California, Mr. Sherman, uh earlier today. Uh we got somebody's phone going off here. Okay.
▶ 2:00:16Uh especially with respect to Mr. Sherman's comparison to 2008 and the conditions that existed then and today where we have uh crypto week and uh some of the suggestions that and bills that have come come forward. Uh back then in 2008 we had we had some very complex and novel innovations. We had you know collateralized debt obligations.
▶ 2:00:46We had uh credit default swaps. We had all these complex derivatives that were the wonder of the day. And uh and the financial services industry came to us and and uh I think convinced a lot of members, not me, but a lot of members uh to to support that whole regime and we saw how it blew up.
▶ 2:01:08Today we have crypto and even though it doesn't have a any legal use case as yet, there's a lot of hype and there's a lot of support for it and it has only accelerated since President Trump became a a crypto issuer and uh and his family uh has has got into the business as well.
▶ 2:01:27So, um I'm just concerned because I'm seeing the same the same uh regulatory forbearance that I saw back in 2008 happen today. Uh the SEC under Trump, they came in and said, "We're going to rescend the guidance that we used to give banks about crypto." So, Mr. Keller, as you pointed out earlier, we've got some massive banks.
▶ 2:01:53You know, back in 2008, JP Morgan was was two trillion. Now they're 3.4 trillion. So, uh so now Trump's uh SEC is saying to to the big banks, all the big banks, and there's at least five of them over a trillion dollars, six of them over a trillion dollars, close to $2 trillion. He's saying go ahead and get involved with a very volatile and uh speculative asset.
▶ 2:02:24And uh I just I just you know what I worry about? I worry about the American taxpayer being on the on the arm on this one. You know, back in 2008, we I voted against it twice, but we had a huge bailout over $700 billion. I had constituents in my district that didn't even have bank accounts and they took their taxpayer money to bail out the people who caused the problem. I see that happening again.
▶ 2:02:54This is not going to end well. This is not going to end well. Crypto is still an immature technology, an immature architecture. It's not there yet. It's got huge gaps, huge problems, and yet we're we're we're rushing in and uh it's not going to end well. and there's going to be a bailout required. So, Mr.
▶ 2:03:14Sherman and I both had amendments during the debate over some of these bills to say, "Okay, okay, if you want to be you want to take risk for the banks and and and and others, um, do it on your own, hold the American taxpayer harmless. Take all that risk, but you're not getting a bailout." Every single Republican member voted against that.
▶ 2:03:39Every single Republican member said, "No, no, the taxpayer is going to stay on the hook." That's what worries me. If the banks were taking the risks on their own, but they're insured. They're insured that they've got, you know, they're just too big to fail. So, Mr.
▶ 2:03:55Keller, what do you think the consequences are going to be when it's necessary when when when there's a a disaster on crypto and a bunch of these meme coins or or or uh crypto assets go to zero and there's a bunch of people that were led to believe by Congress that it was a safe bet and and they were led to believe by the banks that it was a safe bet and then they're scrambling uh you know to recover cover their life
▶ 2:04:26savings. How's that going to go? It's the worst of all worlds because you're adding massive deregulation of financial institutions that are already too big to fail. And if they fail, they're going to get massive bailouts. And so on top of that deregulation, you're pouring the gasoline of the crypto industry, which by the way, and we've got a lot of materials on our website about this, are not even supported by the American people. They come up here and they claim they're supported by voters. We put out a substack yesterday showing that's a false claim.
▶ 2:04:54So crypto plus deregulation equals disaster and bailouts. Gentleman's time is expired. M I yield back, Mr. Chairman. Thank you. Gentleman yields back. Gentleman from Texas, Mr. Williams, the chairman of our small business committee is recognized for five minutes. Thank you, Mr. Chairman, and uh thank all of you for being here today. The biggest issue I hear from lenders in my district, from the great state of Texas, is a CFPB's 1071 small business lending rule.
▶ 2:05:19I've introduced legislation HR 976, the 1071 repeal to protect small business lending act. And my bill will repeal the unnecessary and burdensome rule protecting lenders from endless compliance costs and protects the small businesses who rely on credit to expand operations and meet the needs of their customers. Now, the CFPB small business lending rule mandates that financial institutions collect and report sensitive personal data about small businesses loan applicants.
▶ 2:05:46The implementation of 1071 is a direct threat to relationship banking and pushes lenders towards a standardized one-sizefits-all loan process. These mandates subject smaller institutions to endless hours of compliance and paperwork and will decrease the amount of loans to small businesses that support their local economies.
▶ 2:06:03So, Miss Johnson, can you elaborate on how section 1071 of DoddFrank has created unnecessary regulatory burdens for all financial institutions and and how will this negatively affect the relationship based lending model for smaller community financial institutions that we've all had for years? Well, it's a really important question because banks really um want to be able to provide the lending in their communities to the small businesses that fuel the overall economy. The requirements under DoddFrank were really for 13 data points to be collected.
▶ 2:06:34Took the CFBB a very long time to do that because even that's going to be an extraordinary effort for all banks, not just small banks, for large banks. So I can only imagine how difficult this compliance burden will be for community banks. The CFPB went far beyond that and 80 plus data fields would be required under the CFPB's final rule. It was almost impossible for a lot of banks to actually collect that data and to do it in a way that wasn't going to be used against them. That was the other concern.
▶ 2:07:03And so I heard multiple times many lenders say they may have to stop small business lending altogether. So it was going to be a hamper on the overall economy as well. When that happens, the economy gets smaller, not larger. Uh, another major issue with DoddFrank that I hear about when I'm back home in North Texas is how complexity and cost of making a mortgage loan is simply too much for smaller community banks that do fewer than 20 per year.
▶ 2:07:27So, this means handing off essential business relationship to another financial institution which may not have much flexibility or willingness to work with borrowers especially in rural areas where this happens uh where the loan may be unconventional. So, Dr.
▶ 2:07:40uh can you expand on how overreach from DoddFrank has been a uh driving force in small financial institutions exiting the mortgage business together and killing and hurting small businesses and The um ability to repay rules are are complicated. There's a lot of rules related to originating and holding mortgages that have been uh instituted after the DoddFrank Act.
▶ 2:08:07They were, you know, designed to protect consumers, but they raise a lot of costs for banks. Uh there's studies that show um community banks have are faced very large compliance costs. There are some there are some cutouts for the rules for very small institutions that make just a few loans.
▶ 2:08:27But um even there it favors it favors larger shops that can have big compliance compliance uh uh staff that can that can do these sort of things. So it really does put community banks at a at a disadvantage uh for making these kind of loans. Well, as we always say, community banks hire more compliance officers now than loan officers and that affects main street America. One thing that's might be interesting is is the effect of AI on the regul regulatory community.
▶ 2:08:56I mean if you really think about uh so many things in uh the FSOC and other things are backwardlooking and if AI can de digest all the all the the you know the the connections and past data then maybe maybe we can shrink the financial regulator staffs and and and still do the same job we're doing.
▶ 2:09:17I mean, I you know, it's kind it's kind of interesting to think about that when people talk about the CFPB and cutting staffs and thinking, you know, has anybody thought about, you know, where we're going to go and and can AI actually do a lot of what what the staffs currently do? I mean, if you think about what they do, they're not they're not particularly preient about looking forward and identifying risks. They're they're looking always backward at at at data, and we feed in all kinds of data. So, just just a I've got limited time.
▶ 2:09:45Uh so uh what specific policies from DoddFrank have caused a decrease in competition in the banking industry and to you doctor and what can Congress do to reverse the course and allow financial institutions of all sizes to compete and avoid There's been a trend in small bank consolidation for decades now. Um DoddFrank adds complex rules that that don't make it any easier to be a community banker.
▶ 2:10:11I mean, I think right sizing a lot of these rules and would be Gentleman's time is gentleman yields back. Gentleman from Illinois, Mr. Foster, the ranking member of our financial institution subcommittee is now recognized for five minutes. Uh, thank you, Mr. Chair. And um, to our witnesses, you know, this, you may not recognize it. This here is the it's a pin for the 110th Congress. I entered Congress in March of 2008, and this is the pin I received. And so Layman Brothers fell in October.
▶ 2:10:40I was up there in front uh as a junior member of the committee in the first row there. So I was just, you know, maybe six or eight feet away from the when we had the famous hearing with eight failed banks coming up telling us that we had to like write him a great big check or or they were all going to be in trouble. Um so that sort of was my initiation into this thing. And on the 15th anniversary, I think we should think deeply about fundamental issues. One of them is why do we have financial services at all?
▶ 2:11:11It has three basic functions. One of them is to allocate capital and at the time of the well the three basic functions allocate capital to do so efficiently and to control risk. And at the time our system had failed dramatically at all three of those. the the housing bubble was probably the mis biggest misallocation of capital in human history because people were able to hide the true risk and non-repayment of these mortgages.
▶ 2:11:35Uh the efficiency well you know in the runup to the to the financial collapse the lion share of corporate profits were in financial services and that tells you right there that we were not running an official financial um system. Uh and that's very related to many of the abusive practices. None of you have mentioned the card act, the credit card reforms that were just uh doing unbelievable things to consumers just to gouge them for money, people in vulnerable positions. And then it's third function of controlling risk.
▶ 2:12:06Uh you know that's I think enough is said about that. Um and and I think it's very significant. I was in those the dog days of the of trying to deal with this, you know, first to um the emergency u the emergency bailout that we had to vote for, then the the stimulus of the economy and then the DoddFrank rules of the road that we I think um did our best to implement. You know, I my goal in that I always tell myself that my goal was to die before we had another financial crisis.
▶ 2:12:37You know, and we've come pretty close to that. you know what happened a couple years ago. Okay, it didn't it was a crisis but it was minuscule on the scale of what we of what happened in 2008. Um and and so I I the discussion we've have been having in the 15 years since then I there are two big buckets. The first one to my mind is systemic risk and you with bank leverage at the very heart of that.
▶ 2:13:00Um and then there's the second thing has to do with um with consumer protection and that has to do very much with a discussion of the malistribution of wealth in our society and that the politics gets mixed up there and um but if you just I'd like to just talk about systemic risk you know the battle we cannot lose is the bank bank capital on that that was the thing when I discovered as a member junior member that you know the giant investment banks like layman were leopard
▶ 2:13:3030 to1. I just thought that can't be the right number. What's the right number? No, in fact, that was the right number. And the fact that anyone thought that was okay was just mind-boggling to me. And so when in the 15 years since when bank CEOs come into my office, nine times out of 10, they have a complicated argument about why they want to lever up. Okay? And so it takes a while to analyze these arguments, but we have to really understand the fundamental role of good bank capital requirements.
▶ 2:13:56And if you look at the comparison that gets made um you know we had long discussion about the Basel 3 endgame on this comparing to Europe we had higher bank capital requirements and that should have crushed us right no and in fact the US banking system went from being on its back at the end of the financial crisis and a source of ridicule uh to the rest of the world to the dominant um the dominant financial enterprises in the world. So we've done pretty damn well with really high strong capital requirements.
▶ 2:14:27That's the battle we can't lose. The other one that it has to do with technology. uh you know the if you just look at I think it was Ben Bernanki that referred to AIG as a well-run traditional insurance company with a hedge fund grafted onto it that was playing in all these new derivative games and providing credit default um products to all the European banks and in such an interconnected way that if AIG went under the European banks would be in violation of their capital requirements and have a huge contraction
▶ 2:14:57in Europe and around the world. So these things um you know these are these are really the heart of this um you know the FPSC improvement act which you talked about here. I think that I I believe that I've been working on this for years and an activity based approach is the right one. Um but and the one and the arguments that I hear against it that are hardest to to for me to um get my arms around are the um we have to be sure that this cannot be an excuse to drag out the process for a long time.
▶ 2:15:27So with that one thing I really you know I gentlemen time has expired and encourage the panel to follow up on Dr. Foster's request for information. Gentleman from Ohio Mr. Davidson the chair of our subcommittee on national security recognized for five minutes. Thank you chairman for doing this hearing.
▶ 2:15:46Thank you for our witnesses for being here today and the work you've done to prepare it and frankly you know the work you've done in uh in many ways in the private sector in think tanks and whatnot to contribute to uh the discussion today. So um you know Don Frank was sold as a fix to the 2008 financial crisis but honestly it's it's been pretty bad for markets. It's probably been worst of all for student loans. The federal government took over student loans as part of that process as well.
▶ 2:16:15And that's that that should indicate how bad this bill has been. It's gone about as badly as uh the student lending takeover has gone. Uh it's choked off investor access, stifled capital formation, buried small banks under compliance costs that only the Wall Street giants can afford. Worst of all, it's uh created more bureaucracy often in the name of helping consumers like the CFPB.
▶ 2:16:40One of the biggest ways consumers are being exploited is their data is being harvested, monetized, and exploited in all kinds of ways. CFPB's done nothing to modernize uh privacy and data protection. Uh and when you look at uh DoddFrank regulations that have pushed regulators to hike capital and liquidity rules, uh mandate stress tests that have choked off capital to small businesses. It's really had a big negative impact in our economy.
▶ 2:17:07So let's focus first on Basel 3 in Mr. Benson. DoddFrank was supposed to tailor regulations to the actual risks of each bank. Uh so how can anyone justify Basel 3's one-sizefits-all capital standards? Uh thank you Congressman. Uh so you know Basel 3 is is supposed to be the last the Basel 3 endgame and fundamental review of the trading book are supposed to be the last component of the capital liquidity enhanced capital rules under title one of of DoddFrank.
▶ 2:17:34Um the problem with the proposal that's put forth uh is is is that we already are at historically high levels of capital. Mr. Foster, Dr. Foster was was sort of talking about that where we were and where we are today. The way that rule has originally propo proposed would increase the a total aggreate amount of capital for the largest institutions beyond their already historical levels.
▶ 2:17:57And then to your point about the impact on business financing and lending is it would directly impact the trading book and raise capital in exorbitant amounts which would definitely have a knock-on effect uh to small business lending uh and and and and negative consequence. So it it really needs to be reworked. Yeah, thank you for that.
▶ 2:18:18You know, we tried with S2155 to do some tailoring, but often the regulators have really pushed a different approach and used chokepoint tactics in other ways to really limit capital formation in the private sector. Certainly limit it for small businesses and disfavored industries or disfavored individuals. You know, another excuse me, another troubling development is the Fed's uh payment on interest. So prior to the '08 financial crisis, just prior to that, they changed the rules.
▶ 2:18:46And um before when banks wanted to earn interest on their reserve requirements, they had to manage their own book. They had to buy treasuries or whatever to earn a return, but they had to hold that capital in reserve. Now the Federal Reserve is paying interest not just on the required reserves, but on excess reserves. And you know when when interest rates were you know 50 basis points there wasn't a massive uh you know motivation to hold excess capital there.
▶ 2:19:16But when interest is over 4% they're making 440 basis points more than double what a normal rate for a management fee is for a hedge fund. They're not deploying their capital. And concurrent with DoddFrank and this change in interest rates, you've seen a massive growth in non-bank lenders. So, you know, Mr. uh let's see if Mr. Mr.
▶ 2:19:41Kubak, could you could you explain kind of the implications of that where the capital is held with the reserve requirements, excess reserve requirements, the central bank in a way is providing a disincentive. Why would banks want a loan at 6% to small businesses when they can get 440 for doing nothing? Well, well, the Fed, as you point out, changed its operating procedures in in 2008, in the fall of 2008.
▶ 2:20:07Um, it the paying interest on reserves was away when the Fed uh did their quantitative easing and and bought all these securities to keep the banks from lending it out and causing inflation. So interest on reserves has become a a key part of the the way the Federal Reserve does monetary policy. And as you mentioned, unfortunately now it requires the Fed to pay banks, you know, billions of dollars in in interest on their reserves uh every year.
▶ 2:20:35And it causes the Fed huge losses, but they're kind of locked into that right now. Yeah, they're over a hundred billion uh per year right now. And when you look at it, uh big businesses have access to the bond market. Small businesses are being denied loans and that's why you see the growth in non-bank lenders. We really need to relook this and I applaud the chairman for creating a task force to look at it. Thank you and I yield back. Gentlemen time has expired. The gentleman from California, Mr.
▶ 2:20:59Vargas, who's our ranking member on the monetary policy task force recognized for five Thank you very much, Mr. Chairman and ranking member and uh also for all the witnesses here today. Two things around here seem to be assured. one, my friends on the opposite side of the aisle, Republicans, always say they're deficit fighters. They're not going to raise the deficit and they're not going to increase the debt. That's what they always say. And then, of course, they increase the deficit and they increase the debt.
▶ 2:21:30It's exactly what they do. And then they walk away as if they didn't do it. It's like when you watch the sports, it's a late hit in football and then they walk away like, I didn't do it. Yeah, you did. Everyone saw it. It's on video, baby. Everybody saw what you did. And that's one of the things that's always assured here. The second thing that's always assured is they cry for deregulation. We want to deregulate. We have to deregulate.
▶ 2:21:59And then they come up with some, you know, some crazy financial instruments that that don't work well. there's a collapse and they do the same thing. They walk away once again like, "No, no late hit here. I didn't do that." And they forget all about it. We saw that in 2008 with the financial collapse. We just saw it again with their big ugly bill.
▶ 2:22:27And unfortunately, I think we're going to see it with crypto here. Mr. Keller, could you comment on that? No, you're right. a huge problem because they're not just walking away. Um there's zero accountability and the problem with zero accountability is you create moral hazard and you actually incentivize people to take bigger risks because they don't bear the downside. It's the problem with too big to fail. Everybody rails about federal bureaucrats, bureaucrats, bureaucrats, but in 2008 they ran in here with their hands out looking for money from those bureaucrats.
▶ 2:22:572023 they didn't run to Wall Street saying, "Help us save the banks." They came to the federal regulators, the bureaucrats that are getting bashed all the time, who can't do anything right until they want them to ladle out the bailouts for their misconduct and for their high-risisk activities. They took the they took the bonuses. They're happy to get the bonuses in good times. Then they're shifting the cost through bailouts to the American people. They did it in '08. They did it in 2003. And that's going to happen again in the future with the deregulation supercharged to buy unregulated crypto.
▶ 2:23:28I I agree. and and it's going to happen once again as it always does. They're going to walk away and say we didn't do it. Now, Mr. Princon, I don't want to pick on you, but I do want to I don't want to quote you. In your writing testimony, you argue that quote, "Many of the policies required by DoddFrank are promoted in the aftermath of the financial crisis have been made the have made the US financial system stronger and more resilient today than it was in 2010." End of quote.
▶ 2:23:53Now, I I heard the parade of horribles by the chairman at the beginning, how horrible DoddFrank was. And you didn't seem to parade that horrible here. Could you could you explain Oh, it's I think it was me. It's Mr. Benson. You're the one that I quoted.
▶ 2:24:14I should note that I first met the uh uh the congressman when he was the I testified before a joint committee of the Senate and the Assembly in California and he was chair of the of the California Senate Banking Committee on the and I think it was whether or not California should adopt its own DoddFrank Act. My testimony was short. The answer was no.
▶ 2:24:32Um there are certain things for sure that we think that DoddFrank did uh provide more you know more resiliency to the system uh uh uh addressed areas such in the swaps market uh at capital levels of quality. So was it a good idea or a bad idea? But but no no no no I'm not going to butt here. Was it a good idea because I had limited time. Was it a good idea or a bad idea? There were some parts that were good ideas and there were some parts that were not good idea. Teller, was it a good idea? Bad idea.
▶ 2:25:05DoddFrank was absolutely essential at the time and it had and the interesting thing is DoddFrank was actually bipartisan legislation. It was a partisan vote, but DoddFrank with the as you all know from the 20 days of the conference, many many many Republican provisions are throughout DoddFrank as does my friend and Benston. But they forget like they always forget and walk away. But the other thing I find interesting, we had a bunch of bankers one time and I asked the same thing of the bankers. You know what the bankers said? It was generally a good idea.
▶ 2:25:35You know, there's some things that we thought were good. There's some things they didn't like. But now we have the parade of horribles. Like it's the worst thing in the world. Now, the worst thing in the world when the American people have to bail out the damn banks because these rich guys make all this money and these guys allow it to happen. And then they they simply put the cost on all of the consumers, all the United States taxpayers, and you let the the fat cats get away with it. And that's the problem. With that, I yield back. Gentleman yields back. Gentleman from Tennessee, Mr.
▶ 2:26:03Rose, is recognized for five minutes. Thank you, Chairman Hill and Ranking Member Waters for holding this hearing. And thank you to our witnesses for taking time out of your schedules to be with us. Mrs. Johnson, small businesses are incredibly important to Tennessee's economy. They make up the majority of all companies in the state and are considered the backbone of the economy. These businesses not only create jobs, but also foster innovation and contribute significantly to the local communities.
▶ 2:26:32Section 1071 of the DoddFrank Act requires lenders to compile, maintain, and report information regarding loan applications made by certain businesses. Unfortunately, I understand that implementation of these requirements based on a rulemaking under the Biden era leadership of the CFPB can be an enormous undertaking.
▶ 2:26:54The compliance burdens could result in some lenders choosing to terminate their small business lending programs altogether due to compliance costs. I would like to touch on Chairman Hill's HR 941, the small lender act. This bill would reduce the definition of a small business for purposes of 1071 reporting from 5 million to 1 million.
▶ 2:27:14Can you discuss how this bill would better focus the scope of 1071 reporting and how it would also ultimately benefit small businesses that are seeking access to hire more employees and expand their operations? Absolutely. Well, small businesses as you know are the backbone of the economy. They hire, you know, the vast majority of employees throughout the country and banks want to lend to them and so it's a um it was extremely problematic.
▶ 2:27:41CBA represents institutions 10 billion and above for the most part. I can tell you from some of the very largest institutions that do a significant some of the largest small business lenders in the country that this was a compliance nightmare and a cost nightmare. So for smaller institutions it was going to be even more burdensome. I think the stretching of the requirement under under DoddFrank from 13 data fields to 80 plus data fields was exorbitant.
▶ 2:28:08And so I think that the the bill that uh chairman Hill has introduced, the small lender act is is very very needed to reduce uh the reporting requirement from 5 million in annual revenues to a million in in uh annual revenues. That will better capture small businesses. This bill is intended to capture. Thank you.
▶ 2:28:27Miss Johnson, as you may know, one of my bills, uh, HR2885, the Bank Loan Privacy Act, which has been attached to today's hearing, um, I was proud to introduce this legislation, which would require the CFPB before modifying or deleting any personal information collected under section 1071 to engage in a formal rulemaking process with advanced notice and public comment.
▶ 2:28:53Specifically, the rule would need to include a description of the intended modifications or deletions and an explanation for how these changes serve a legitimate privacy interest. In your view, would this legislation help ensure greater transparency and accountability and how the CFPB handles sensitive personal data under section 1071? It's extremely important. uh the the uh data fields that are required under 1071 are personal personal identifiable information.
▶ 2:29:23So anything that they are doing in terms of collecting this information or uh changing or or deleting that information, it should go through a notice and public um comment period. Banks will want to uh provide feedback and input and make sure that it's done correctly. And Mr. Chairman, I ask unanimous consent to have a letter from the Independent Community Bankers of America supporting the Bank Loan Privacy Act inserted into the record. Without objection, Mr.
▶ 2:29:48Benson, in your prepared testimony, you've noted that large banking organizations are subject to up to 19 separate capital requirements and five separate liquidity requirements. Can you discuss the negative effects on the US banking system of so many duplicative capital and liquidity requirements?
▶ 2:30:11Probably the probably the the most consequential impact is the inter relation or and and the lack of coordination of these different requirements. So I've talked about the uh where the how the stress test and and how it it doesn't comport well for instance with the Bosel 3 endgame. So when you have this many different items, not only do you drive up compliance requirements and compliance costs, you have to look and see how all of these capital liquidity rules uh interact together.
▶ 2:30:37Again, uh as I mentioned next week, uh uh the Federal Reserves holding a conference which is looking at at all of the capital liquidity reforms that have been implemented since the great financial crisis. And this is a good start for credential regulators to sort of think about how do all of these rules stack up together. Thank you. And with the remaining moments, I'll just uh I'll just tell a story. This morning at a breakfast, I was eating a cinnamon roll. Mr.
▶ 2:31:02Chairman, it had a little nut on it with some icing and it tumbled off and down the front of my suit. It hit my shirt, my suit jacket, and my suit pants. That's the way I feel about DoddFrank at this point. A lot of unintended consequences and they're not good. The gentleman yield back. I hope you change clothes. We now turn to the gentleoman from Ohio, Miss Batty, who's the ranking member of our subcommittee for national security. You're recognized for five minutes. Thank you, Mr. Chairman and ranking member.
▶ 2:31:30And and thank you to all of our witnesses today. Uh certainly, as you have witnessed and you have heard, we're here because DoddFrank turns 15. And we're here to take a a closer look at the last 15 years of DoddFrank. and and I'd like to walk uh you through um some of the benefits we've seen since the law has been uh enacted. Uh certainly we will recall and know before DoddFrank predatory mortgage lending was rampant.
▶ 2:32:01Consumers were vulnerable uh to unfair and abusive practices with no recourse and financial institutions were subject to disjointed regulatory and supervisory framework that created dangerous gaps in oversight and accountability. We also know as my colleague Mr.
▶ 2:32:21Vargas uh pointed out what happened in 2008 and what happened with the banks and where people came and the crisis that were we were in. And certainly as we have witnessed from you, we all have a a different view. Uh I've never thought of it as a cinnamon roll and a nut and and how it bounced off and what it did to his suit. I'm not even sure that I I got it.
▶ 2:32:47But uh that is another view that my uh colleague has presented and certainly I I have a different view of what it has done especially in the areas that you work what it's done for financial stability what it's done for accountability what it's done for protecting our consumers I think it's also uh worth noting that since DoddFrank we haven't had any wide scale to the magnitude of 2008
▶ 2:33:17uh financial crisis. Certainly, we've had some, but the law has worked in in my opinion. So, Mr. Keller, um in the last several months, we have unfortunately seen that many federal agencies have chosen to overcomply with the administration's executive orders around diversity, equity, and inclusion.
▶ 2:33:42And and let me kind of take you back again through history and remind you of section 342 in the DoddFrank Act, which we are so fortunate that Congresswoman Maxine Waters played a lead role in DoddFrank in creating section 342, which was the establishment of the Office of Minority and Women Inclusion, or as we refer to as Amway at our financial agencies.
▶ 2:34:12which is charged with promoting diversity and inclusion within the agencies that they're regulated uh entities. Mr. Keller, what impact will these attacks on diversity, equity, and inclusion have on policy makers ability to address the racial wealth gap and ensure that there are truly equal opportunities to get ahead for all Americans?
▶ 2:34:38I think everybody recognizes in the certainly in the private sector the value and importance of diversity, multiple voices and people with different experiences at the table. And that's certainly true at the financial regulatory agencies and the financial institutions that they oversee. And we can see that by the uh identification and addressing of the predatory targeting of certain communities, communities of col lowincome communities and others.
▶ 2:35:03And those communities are not visible often at the financial regulators when the people at the financial regulators don't have any visibility or experience in those communities. And the AMWI offices have been critical uh junction points and making sure that those issues remain a priority both within the agencies and within the regulation the regulated entities that those agencies are focused on.
▶ 2:35:25And the more people are aware of the breadth of our communities, the people and their experiences, the more that they rules can actually be tailored appropriately. And that's why one of the re the racial wealth gap wasn't talked about wasn't wasn't visible for many years. And it wasn't visible because people who are actually on the wrong end of the wealth racial wealth gap weren't represented in the regulatory agencies and even in policym more broadly.
▶ 2:35:52and the identification of that and addressing that through various regulations and laws has been critical. But diversity is what what d has driven Thank thank you. My time is almost up but let me just thank you for that and and also say although that DoddFrank made some great progress there's no doubt that this country still faces persistent disparities in access to safe and affordable credit. Mr. Benson, we've had the opportunity with SIFMA to to work to together.
▶ 2:36:20Um, have you seen in financial literacy in your work the difference it makes when you're more First of all, Congressman, I want to thank you and Congresswoman Kim for the work that you all do on financial literacy. That's very important and and for your engagement with the Sithma Foundation. Absolutely. The foundation has seen uh the spin-off of increased financial literacy impact on students. Gentle woman's time is expert and we'll answer for the record. Thank you so much. I yel back. Amend you both on the financial literacy partnership.
▶ 2:36:49We now recognize the gentleman from South Carolina, Mr. Timmons, you're recognized for five Thank you, Mr. Chairman. I want to thank all the witnesses for joining us today to examine where 15 years of DoddFrank has gotten us. I want to begin by addressing the CFPB and the unchecked regulatory power that its past director wielded to impose his personal world views on the agency.
▶ 2:37:10The constant pendulum swings in leadership direction between administrations combined with inconsistent rulemaking have made it challenging for well-intentioned businesses to operate and thrive under its oversight. As I've mentioned before, just hours before Director Chopra was removed from his position, the CFPB sent out a wave of civil investigative demands to businesses across the country at 5:30 p.m. on a Friday evening. I think we all know that no uh CFPB employees working at 5:30 on a Friday.
▶ 2:37:39These actions were not based on legitimate grounds. Rather, they appear to be a final attempt by the former director to make a statement seowing confusion and panic on his way out the door. Miss Johnson, given the notion that the CFPB cannot be fully dismantled and that we cannot return to pre20 status quo, where do you see Congress stepping in to ensure the bureau stays focused on its core mission and does not allow a rogue director in the future to expand its authority beyond that Well, thank you for the question.
▶ 2:38:07And I think it's going to be essential for us to take the opportunity and see what works and what doesn't work. And I think we've seen over the last 15 years that the CFPB even as I think it's by some bipartisan recognition, it's been political. It's been driven by polling at times. To your point, they rush things out the door even after an election like the overdraft rule which was significant.
▶ 2:38:28I think the biggest things we can do is better define our UDAP authority so that companies, banks in particular have certainty about how to comply and and what it means to comply. I think the second thing would be uh creating a a rigorous costbenefit analysis for the CAPB. They don't take into account the true cost to consumers when they're issuing different rules.
▶ 2:38:52Whether it's credit cards, which are the number one way to access the financial system, or whether it's overdraft, where you've got people on the margins who really rely on this product, it's again, these are really critical lifelines for a lot of consumers. And I think those would be two um very significant steps. There are a number of other things that we recommend in our testimony, too. It was about a year ago when Director Choper was here and I told him that given the potential outcome of the November election.
▶ 2:39:17It would be in my colleagues across the aisle best interest for us to implement some reforms so we can stop the pendulum from swinging back and forth. Obviously that wish was not heated. So we now have an opportunity to address this going forward. Um to that point, are there specific regulatory tools or enforcement powers the CFPB should be leveraging more aggressively to deter repeat offenders in large-scale scam operations on the on the um fraud and scam situation? Yes, absolutely.
▶ 2:39:47I mean, C CBA and and um actually you all have been a phenomenal lead in um in heeding consumers plea for help on being scammed out of their own money. And for far too long, it's often been fingerpointing from the CFPB when they actually have as one of their core six core missions to help educate consumers so that the consumer can make informed financial decisions. You all are taking a leadership um role in this.
▶ 2:40:12You've you've uh co-sponsored the guard act which will direct a whole of government a more holy government approach. It'll uh provide the resources necessary to law enforcement to be more engaged on this front. Banks spend billions and of dollars and millions of man hours to help protect consumers from being scammed out of their own money. But these things are often originating outside the banking system. They're from telecom and social media from state actors. We need a holy of government approach.
▶ 2:40:40I really commend you and your colleagues for taking a lead here. Thank you for that. I think we have a an opportunity for some bipartisanship to get the CAPB back to its core mission and to not regulate by enforcement and to create predictable standards that businesses and banks can can then meet. And I think that if we can create the predictability and seek out the bad actors without um tying everyone up else with endless attorneys fees and compliance costs, that's the path forward.
▶ 2:41:08My goal is for America to lead in all sectors of financial innovation by creating an environment where consumers have full control over their own financial data. And for this to work, customers should be able to share their information seamlessly and securely with the applications of their choice, empowering them to access a wider range of financial services tailored to their needs. This requires a balanced approach that promotes innovation while ensuring strong privacy protections and cyber security standards.
▶ 2:41:33I think that we have an opportunity this Congress and next Congress over the next three, four years to to bring balance to something that we're not going to get rid of. So I look forward to working with my colleagues across the aisle in that endeavor. And with that, Mr. Chairman, I yield back. Gentleman yields back. The chair recognizes the gentleman from Illinois, Mr. Cast, the vice ranking member of the full committee. Five minutes. Thank you, Mr. Chair. So I would uh I would submit to you that there is only one lesson to be learned from every financial crisis. It's always the same lesson and we have never learned it.
▶ 2:42:04Um, and the lesson is that if you've got something on your balance sheet that's risky and you'd like to sell it, it is in your interest to have deep liquid markets of unsophisticated offtakers. Um, that was the SNL crisis. Um, and it was certainly um the housing crisis. I mean, the housing crisis, right? We had risk and subprime mortgages. Well, we offloaded those by bundling them into mortgage back securities. That got risky. So, we offloaded those into credit default swaps, defart swaps.
▶ 2:42:28And um and then we figured out that if we could put those on over-the-counter markets, we could get less transparency, less regulation, and it was all good until it wasn't. Um and then it took everything down with it. Now, if we had learned that lesson, we wouldn't be voting on all this crypto crap this week. But we haven't learned that lesson.
▶ 2:42:45So I want to just understand because specifically in DoddFrank there was this effort to create joint SEC CFTC jurisdiction for some things that had run away from the supervision of SEC markets into um less disclosure intensive CFTC markets specifically like if you had a you know a derivative tied to a security it had to be inside the SEC. So Mr. Benson I want to just get some clarifying questions from you.
▶ 2:43:13If Microsoft were to custody their own stock and then issue a token that tracked that stock without granting ownership or redemption rights, would that be a derivative? So you're or you're asking perspectively. You're not asking with respect to DoddFrank, right? I'm saying right now under current law, would that be a derivative if they issued their stock as a token without granting ownership or redemption rights out of treasury?
▶ 2:43:41I I yes if you I think that's okay and that's not just if it's Microsoft right if an investment company did that out of stocks that they controlled that would also be a again you'd have to look but if it if if you're not if you're not transferring all the rights of ownership that you would have with the individual equity then it would be like okay I I agree and for the record I think we both agree with with uh with Esther Pierce the Republican and that actually goes beyond DoddFrank back to the comm futures modernization yeah because Hester Pierce has just said that tokenized shares don't offer ownership of the
▶ 2:44:11underlying asset, then in that case, um, it's a security based swap and shouldn't be traded at retail. That matters because in the Clarity Act that's coming through this week, section specifically says that if you if you tokenize a security and raise 50 million or less, all of a sudden, you can get out of SEC jurisdiction. Like unanimous consent, enter into the record, an article in today's Wall Street Journal. Want to trade Amazon on crypto exchange? the price might be up by 300%.
▶ 2:44:41Excuse me. It says that the tokens of Amazon today are trading at as much of a 300% premium over the stock price. That does not suggest an efficient market. We've got one example on Jupiter where it's over 100 times above the the stock price. So, so I guess Mr. Keller, if we've got the SEC commissioner saying this shouldn't really be sold at retail. We seem to have agreement on this committee that that that is a derivative that should be subject to the SEC.
▶ 2:45:11And yet we are going to vote this week to say let's not have the SEC regulate these tokenized securities which are according to today's Wall Street Journal massively inefficient. Um is that a good idea? Should we be concerned about that or have we in fact learned nothing from DoddFrank? Everybody should be concerned about that. I mean, it's been said repeatedly that we've got the most liquid, best capital markets in the world that are the envy of the world. But that's only true because they are well regulated and well policed.
▶ 2:45:42That causes the faith and trust of investors worldwide to put their money into our markets. It's not pre-ordained or predestined to always for us to always have the best markets in the world. And when you pass laws that have ambiguities, carveouts, and loopholes that evade the most fundamental parts of our securities, laws that make them well regulated and well policed, then you not only open loopholes for companies and financial predators and illegal and bad conduct that creates consumer risk
▶ 2:46:12as well as financial stability risk, you would literally endanger the entire capital formation allocation system and the status of our capital market. I mean, I mean, it strikes me like if I was going to raise money today, I would raise smart a little bit of smart money on on functioning equity markets and then I'd lever it up with dumb money on the token, right? I mean, it seemed like a smart thing to do. Look, I'm I'm about out of time, but just because you raised the police, you're reminding me that I remember when Gary Gendler first came into his job, he came to my office and talked about what he wanted to do on on crypto regulation. I said, you know, you have two problems.
▶ 2:46:43Your advantage is that the Wild West needs a sheriff. Your disadvantage is that everybody in the Wild West likes to shoot the sheriff and my Republican colleagues commitment to defunding the white collar police has been noted. Gentleman's time has expired. The gentleman from Montana, Mr. Downing, you recognize four or five minutes. Thank you, Mr. Chair. First, I'd like to submit this letter from the National Association of Manufacturers for the Without objection. Uh thank you, Mr. Chair, and uh thank you for the witnesses.
▶ 2:47:10Uh, you know, there's this, uh, saying that just because you're not interested in politics doesn't mean politics isn't going to be interested in you. Uh, the first time I ever came to DC, uh, I was, uh, basically issuing uh, regulation D exemptions, uh, you know, securities and, uh, had a investment banking group, a broker dealer, and this thing called DoddFrank was coming down the pipe. And that's the first time I ever climbed in an airplane and and flew to DC to make sure people understood how that affected me, my business, my investors.
▶ 2:47:40And I think that uh in reaction to the crisis of the time, you know, that pendulum swung. I think it swung a little too far and picked up a little too much baggage. And I think there's an opportunity to rightsize that. And I think there's a need to rightsize it. I'm going to start off. You know, I've heard from many of the banks and credit unions in my district across Montana just how harmful DoddFrank has been. You know, one bank uh plainly told me that the creation of the CFPB has been the most negative and costly provisions of DoddFrank.
▶ 2:48:09You know, another small bank told me they've gone from one compliance officer before DoddFrank to four today, drastically increasing costs. You know, I've heard similar stories on rule 1071 specifically. And in 2008, Montana had 64 state chartered community banks. 64. Today's there there's 33. Uh, I'm going to start with uh Mr. Ki Koopich. Hopefully I said that right. Apologize.
▶ 2:48:35Is it fair to describe DoddFrank is as irresponsibly pushing bank regulations into a one-sizefits-all model where the balance sheets of all banks look the same? It's not exactly oneizefits-all. The large largest banks are subject to different rules than the smaller banks.
▶ 2:48:56the the I think the the the crux of it all though is is the regulations that have been put in place are are are very complex, very expensive and they and they don't do what what they were supposed to do. They they don't work as advertised and um I think taking the time to rightsize some of these regulations would be a good thing. Do you believe that this hurts smaller players and innovators the most who specialize in their local communities?
▶ 2:49:21Small banks have been consolidating for decades, but it's certainly the compliance cost if you have a a small bank, and you can't you can't spread the compliance costs across a big business like you can if you're, you know, Jamie Diamond and JP Morgan. Thank you. Uh I'm going to move to uh rule 1071.
▶ 2:49:40Uh, Miss Johnson, uh, do you think the consequences of the CFPB's 1071 final rule will be especially pronounced in rural communities who already struggle with limited lending capacity? I do. Yes. Well, thank you. Uh, I'm going to switch quickly to mortgage lending. It uh, a bank in Montana recently told me DoddFrank's mortgage lending rules have made mortgage lending far more burdens burdensome for the lender and more confusing for the borrower.
▶ 2:50:09In fact, the bank told me DoddFrank's regulatory requirements have caused many rural banks to get out of the mortgage lending business entirely. So, I'm going to go back to Mr. uh Koopich. Do you think DoddFrank's qualified mortgage rule has been successful in reducing systemic risk in the mortgage se excuse me mortgage sector?
▶ 2:50:28the the the rule and the ability to repay rules are are complicated and they certainly impose a lot of compliance costs on banks and and again small banks don't have the staff and so it it it has caused a lot of small banks to get out of the business.
▶ 2:50:43Um it's kind of uh the inflation we've had in housing prices recently, the higher mortgage rates, uh the the the QM the QRM rules, they're being stretched to to allow higher debt to income ratios and things like that. So and and and the GSC's are funding loans with higher debt to income ratio. So we're letting the risk of underwriting build up to to accommodate uh lending.
▶ 2:51:08Um and so in in essence the rules in at some sense aren't aren't doing what they were designed to do. Protect protect people from making you know taking out loans they can't afford. But but you know now given the housing price inflation and and the high mortgage rates uh you know policy makers are are are pushed to to allow uh you know more people to qualify for loans and it it you know there's a trade-off Yeah. Thank you.
▶ 2:51:36I'm going to uh switch off in my remaining time. Um I'd like to highlight another issue I'm very passionate about which is eliminating the federal insurance office which is was established by DoddFrank to monitor all aspects all aspects of insurance. Uh the federal insurance office I believe should be eliminated.
▶ 2:51:54The McCarron Ferguson Act of 1945 makes clear that states have sole regulatory authority over the insurance industry and the Biden administration has weaponized the federal insurance office pursuing politicized data calls on climate rather than looking for ways to make the insurance sector operate more efficient. The gentleman's time has expired. I I yield, Mr. Chair. Thank you. The gentleman from Michigan, Mr. Lee, you're recognized for five minutes. Yeah. Thank you, Mr. Chairman. I hope I can ask all of you a simple question.
▶ 2:52:22Um, in 2008, do you believe shadow banks uh that took on short-term liabilities played a huge role in the financial crisis? I'll start with you, Mr. Benson. I'm not sure exactly how you wanted to find shadow bank, but but but there was no question that there were liquidity problems like Yeah. How about you, Miss Johnson? Yes. Outside the regulated system. Yeah. housing crisis that morphed its way throughout the economy.
▶ 2:52:53Well, I was talking about shadow banks, folks that acted like a bank um took on short-term liabilities was one of the main causes of the 2008 financial It's okay, Doc. You don't have to I I don't uh It's okay. Hey, it's still happening. It's going to happen. And DoddFrank didn't come from like thin air.
▶ 2:53:17There were a lot of question there's no question by any objective observer that sha nonregulated shadow banks contributed significantly unregulated Lehman Brothers AIG Bear Sterns you could go down a long list of non-regulated shadow banks that drove the crash I mean in several important cases and I know even those like Lehman uh brothers or money market mutual funds that had what I can't say that collateralized short-term debt experienced devastating runs. We know this.
▶ 2:53:46So we have now non-banks performing bank-like functions but without the regulation and oversight of the traditional banking sector. That is something that I want my colleagues to understand was happening. You can you can disagree in certain things that CFPB is doing hopefully factually based. You can disagree about the whole you know bill but to say that it wasn't needed because of this to me is being dishonest with the American people. So Mr.
▶ 2:54:13C, can you briefly would you say like stable coin issuers right now act essentially like banks? Stable coins are nothing but money market funds in disguise for all intents and purposes with high high run risk and no and the way they're currently being talked about will have almost no regulation to protect the American I I want Mr. Keller without deposit insurance are these stable coin users subject to runs like we saw occur in shadow banks in 2008?
▶ 2:54:40I I don't think there's any question you're going to see runs, fa failures, and bailouts. So, I want to be clear so my colleagues know this is coming. 2008, we saw the collaterized s short-term liabilities held by non-banks helping bring down the financial system and now we are working to dramatically expand a whole new type of shadow banking in our country right now. So, m Mr. color.
▶ 2:55:02Do you agree that that that part of what made 2008 financial crisis so damaging was the the interconnect between the traditional banking sector and the shadow banking sector in the real economy? The inter the interconnection between the shadow banks and the banks were transmissions of risk and those transmissions of risk over time um created the circumstances that together the systemically significant institutions whether they were banks or non-banks ultimately failed.
▶ 2:55:31And now we're going to overlay, as you say, an entirely new shadow banking system called crypto, call it stable coins, call it whatever you want. And they're not going to regulate them. So there, too, are going to be underregulated. That's right. Unfortunately, the Genius Act recreates and amplifi Well, I don't even who comes up with the names, Mr. Dennis. I don't. But the Genius Act recreates and amplifies the same kind of linkages. For example, the act would allow banks to issue their own stable coins, linking traditional financial sector to the viatella crypto industry.
▶ 2:56:01Perhaps most troubling about the Genius Act, it undermines the separation between commerce and banking. Walmart, Amazon, Meta and all these are exploring the use of this right now. What sorts of risk are we talking about? And again, pretend our moms are watching this. Like explain it because I need them to understand what my colleagues lack of action or enabling right now is going to cause real impact on their lives.
▶ 2:56:27The the biggest risk is that people are going to conclude based on what is likely to pass that these finan new financial instruments that have noi legitimate social purpose are properly regulated by the federal government and that is the biggest fraud on the public out there. I tell people Amazon and Facebook could do shadow banking that could spill over to commercial financial sectors. Yes or no?
▶ 2:56:54You're going to be legitimizing a new financial product that's highly volatile, lit littered with conflicts of interest and almost no regulation. But there'll be a claim of regulation and legitimacy and that's going to drive the marketing and that's going to cause massive loss. And I got to get this color. Guess who's going to bail them out? Guess who's going to bail them out again? It's exactly what's going to happen. I just want to be on record saying I told you so. I won't be here to say that.
▶ 2:57:22The gentleman from South Carolina, Mr. Norman, you're recognized for five Mr. Chairman, um, you know, the since DoddFrank, the credit unions, you know, faced a dramatic increase in regulations, uh, not knowing what the what, uh, the cost would be other than it was more cost.
▶ 2:57:44Um, how can we in Congress balance the need for financial safeguards and pro protection with providing targeted relief for credit unions, particularly in the form of regulatory tailoring, exemptions, and a repeal of certain and make sure that this doesn't happen again because it created a world of world of problems and and we're feeling the effects now. And I guess Mr. Benson, we can start and go down.
▶ 2:58:15Congressman, uh, we don't represent credit unions, so I I I can't really opine on the question. Sorry. I think that generally um one of the things we we represent mostly banks but a few credit unions in there. It is a duplicative regulatory environment that many institutions live under especially if you've got CFPB regulation in addition to your credential regulation. You have multiple examiners.
▶ 2:58:41Other uh members of Congress have have mentioned more compliance officers at times and other functions of the bank which just simply doesn't make sense. So I think coordinating and just trying to reduce a duplication where you can is one uh very meaningful step. You know Mr. Norman um ICI represents mutual funds and other regulated funds with uh the SEC.
▶ 2:59:04As I mentioned in my opening remarks and also with their testimony, there are duplicative regulatory requirements which are confusing and also where regulators are going beyond where Congress had mandated them to go. So that creates problems for not only for those funds but even for those investors who want to deploy their money into those funds as well.
▶ 2:59:28I think many credit unions are sort of in the same position as community banks in terms of having to bear the cost of of the regulations. But um actually my written testimony shows that the credit union share of lending has actually grown relative to the banks over the last few years. So they've actually done better than the than the banking system as a whole. Couple percentage points different. So um they haven't had it as bad as the as the regular banks.
▶ 2:59:54I don't think if you look at the facts, community uh credit unions and community banks as well as the economy was crushed by the crash long before DoddFrank got enacted or got implemented. um community banks and uh credit unions and small business across the country were failing at massive rates because of the great recession that was caused by the crash. The damage done to those institutions from the crash far exceeded any even claimed damage by DoddFrank.
▶ 3:00:22And so the real issue is people are going to pay one way or the other. They're either going to pay for regulation and compliance costs to prevent the crash or they're going to pay 10 times, 20 times, 100 times more cleaning up a crash because they were not properly regulated. It's not there's no choice in the world where there are no costs. The question is when are the costs incurred and who's going to pay Yeah, but there is a question of one size doesn't fit all. I'm in the real estate business. Uh, and then let's talk about banks.
▶ 3:00:53A lot of them got out of the mortgage servicing and had to rely on other banks. I've got the closing statements where the costs went up the minute DoddFrank took effect. Um, and I guess to avoid duplicating that again, what lessons have we learned from that on the mortgage on the servicing side the mortgage service business?
▶ 3:01:20uh there's some capital regulations that make them unfavorable for banks to do that business. A lot of a lot of it's uh consolidated and moved out. And for um there are there were lots of government lawsuits against banks uh for underwriting subprime mortgages back in under the Obama administration where they went after lots of banks for Fara and they paid huge fines uh for uh supposedly
▶ 3:01:50you know creating bad subprime mortgages and most of them were settled uh without going to court. Uh but but the banking system paid a lot and the banking system by and large has has has shied away from the mortgage business uh for reasons of regulation, for reasons of getting sued uh for things like that. So um there's it's not just the DoddFrank effect, but there are other other things that have gone on since the crisis that that have made the banking system a bit shy about about the mortgage business.
▶ 3:02:20But they they of course paid those massive fines because of fraud and illegal behavior. Not because they were generous and not because they weren't represented by the best lawyers in America. Yeah. But you had a lot of frivolous suits too that were were charged and that wasn't right that's driving up the cost today. Thank each one of you for applying for being here. The gentleman's time has expired. The chair recognizes the gentleman from Connecticut, Mr. Heimmes. He's now recognized for five minutes. Thank you, Mr. Chairman. Thank you to our witnesses.
▶ 3:02:48It's been a a trip down memory lane to reflect this way on DoddFrank. Um I was actually in the very bottom row of freshman when it was written. Um and it's interesting to see the very different opinions uh that are offered by our witnesses today. My own view for what it's worth is uh we were promised uh when it became law by many in the industry that this was going to obliterate the American strategic advantage of our deep capital markets. And to be fair on the left people said this is the apocalypse in waiting and it's all going to happen again two years from now. None of that turned out to be true.
▶ 3:03:18Our capital markets and our banking system is in fact the uh uh the envy of the world as Mr. Benson says uh and with a few exceptions uh and including by the way the mother of all stress tests in the form of the pandemic um our system has held up remarkably well. So um I guess I'm intrigued. You know Dr. Kupak highlights the Silicon Valley bank uh disaster. I'm not sure I agree with him that that is evidence that DoddFrank is a failure.
▶ 3:03:44But I want to use my remaining four minutes to do something that I think is actually kind of useful, which is DoddFrank of course emerged because too few people saw the mortgage crisis coming. I certainly didn't see Silicon Valley bank crisis coming. So my question to all five of you and I think you've each got about 25 seconds to answer this is to answer I'm going to start with you Mr. Kellaher. The answer to the question at the end of 2025, six months from now there is a systemically threatening event.
▶ 3:04:12Let's think of the magnitude of Silicon Valley Bank just for argument sake. That event originated how and in which market? Mr. Keller. Uh, nobody knows and we don't know because we put blinders on. We've defanged FSOC. We've got rid of 25% of the personnel at the FDIC. You could go agency by agency. And what you're doing is essentially disarming the frontline financial stability cops at the regulatory agencies. They're not just putting their head in the sand.
▶ 3:04:42They're leaving the field and that's going to cause us to be surprised again like we were in ' 08. AIG, everybody ran around going, "What is AIG?" So, Mr. Keller, your answer is that we're gutting the regulatory apparatus. I think is that a fair characterization, Doc, Dr. Kupak? Yeah. Silicon Valley Bank was a systemic problem because there were thousands of banks that had huge unrealized interest rate losses on their books and could fail to. If you look at my written I don't understand. I'm looking for the answer to the question of when it happens again six months from now, why did it happen?
▶ 3:05:13Uh, I don't know. Okay, fair enough. I don't either. None of us do. Uh, Mr. Quadman, Mr. Thank you for that exercise. I would actually say if you look at DoddFrank, the Office of Financial Research is supposed to be the early warning system for the Financial Stability Oversight Council. And I would say if you look at any of the hiccups that have happened in the system since 2010, OFR has not performed that function.
▶ 3:05:35So, I think that actually makes the argument for why it should be brought brought under the appropriations process for congressional That doesn't sound like the source of a systemically threatening event. You don't want to opine on that. Excuse me. I was looking for the answer to the No, I know, but I but DoddFrank put in place a mechanism for that warning to happen and that warning system has not Okay. Okay.
▶ 3:06:00Um, Miss Johnson, look, I don't think anybody knows. If we did, we'd all be millionaires at this point. Um, you know, that is what we're constantly watching for. I can say that the consumer health right now is still very strong. That banks are incredibly well capitalized. I would say that there's an opportunity for something to happen outside of the banking system. And the problem with so much regulation, and I just want to make this point because I haven't had the chance to orally say this yet.
▶ 3:06:29The problem with so much regulation is that you do continually push consumers, especially consumers on the margin where the risk is highest outside of the banking system. And that's one thing that I think we all just need to be cognizant of. And so, you know, banks are going to fail, non-banks are going to fail over time. We want to make sure that there's an orderly process for that. We're a free market.
▶ 3:06:52That's going to happen and I think that that's something that uh will play out, but we absolutely want to be cognizant of pushing lending outside of the banking. Okay. Got it. Thank you, Mr. Keller. Um hopefully we're not graded whether we're right or wrong and hopefully nothing happens.
▶ 3:07:08I I my sense would be if if something happens that has a systemic- like effect, it's going to be some sort of extraneous event, whether it's geopolitical or uh or pandemic like hopefully not another pandemic, but something uh something along those I'm intrigued and I got 25 seconds that nobody said private credit. That's a market that has grown substantially. Nobody said crypto. That's we're talking a lot about that. Nobody said swap margins, which I was promised would uh would bring down the system. Anybody want to use 10 seconds to elaborate?
▶ 3:07:37Let's worry about the Treasury markets. I mean, there are a lot of things to worry about and that's why the rules are supposed to be in place to cover them all to have discretion to be able to identify emerging risks and that's what's been shut down. Okay. Thank you. Very much appreciated. Thank you to our witnesses. I yield Chair recognizes the gentleman from Pennsylvania, Mr. Muer, who is also the chair of the subcommittee on oversight and investigations. He's now recognized for five minutes. Thank you, Mr. Chairman. Uh, thank you all to our witnesses.
▶ 3:08:05um robust conversation and and and important. So barely a day passes, particularly being on this committee where we don't hear from banks large and small about the compliance burdens uh that they're forced to navigate. Uh and they do stem from DoddFrank. It it's common uh subject.
▶ 3:08:28Uh DoddFrank created uh the uh FSOC, the CFPB, entities that operate with really little accountability really by design, leaving banks uh unsure on how to comply, not bright green lines, uh very very subjective ideological lines. So consumer fraud and scams are surging.
▶ 3:08:52Yet the very agencies tasked with protecting su consumers seem more focused on writing new rules and literally engage in driveby random Uh that's why we are trying to roll back some unnecessary regulations and why this is critical and so financial institutions can focus on customers providing capital and growing the economy. So Mr. Johnson.
▶ 3:09:17Um, DoddFrank promised stronger consumer protection, but banks consistently raise concerns about rising fraud and scams and heavy compliance. So, 15 years later, has the law improved consumer safety or uh bank um performance? So, I think overall, you know, the banking system is very resilient. I think they are very conservative in terms of you know making sure that they can lend to consumers and the consumers are uh able to repay.
▶ 3:09:48I think more generally one of the concerns that we have is the complexity and the redundancy of so much regulation into things that oftentimes are not really where the risk is. um you know SBB was brought up earlier and I think that those were pretty obvious errors of omission from the management on that case and so we want to make sure that bank regulators are focused where real uh risk exists like interest rate and credit risk.
▶ 3:10:14Um and then also outside of the banking system right where more lending is going because of all the regulatory burden that banks and costs that banks have including smaller banks pushing lending out to the banking system. So just having a much more wholesome view. Thanks. And I'd like when you were you brought up before you'd like to see things as based upon facts and data driven your your term and your three pillars. Follow the law, review, follow the law. That's that's a you know one that should be a given, right?
▶ 3:10:44Review impacts, real real impacts, uh and uh and respond to those properly as you do in business, as you do in life. And focus on real consumer fraud. and that just doesn't seem to be happening. So in your view, what is the biggest factor driving the rise in scams that we see today? So one, this is an area where we have uh called on the CFPB to fulfill its mission, it statutory mission and one of its core principles to educate consumers.
▶ 3:11:13Look, I mean, with the proliferation of technology and digital banking and social media and uh text messaging, consumers are being bombarded with opportunities to fall victim to handing their own money. Oftentimes, it's through, you know, a Facebook link that says there's a designer puppy and click here and pay me and um suddenly, you know, you've paid someone who's a complete fraudster. It's very very difficult for a consumer to determine whether or not that person on the other end is a scammer.
▶ 3:11:44Banks have spent and I said this earlier today billions every single year. They spent millions of manh hours. We have a fraud committee within CBA that is extremely robust. I can tell you details of how much banks do to combat fraud and scams. But we need the government to step in and to recognize that often this is state sponsored that this is originating outside of the banking system. We need telecom to step in. We need uh uh law enforcement to also step up.
▶ 3:12:13We appreciate uh Congressman Nun and Congressman Gothimer and others who have co-sponsored the guard act. We think that's a really meaningful step forward. All right. Good. Thanks. You know, there's a big difference. Mr. Keller brought up a little while ago, appropriately regulated. That's a big big difference from excessively regulated and seeing that uh only 19% of small businesses say they have adequate access to capital I think we can really go from good to great um and and that should be a goal. So uh Mr.
▶ 3:12:43uh Kubak real quick a short time um Council of US Financial Regulators relies heavily on the Office of Financial Research for data analysis. What agencies like ESOC depend on their own internal research shops? Doesn't that risk creating an echo chamber? I'm sorry. I didn't hear the last bit. You're out of time. Is that creating an echo chamber? I I'm I'm out of time, so maybe we could talk about it later. Thank you very much. I yield back, Mr. Chairman. Thank you. The gentleman yields back.
▶ 3:13:10The witnesses also um would be willing to submit the answer in writing to the committee. That'd be fine. Okay, we'll submit it for the record. We can follow up. Uh the chair recognized the gentleman from California, Mr. Licardo, who's recognized for five minutes. Uh thank you, Mr. Chair. Uh Mr. Keller, I certainly understood from your testimony and we've all understood over the last several months that the Consumer Financial Protection Bureau has been gutted, its budget, staff, etc. uh in the last several months.
▶ 3:13:40Um and specifically, some very important functions of that agency uh appear to have severed. Um, the consumer complaint database that millions of Americans have relied upon is being dismantled. Uh, who is going to step into that role to receive and act upon the complaints of millions of Americans who feel that they've been defrauded or scammed? Yeah. When it's shut down, it's gone. There isn't going to be any substituted location for that.
▶ 3:14:11And many uh res rules have been rescended and repealed. Uh for example, the excessive overdraft fees rule. Uh who is going to protect consumers against excessive overdraft fees? Uh there's going to be no one to uh there will be no institution with the power and authority to be able to do that and the credit card late fees rule. Uh who will protect consumers against exorbitant credit card late fees?
▶ 3:14:38Main Street Americans getting ripped off by credit card companies uh are going to be left on their own to fend for And the data broker rule was also rescended. Uh what about those many Americans who feel uh concerned about their privacy uh and abusive practices of data brokers? Yeah, Americans just hardworking main street Americans who are uh subject to abuse by data brokers selling their private information and spreading it around and causing identity theft and other fraud and illegal conduct.
▶ 3:15:08they're going to be on their own once again having to fight against these huge financial institutions on their own. I understand that uh the agencies indicated will no longer prioritize enforcement or supervision uh of fair lending laws.
▶ 3:15:26And in fact, I think we saw a really extraordinary situation in which um the CPFB essentially attempted to pull back on a settlement uh and and uh a federal judge stepped in and refused to allow them to do that in Illinois. Is that right?
▶ 3:15:43He he he not only did that, but if you read his opinion, he excoriated the leadership, the current leadership of the CFPB for trying to go back years to uh undo the settlement of an anti-discrimination law uh in a way that was quite shocking to even the federal judge. So, we'll see where that goes on appeal. We participated, Better Markets participated as an amicus in that case.
▶ 3:16:05So, for Americans who aren't savvy enough or perhaps wealthy enough to have access to attorneys, uh, and they suffer from discriminatory lending or redlinining, um, what options do they have? The CPFB stepping back.
▶ 3:16:20You know, the the real problem is, and this is why the CFPB was created, is that, you know, main street Americans don't have the time or the money to be going after huge financial institutions or financial predators who are prowling, frankly, uh, the wallets and pocketbooks of main street Americans from their credit cards to their checking accounts to their savings accounts to, um, whether it's discrimination or other unfair and deceptive acts. And that's why we and we saw that gap. This is not a theoretical problem.
▶ 3:16:49We saw it before '08 and how consumers were abused. We also saw the systemic implications of it because the predatory subprime lending on the individual basis where individual people getting mortgages were getting ripped off. That was bad. But it also got rolled up into becoming a systemic crisis. And so the purpose of consumer protection is yes to protect main street Americans and their wallets and pocketbooks. It's also to protect um the systemic risk of failures and bailouts. All of that is gone.
▶ 3:17:19We created the CFPB for that purpose. It did it did an really a shockingly good job in a very short period of time. I I think it's important that you know as we think about the Consumer Financial Protection Bureau. This is one of the many uh ultimately an acronyms that gets lost in the American public because there are so many agencies in the federal government. Uh so many seem to have so little impact on our daily lives. It is important for us to understand exactly what this particular agency does.
▶ 3:17:46Undoubtedly, there have been cases of bureaucratic overreach, uh, regulatory overreach. I've never known, uh, a regul regulatory agency that wasn't guilty of that. Uh, but there's a lot at stake here. And specifically, as I'm thinking about the civil penalty fund and $3.3 billion been returned to Americans, uh, who have been scammed in various ways.
▶ 3:18:07So, I have a chart in my written testimony that shows by state how much money every state has received from the civil penalty fund and everything from $35 million to Arkansas to $46 million to Connecticut. I mean, the CFPB protects everybody and benefits everybody in all 50 states and every single congressional district here has received money. Their people, their citizens, their voters have received money from the CFPB when they were ripped off. Thank you, Mr. Keller. I yield. The gentleman yields back.
▶ 3:18:36The chair recognized the gentleoman from California, Miss Kim. She's now recognized for five minutes. Thank you, chairman, and ranking member for hosting this um hearing today. And I want to thank all of our witnesses for joining us. You know, 15 years later, it has really become self-evident that uh DoddFrank has only heard consumers, small businesses, and the community financial institutions that it was supposed to protect.
▶ 3:19:04Regulatory costs have only increased since the passage of DATFrank Act in 2010. And although financial institutions below 10 billion dollars in ETSS are exempt from CFPB examination, they still face very high compliance It is our credit unions and community banks who suffer the most and as they do not have the resources to bear the burden of this regulatory scrutiny.
▶ 3:19:33the same way that large commercial banks may be able to do. That's why they hurt they are hurt the most. Unfortunately, the result of all this has been consolidation among banks and credit unions over the last 15 years and there have been few to no community financial institutions to replace those losses. So, let me talk about the real impact that it had in Orange County where I represent.
▶ 3:19:58We have seen this firsthand with only one new bank and zero credit union form in 2021. And since 2015, we have seen zero new credit unions from all across California. This would not be the case without the overburdening regulatory policies that were implemented in the DoddFrank legislation. So I want to ask this question to you, Miss Johnson.
▶ 3:20:24as the uh as we see the retail banking services pull back from our community, can you talk about the consequences for consumers and small businesses? Sure, and thank you for the question. Look, there's undoubtedly been an impact. I mean, there's a around a 40% reduction in the overall number of banks. We still have a highly competitive marketplace because you've still got around 4,500 banks and 4,400 credit unions.
▶ 3:20:51But it is extremely problematic when you don't have new players who want to come into this marketplace because they know that they can compete and do it efficiently and effectively. I think that there is a um a concern among you know otherwise budding entrepreneurs to come into the banking system. So we want to reduce that um that effect. Thank you.
▶ 3:21:13You know, my view is that um rather than promoting policies like those in DotFrank that hurt consumers, we need to be promoting policies that put consumer first, which is why I introduced a couple of my bills and I want to talk about that right now. The first is credit access and inclusion act and the second one is small dollar loan certainty act. I believe this will do just that in promoting the uh small businesses and our consumers.
▶ 3:21:40The Credit Access and Inclusion Act would responsibly expand the credit access for millions of Americans with limited or non-existent uh credit history. So, I really want to thank my uh committee chairman Hill for noticing that uh draft and I hope that we can move forward with this bill with strong bipartisan support in the near future.
▶ 3:22:03and uh the small dollar loan certainty act would codify the pre credential banking regulators small dollar lending guidance into law. So Miss Johnson, can you explain why it is important for Congress to provide this type of statutory certainty for small dollar lending policies rather than relying on the guidance alone? Absolutely. Well, and we want to thank you for that bill because millions and millions of Americans actually live paycheck to paycheck.
▶ 3:22:30They want options for short-term liquidity loans and a number of banks have actually been successful in coming back into this market. But that was after a period of time of a lot of regulatory uncertainty. There have been significant pendulum swings within the regulatory uh agencies and there's multiple agencies involved including the CFPB.
▶ 3:22:51So, you know, them issuing guidance in 2020 was helpful to encourage banks to come back in so we have some clarity, but legislation is needed so we don't have that pendulum swing and that banks understand the rules of the road. You know, just to be clear, even though President Trump's regulators created the uh small dollar guidance, it was maintained by President Biden's uh credential regulators as well, right? Yeah.
▶ 3:23:15Um so I want to shift gear very quickly uh and focus on one of the regulatory institutions created in DoddFrank that is the FSOC. Uh I become really increasingly uh concerned that it's no longer fulfilling its mission of promoting financial stability in coordination with primary regulators. So Mr. Quadman uh would you agree that the council has really strayed away from its original mission?
▶ 3:23:41Yeah, you know, uh, with ESOC, the primary regulator really needs to be in in the in the lead on that, and I'll be happy to give a more detailed, uh, answer in writing if you The gentle lady's time has expired. The chair recognizes the gentleoman from Massachusetts, Miss Presley, now recognized for five minutes. Thank you uh, to our witnesses for joining us today. In 2008, families across this country lost everything during the Great Recession. It was an economic catastrophe.
▶ 3:24:08Millions of people lost homes, lost jobs, and lost hard-earned savings. Uh now, the majority of Gen Z, who will see this uh hearing later, were just babies 17 years ago, so I can't fault them. Um that they are completely unaware of the foreclosures and the pink slips. Um but I know my Republican colleagues, and I certainly do uh remember, Republicans remember the heartache and pain that our country went through.
▶ 3:24:32It is estimated there were more than 5,000 suicides as a result of the financial crisis. 2008 was an avoidable economic crisis, a direct result of greed, reckless speculation, and weak regulation. That's why DoddFrank was essential.
▶ 3:24:52I do want to acknowledge a good work of our very own u Massachusetts uh Congressman Barney Frank um in this uh drafting of this seminal uh piece of legislation. It created basic guard rails, stronger capital requirements so banks couldn't gamble with our livelihoods. CFPB, the only agency dedicated solely to protecting consumers, regular stress tests for banks so we would never be caught off guard again.
▶ 3:25:21But just 10 years later in 2018, while 65% of families still hadn't financially recovered from the crash, Republicans rolled back key parts of DoddFrank. They sent a clear message to their Wall Street profits margins matter more than your recovery and well-being. Now they're at it again by dismantling the CFPB. Just look at how Townstone, a mortgage lender, would repeatedly disparage black neighborhoods in Chicago with racist comments. The CFPB rightly held them accountable for discrimination in housing in a case that was settled last November.
▶ 3:25:51And when the Trump administration tried to reverse CFPB's win, a federal judge denied that outrageous request, affirming the critical role of the CFPB in stopping racial discrimination in mortgage lending. This is just one example of how Republicans dismantling the CFPB has realworld consequences like letting mortgage lenders off the hook for illegal redlinining.
▶ 3:26:12To all of our witnesses, loud and proud, yes or no, do you support mortgage lenders getting away with breaking the law and discriminating against black Yes. Just for the record, I do not. we don't represent mortgage lenders, but personally, I don't.
▶ 3:26:31This is my not my I had a colleague I don't want to I don't want discrimination I had sir I had a colleague across the aisle a moment ago who said that it's just a matter of uh following uh the the rule of law basic law. So this is not even a controversial thing. Racial discrimination is illegal. So this is not this is not a you know a trick question. So really quickly loud and follow yes or no. I think people should follow the law. Okay I'll take that as a no. Yes or no?
▶ 3:27:01I agree. All right, good. So, its creation in DoddFrank, the CFPB, has returned 21 billion dollars to more than 205 million consumers who were exploited by predatory lenders and big banks. But today, Trump has fired nearly 90% of CFPB staff and the agency under his administration has withdrawn over 60 guidance documents, dropped enforcement cases, and brought the agency to a halt, leaving hardworking Americans vulnerable to exploitation. To all my witnesses, yes or no.
▶ 3:27:29Do you agree with the CFPB returning 21 billion dollars to 205 million victims of deceptive and predatory financial practices? Yes or We don't engage with the CFBB, so I can't really comment because I don't have a I don't have a background in the case that you're citing. So, I When a company breaks the law and consumers are harmed, they should have red address. But I have to say the CFPB's use of penalties has got to have some parameters.
▶ 3:27:59I can tell you firsthand that there are multiple times when they go after salacious headlines and outlandish sums of money when the company either didn't break the law or they claimed a UDAP violation on something that was So I'll take that as a no. Reclaiming my time because I got to get everyone else on the record here. Okay. Yes or no.
▶ 3:28:18Do you agree with the CFPB returning $21 billion to $25 million victim of deceptive and predatory financial ICI's members aren't regulated by the Not my area. No comment. My only disagreement is it should have been higher. All right. Thank you.
▶ 3:28:41If we as members of Congress forget the fiscal harm that families across the country suffered from in 2008, then we risk rolling back the very regulations into funding the very agencies that could prevent the next financial crash. Thank you and I yield back. The gentle lady yields back. The chair recognizes the gentleman from Nebraska, Mr. Flood, who is also the chair of the sub subcommittee on housing and insurance is now recognized for five Thank you, Mr. Chairman.
▶ 3:29:06Before this hearing, I reached out to some Nebraska bankers to get their take on what the biggest takeaways from the DoddFrank law have been from their perspective. One significant change that has been the consolidation that has taken place post DoddFrank. In 2009, there were 225 commercial banks in Nebraska. According to the FDIC, in 2024, there are just 142.
▶ 3:29:33That's a 36% decrease over the last 15 years. My first question is for Miss Johnson and Dr. Koopiac. Each of you, please describe how DoddFrank has driven bank consolidation over the last 15 years, particularly in states with lots of community banks like Nebraska. Well, I think unfortunately your experience in Nebraska is fairly consistent with what's happened nationwide and uh FDIC data paints a pretty stark picture.
▶ 3:30:03There's been about a 40% reduction. You know, look, CBA represents institutions 10 billion and above. Most of those institutions are going to have the wherewithal to absorb a lot of these costs. Community banks cannot. But I can tell you a $10 billion institution to a $500 billion institution, the costs only increase and it becomes more and more difficult to be at those different thresholds.
▶ 3:30:26The last thing I'll say is you do see banks staying at arbitrary thresholds, say right below 10 billion or right below 100 billion. That is not what you want to see in a free market uh uh market. Yeah, I agree. Um there there are thresholds that that apply in the rules and and make it more expensive to grow. Uh but it for small banks compliance costs mean you have to grow to a certain scale to absorb those. And and and the fact that there's no entry means it's not a healthy market.
▶ 3:30:57In a healthy market you have entry and you have exit. When you have no entry, it's not a healthy market. Appreciate those answers. And one of the things I want to stress is I'm talking about towns with,200 people. When the bank closes, the cheerleaders don't get the check for $150. Uh the football team doesn't get a pizza party, the postp prom doesn't happen, the community support dries up, and access to capital for people that farm within five miles is more difficult.
▶ 3:31:25Uh and sometimes they end up a bank with a bank that doesn't have that personal relationship with them and they won't work with them. So there are real world consequences to losing these banks. To dig into the second theme that came up when I reached out to local bankers, I'd like to read a quote from Zack Karf, president of the Plat Valley Bank in Scotssluff, Nebraska. He writes, "When DoddFrank was passed, we embarked on a soularching journey of whether to stay involved in mortgage lending or not.
▶ 3:31:52Many of our competitors, most in rural or underbanked areas, did not stay as involved in mortgage due to the regulatory cost burden. While we decided to stay involved, the costs associated with DoddFrank compliance having contributed to doubling of costs that have outpaced any increase in interest or fee income.
▶ 3:32:12Our compliance department is more than triple the size that it was in terms of when DoddFrank was passed, especially since community banks had virtually zero participation in the root causes of the financial crisis. These additional costs have been directly unfairly uh to entities that weren't responsible and reduced the availability of credit to borrowers specifically in rural areas. Basically, I heard the same variation of what Mr. Karf said from about four other bankers.
▶ 3:32:42Either DoddFrank drove their bank out of the mortgage origination business or they chose to stay in and are paying more for compliance as a result just to provide that service to their customers. So, let me be clear. In the aftermath of the financial crisis, we did need reforms to combat some of the abuses and practices that led to mortgages being issued to borrowers that had no business receiving them. But the end result seems to be that smaller banks are loathed to participate in the mortgage business at all. Dr.
▶ 3:33:10Kupak, is this problem where small banks are leaving the mortgage business something you have encountered in your research? Yes. Um there are surveys that that say exactly what you you're finding. Secondly to you again uh we saw some tailoring in the 2018 law S2155 and the economic growth regulatory relief and consumer protection act.
▶ 3:33:34Do you feel that this committee could explore any further changes to statute to help keep community banks in the mortgage origination business? And if so what would you have us focus on? I don't I don't view myself as an expert on all the mortgage rules. So, I I would prefer not to offer comments there. Very fair. All right. With that, I do ask unanimous consent to enter a letter to uh Mr.
▶ 3:33:58French Hill and and Maxine Waters from Brent Palmer, president of the Small Business Investor Alliance into the record. Without objection. I yield back. Gentleman's time is expired. Uh the chair recognizes the gentleoman from Texas. Miss Garcia is now recognized for five minutes. Thank you, Mr. chair and thank you to all the witnesses here today. And as you can see, we're nearing the end.
▶ 3:34:22Uh and while I've got um some time to say something about the witnesses, I want to especially welcome uh my friend and colleague from Houston, um Congressman Benson, I still remember Ken campaigning for you back when we both had less gray hair. I color it, you don't. Um but it's good to see you and my best to Tamara. Um, I remember the 2008 financial crisis. Americans lost their retirement nestexs, their jobs, and their homes.
▶ 3:34:52In numbers, nearly 10 million Americans lost their homes. Nearly 9 million people lost their jobs. By 2012, 46.5 million Americans were living in poverty. And it should not surprise anyone in the room that communities of color were the most impacted. That's why DoddFrank exists, to prevent another devastating crisis and to provide guard rails and protections. But today, we're not here to celebrate its successes.
▶ 3:35:21We're instead mourning its dismantling as the current administration continues to undo the work and progress accomplished through DoddFrank. But we can't rest on our laurels. We must also demand answers and fight to protect the historic law that protects our financial system and consumers. Mr. color herb.
▶ 3:35:40What can be done if the Trump administration CFPB or supervision actions concerning penalties or fines against payday lenders and other highc cost lenders to protect consumers against multiple non-sufficient funds and overdraft fees on affordable loans? Uh well, if the CFPB was in business doing its job as required by the law, it would properly regulate payday lenders and it attempted to do so during the first u during the Obama administration.
▶ 3:36:11Um where payday lenders were required to actually determine, this is what the rule proposed, actually required payday lenders to determine that the person they were giving the loan to could repay the loan. It's shocking that you would need a rule that would tell a financial institution that it should see whether or not the person it's giving money to a loan to can repay it.
▶ 3:36:32But they had to do that for payday lenders because the money that's made by the payday lenders is getting people into a debt cycle knowing giving money to people that they know they can't repay it. So the loan has to keep getting rolled over, more fees, more money, higher interest rates over and over getting locked into a debt trap. Those rules actually were proposed and finalized by the CFPB to prevent that from happening. Um, and unfortunately those rules are no longer applicable. And the CB CFPB is out of business, so there's nobody to enforce those rules or even enact those rules.
▶ 3:37:02Well, tragically, uh, that is something that is a big issue in my district. It's a 77% Latino district in in Houston. Uh and it is especially uh an issue for us uh because they're they're people are struggling particularly today uh just to get gas, groceries, and food on the table and they're desperate. If they can't make it meet, they're working paycheck to paycheck.
▶ 3:37:28The payday lender may be the one to say, "Here, we'll help you." And you're right, they're probably going to end up paying back five to 10 times of what they originally borrowed, which is why those protections are necessary. In fact, a lot of them end up in situations where they have to rely on buy now pay later practices to even make ends meet. So, how can we have greater protections against payday lenders?
▶ 3:37:54Um, at this point that Congress is going to have to either enact statutes or somebody's going to have to get the CFPB back into business. And that doesn't look like it's going to happen. And one of the more important things that can happen can help is to prevent crashes to be properly regulated. One of the charts that I have in my written testimony shows the unemployment rate took 10 years after the financial crash to return to pre-crash levels. When you look at the economic wreckage caused by that crash, many people still suffering today.
▶ 3:38:23Frankly, that crash caused the United States a lost generation of Americans. People coming out of college didn't get jobs. People who wanted to retire lost their nest eggs. People who wanted to advance in their careers. They didn't get it. 27 million Americans were out of work in October of09, 13 months after the crash of Lehman Brothers. That had ripple effects literally through today to them, their children, their homes, their hopes, and their dreams.
▶ 3:38:49So preventing those crashes by proper regulation and enforcement of the rules can do more to help everybody get on the economic ladder, stay on the economic ladder and so that we can have an economy where the financial system supports it in this broad-based wealth creation. That's what we need, not deregulation.
▶ 3:39:08Well, I agree with you and I know um I uh director Chopra came to my district to talk to our seniors because they have particularly prayed on not only paid bail lenders but telemarketers online you know fishing fishing uh emails um and I want to ask you more questions about that particularly for seniors but I've run out of time so I'm going to submit the questions uh for your your answer in Sure. Thank you. Thank you. Yield back. Gentle lady yields back.
▶ 3:39:36The chair now recognizes the gentleman from Wisconsin, Mr. Style, who's also the chair of the subcommittee on digital assets, financial technology, and artificial intelligence. He's now recognized for 5 minutes. Thank you very much, Mr. Chairman. Uh thanks for holding uh today's hearing to full chair Hill. Uh I want to start with you if I can, Mr. Kubak. Um in 2014, let's go back a decade. In 2014, you wrote an op-ed in the Wall Street Journal uh back when I was in the private sector a couple years after DoddFrank uh was enacted.
▶ 3:40:04Uh, and you said one of the concerns you raised uh was that FSOC um the the council's uh s systemic risk designation authority was broad and prone to abuse and you said quote the council's designation power makes a mockery of property rights in due process. End quote. Um 10 years later, decade later, we got some empirical data. Uh would you say that your prediction was accurate?
▶ 3:40:29I I would um systemic risk is never even defined in the DoddFrank Act. Yet they're supposed to detect it and and pass rules and regulations to stop systemic risk. Something that's never even defined in the act. And so what should Congress do to reform reform that area? I would make the FSOC uh just an advisory body.
▶ 3:40:51I would take away their designation authority um and and they should report to Congress and Congress should legislate if they want to expand regulation. Let me let me build on this by going to you if I can Mr. Benson on the same topic. EPSC famously designated two non-banks uh is systemically important. Uh one would one ultimately challenged that uh in court uh successfully. Uh Sigma's argued that the designations are inappropriate for non-banks.
▶ 3:41:19uh could you provide color as to why you believe that to be the case? Yeah, the the the problem is that the the mo the designation would create bank-like regulation of of a of a designated entity and and particularly for asset managers who are regulated uh by the securities and exchange commission. They're not So, is that a better way to do to regulate it through? The better way to look at it is to look at activities and and and and not regulate entities that are non-bank entities like a bank.
▶ 3:41:44So I think both what the previous Trump administration did in terms of focusing on activities and uh the legislation that Mr. Heisinga, Mr. Foster are pursuing are a better approach. Mr. Quadman, do you do you agree with that assessment? Yeah, I agree because you want to have the primary regulator in charge. You want to have an activities based approach and the ESOC improvement act is the best way to get there rather than having this ping-pong guidance between administrations.
▶ 3:42:07So, not only is there ping pong guidance, but you also view there to be a potential overlap between the actions and expertise of the regulators and the actions of ESOC. A better way to divide those Well, and one example to raise as well, even though it was not a designation example, was where you had a majority of commissioners with the SEC wanting to go down a particular path with money market funds and the ESAC did an end run around that.
▶ 3:42:31So, we want to make sure through through legislation like that that there are very clear lines of authority and who's in charge. I I think the more we have clear lines of who's in charge, the more efficient the markets uh are going to operate. Speaking of ambiguity, I'm going to shift gears slightly with you, Miss Johnson, uh if I can. Um CFPB under Director Chopra, um he had an opportunity to pursue rulemaking through a normal rulemaking process.
▶ 3:42:56Uh but often we saw uh then director Chopra issuing guidance, press releases, uh blog posts uh in some case uh often in my opinion with inflammatory language. Um and so in theory those types of things could be uh non-binding uh but in practice uh that wasn't really the case because a lot of entities viewed themselves as potentially at risk uh of actions by the CFPB.
▶ 3:43:21Uh could you just comment very briefly as to how that would impact um uh um banks uh but ultimately their customers? Yeah, look I mean I think doing you know issuing guidance on something that should have been a rule in the in the first place creates a ton of uncertainty in the marketplace. There were examples including a buy now pay later uh uh advisory opinion that the CFPB had issued where it wouldn't even apply to banks but we came out against it because we said you should have written a rule. it was substantive change.
▶ 3:43:51Um, if I can just expand for one second because it'll allow me to respond to some things that Mr. Keller has said a few times earlier about the complaint database and uh the credit card late fee and a number and the 20 billion civil uh penalties that have been paid out. Facts matter. Facts matter when you're writing rules. And one of the things so we could talk about the complaint database being structurally flawed. We actually think it could be beneficial for consumers.
▶ 3:44:18If the CFPB had wanted to rely on facts and even leaned on the the complaint database to do so, it would have known that credit cards are very uh very minimal in terms of the complaints from consumers. It would have focused instead on things like fraud and scams that are happening.
▶ 3:44:36when it talks about issues like credit card leave fees, it completely paints an obscure and opposite picture of what the market and ultimately to the detriment often of consumers because the focus of the CFPB wasn't on the fraud and scams that people were victims of. Seeing the time, Mr. Chairman, I yield back. The gentleman yields back. The chair recognizes the gentleman from Texas, Mr. Green, now recognized for five minutes. Thank you, Mr. Chairman. I thank the witnesses for appearing. I especially thank uh Congressman Benson for being here today.
▶ 3:45:06Haven't seen you in a while. Good to see you. Uh Mr. Keller, permit me to start with you if I may. And uh as you know, the CFPB was charged with assisting with military lending. In fact, we passed a military lending act here in Congress. You can't have an interest rate more than 36% on military loans. Uh before that, it was all over the place. Mr.
▶ 3:45:31Keller, given the current situation with the CFPB, will our military people start to suffer and find themselves back where they were paying higher interest rates? Um, and of course, they they're not the persons who make the most money while they serve. They do have a salary, but it's probably just enough to get by on. Your thoughts, Well, look, it's pretty despicable. I commented on this earlier.
▶ 3:45:59service members, veterans, and their families are disproportionately targeted by financial scams and financial predators. And the data bears this out. Um, you know, the median loss for fraud is $658 for civilians. It's $775 for active duty military and it's $950 for military retirees and veterans. They're being targeted disproportionately and their losses are disproportionately high.
▶ 3:46:28And that's why they had military service members and their families actually had more than 400,000 complaints filed with the CFPB since it was created in 2011. And the CFPB to its credit returned approximately $363 million in restitution for um for military connected families.
▶ 3:46:51And so not only did the milit are they enforcing the military lending act, they're enforcing the consumer protection laws against groups that are targeted, be they the elderly, as referred to earlier, or the military who have other things to I served in the Air Force. You know, you've got a lot going on. You're being moved around. You're under a lot of pressure. You got a crazy job. Nowadays, we still deployed all over the world. They're coming and they're going. Their families are at home sometimes and they're somewhere else. They did need and deserve the protection.
▶ 3:47:20And this CFPB cut the office of service member services to one person and that person retired. That's that should be unacceptable to every American. That should just not be allowed in this country. And yet that's what's happening. And not a peep not a peep from far too many people in the Congress to say no. That's wrong. Don't do it. Where will they take their complaints? Now, where would they take their complaints now?
▶ 3:47:50They they have these complaints. Where would they take them without a CFPB? Um there are a variety of, you know, consumer protection um play, the better business bureau, but they don't have a empowered funded uh consumer protection agency or advocate anywhere. Um the Department of Defense and the different services have a variety of services that they try to provide, but they're fragmented.
▶ 3:48:16And by the way, they actually have other really important jobs to do like protecting the country. Um, and so we created the CFPB and the office of sharehold u sorry um service members uh so that there would be one place where everybody knew they could go. Um and they did know because they went there and we know based on the complaints and we know based on the recoveries and the actions of the CFPB to stand up for the military uh that it worked. It was very effective.
▶ 3:48:44Um, frankly, I think if you look at the cases the CFPB brought for the military, the service members and their families being ripped off, nobody would disagree with a single one of those cases. In fact, they might actually agree with me that the problem with the amount of money returned by the CFPB was too low. Too low when you look at the egregious, outrageous conduct um that's happening out there and is happening today. No cop on the beat, no place to go. They're on your own.
▶ 3:49:14You got to worry about doing your duty. You got to worry about your family back home while you're somewhere else. You got to worry about the bank and the credit card and the bills and the kids. And you got to do it on your own. That's wrong. Just quickly, if you can, um, you talked about the recovery from the financial crisis? Um, which ethnic group or race in this country uh had the most difficult time recovering?
▶ 3:49:40All the objective statistics prove that communities of color across the country and low-income communities actually disproportionately suffered and took a disproportionately long time to recover. And as I said, many of those communities haven't recovered. They are still suffering today from the financial setback that they suffered in the wake of the financial crisis. Those are the real victims.
▶ 3:50:01That's who we should be worrying about, not financial institutions complaining about costs that they that they don't actually bother providing the data and analysis Thank you, Mr. Chairman. I yield back. The gentleman's time is expired. The gentle uh the chair recognizes the gentleman from New York, Mr. Garberino, is now recognized for 5 minutes. Thank you, Mr. Chairman. Thank you to all the witnesses uh for being here today. Uh our financial systems benefit from firms offering a variety of products and services to the American businesses and consumers.
▶ 3:50:30DoddFrank and all of its rules and requirements have negatively impacted US banks and have been stifling for foreign banks abilities to operate and invest in the United States. These limitations have real ramifications for lending in the capital markets that drive economic growth. Currently, regulators do not account for foreign banks unique ring fence structure and lower categoriz categorized risk profiles. In fact, rules like Basil are just blindly applied.
▶ 3:50:55Consequently, foreign banks are shrinking or outright leaping the US markets and at a time that we want them to support consumers, businesses, and markets like the US Treasury market. Mr. Benson, uh, what steps can Congress or the agencies take so that foreign banks are better able to invest in the US and contribute to our economy? Uh, uh, thank you, Congressman.
▶ 3:51:17So I first of all I agree with your uh your uh analysis that uh foreign banking operations uh add a tremendous amount of capacity to US capital markets that that capacity has been constrained uh because of of various capital liquidity rules coming out of DoddFrank and other uh reforms that came out. Some of that was tailored as a result of the uh of the uh 20 21 S 2155.
▶ 3:51:40But uh we still see that uh uh the FBOs's are are capital constrained from uh from adding capacity to the US capital markets and they are very they often are very large players along with the US firms in in that area.
▶ 3:51:55So it would be helpful uh starting with the regulators I think to think about more tailoring which they have the authority to do under 2155 uh and if that and and think about the contribution that those banks provide to our to our market system and if they do it'll probably be quicker than if we have to act. Uh thank you. I'd like to focus now on the US-based institutions.
▶ 3:52:17A recent report on broker dealer activity from the SEC revealed that the amount of money handled by broker dealers has grown from 4.6 trillion in 2010 to approximately $6.4 trillion in 2024. That is around a 36 36% increase in assets since the enactment of DoddFrank. The same time the number of broker dealers has declined from more than 4,700 to less than 3,400. 30% decrease over the same pyramid.
▶ 3:52:45So Benson, how has DoddFrank contributed to this wave of industry consolidation? Well, firms firms report to us, particularly smaller broker dealer firms, report that their uh compliance costs have grown exponentially. And so it it it's it's harder for a smaller firm to absorb that cost compared to a larger firm. So we see a number of firms merging uh um and and I think that's part of the reason that we see the uh uh the decline in the number of broker dealers over the last 15 years.
▶ 3:53:14And we see other firms who get who uh who get out of the business completely. They go in and just become a registered investment advisor if they're primarily in the retail space. So we are definitely seeing a knock-on effect. And that was going to be my follow-up point if you didn't hit it, but the fixed costs are pushing smaller people out of out of business. And uh so what can we do or what can the SEC do to encourage industry diversification and competition in the way?
▶ 3:53:38Well, I I think that the SEC and along with FINRA uh need to think about looking at their rulebook and FINRA has recently put out uh uh FINRA forward which uh which they are looking are there changes in their rule book that could help particularly smaller firms with their with their compliance Appreciate that answer. Thank you. Um switching gears for my remaining time. In 2010, Dod DoddFrank's enactment provided regulators with a comprehensive and wide range of authorities to regulate our financial markets.
▶ 3:54:08However, there are several rulemaking authorities in DoddFrank that continue to remain unused even 15 years after its enactment. Dr. Kubc, how does the continued non-ex exercise of these powers contribute to the legal uncertainty for both investors and I think this is a question more appropriate for SEC than than the bank banking regulators. Okay. All right. Not a problem. All right. Mr.
▶ 3:54:32Benson, section 913G of DoddFrank grants the Securities and Exchange Commission authority to establish a fiduciary duty for broker dealers when providing personalized investment advice to retail customers, aligning their standard of conduct with that of investment However, this authority is also unused. If the S if the SEC exercised its authority under 91 913G and subjected broker dealers to a fiduciary standard, how could this disrupt capital markets?
▶ 3:55:02913 was, as I mentioned earlier to one of your colleagues, was a highly negotiated part of DoddFrank and it was really designed to provide a uniform standard or an equal standard of care between brokers and advisers operating under two different standards, the the 34 act and the and the 40 fiduciary act. Uh, Congress actually got this right and they and they and and how they did it. Um, and then the SEC through multiple SEC's got it right with regist.
▶ 3:55:28Um, I think reading it broader and the courts found this was the case. Reading it too broad uh uh was not what Congress The gentleman's time I just ask the United States to uh enter a statement from for the record from the US Chamber of Commerce. Without objection. Thank you. The gentleman from New York, Mr. Torres is now recognized for 5 minutes. Thank you, Mr. Chair. My comments are going to be focused on housing. Uh, since the 1980s, the home price to income ratio has nearly doubled.
▶ 3:55:58In the 1980s, the median home price was 3.5 times the median household income. Today, the median home price is six times the median household income. In the past half century, America has been witnessing the death of affordable home ownership. First-time home buyers has historically made up 38% of overall home buyers. In 2024, that number fell dramatically to just 24%, the lowest level ever recorded.
▶ 3:56:25The housing crisis is both a market failure and a regulatory failure. And it's a regulatory failure not only at the level of excessive zoning restrictions, but also at the level of excessive lending restrictions. Abundance has become a ubiquitous term in our political discourse, but housing abundance requires financial abundance. Since the financial crisis, financing for firsttime home ownership has not been abundant and affordable. It's become scarce and expensive.
▶ 3:56:53Before the financial crisis, the average credit score for approved loans was 710 to 720. After the financial crisis, the average credit score for approved loans is 760. A 50 point shift in the appro average approved FICO credit score has meant the catastrophic loss of home ownership access for 10 to 20 million prime borrowers.
▶ 3:57:16And so we're in a country where there are fewer people who own homes because of an artificially restricted pool of potential home buyers. There are fewer homes to own because of an artificially restricted supply of housing. And home ownership itself has been delayed by a decade. In 1991, when I was only three, the median age of a first-time home buyer was 28 years. Today, that number has risen to 38 years, the oldest median age ever recorded for first-time home ownership.
▶ 3:57:45So, I'm among the millions of young Americans who have lived through the death of the American dream of affordable home ownership. And so, here's the question. When it comes to housing finance, did the US get the regulatory balance right in the wake of the financial crisis or did we swing the pendulum too far in restricting the supply of credit for firsttime home ownership? And that's an open question for anyone.
▶ 3:58:13I I think um the evidence from the AEI's housing center shows that uh loan the loan uh underwriting characteristics have been loosened to try to allow people to buy mortgages with a higher mortgage rate and the higher prices. And so in fact underwriting standards have even slipped. I think the FHA uh and the GSC's take now loans with 50% debt to income ratio, which historically is is a really high ratio.
▶ 3:58:44Uh so things have actually moved towards less restriction on some of the the lending, but the housing prices and the mortgage rates have just blown past that. And so you're you're really at one of these quagmires. Do you want to? It gets really risky to make people, you know, loans when the debt to income ratios get that high. Their ability to repay isn't there. And and and that's kind of the situation we're in.
▶ 3:59:10And so I the the regulations have been stretched to try to allow people to buy homes, but but the house prices and the and the mortgage rates just uh just make it unaffordable. There's al I'm not a housing expert, but you've put your finger on a really important issue that's complex and has many reasons, but one of the reasons it's never discussed is the way capital is allocated in this country. And to who, right? And if you look at the big banks, only about four 40 cents of every dollar of deposits actually goes to lending.
▶ 3:59:40If you look at community banks, 75 cents of every dollar goes to lending. Why is that? Because too often kind of high margin wealth extraction financialized activities return the biggest profits and therefore bonuses at the as the banks get bigger with they use their balance sheet for all sorts of things having nothing to do with lending.
▶ 4:00:01And that's how you end up with 40 cents on a dollar of deposits going to lending at the big banks 75 cents at community banks because that's what they're as a number of your colleagues mentioned earlier that's what they're into. They're into building their communities, whether it's small businesses or mortgages. And we need to think hard about the incentive structure that has our biggest banks putting a minority of their deposits into actual lending. It hurts the wealth gap. It hurts the racial wealth gap.
▶ 4:00:30It hurts the housing gap across the board. It impacts the problems that we're all trying to think about and address. I just say there are multiple factors. There are some DoddFrank factors. things like REGG AB2 that came out of DoddFrank that's affected the the uh R&BS market. Uh pretty much the vast majority of loans now are either conforming loans or government guaranteed loans. So you know our private market has gone away. That's that's number one. But there are other factors as well as you pointed out. So it's it's a much more holistic uh problem that needs to be addressed. Thank you.
▶ 4:00:59The gentleman's time is expired. I now recognize myself for five minutes. I would like to submit for the record a letter from the Defense Credit Union Council. Um, two decades ago, there were over 8,500 FDIC insured banks in the United States. Today, that number is is just 4,000. Many of the banks we have lost are small community banks, which play a vital role in my district in northeast Indiana. Though, there are several reasons for this decline.
▶ 4:01:27I believe DoddFrank's one-sizefits-all regulatory approach for banks is a key contributor. Mrs. Johnson, can you explain how DoddFrank's compliance burdens have contributed to consolidation in the banking sector and what are the long-term consequences for communities if we continue down this Well, I think it's an incredibly important question and anytime that you know we're talking about regulation. I think it's really important that we start with the outcome. What is the outcome that we want to see?
▶ 4:01:56And we've got the most competitive banking system in the world. It's diverse and so to even to Mr. Keller's earlier points, you want banks who are out in the capital markets, you want them trading, you want them lending. There's a variety of things that um all the banks do and they compete on. You are right. We have seen around a 40% reduction in the number of banks and I think that that consolidation is largely not only but largely driven because of the regulatory burden.
▶ 4:02:24And the problem with that is that you have less competition in for consumer's business. Right? The other piece of this is that it pushes lending outside of the banking system. You want banks competing with non-banks. You want banks competing on every single product line. So we just talked about mortgage. Mortgage has this pendulum has swung and the majority of mortgage lending at different periods of time is now outside of the banking system entirely. You want banks in that business competing for those consumers.
▶ 4:02:54Same thing is happening for uh personal loans where the majority of loans are actually out of the banking system, auto lending, the list goes on and on. And so I don't think anybody argues against regulation and wanting safety and soundness and consumer protection, but there's always a cost and we've got to start weighing the cost and if it actually outweighs the Thank you.
▶ 4:03:17Uh, as we've heard today, the result of DoddFrank was an entirely new regulatory regime with broad powers, expansive mandates, and little accountability to the American people. Under the Biden administration, we saw this regime in full display.
▶ 4:03:31Whether it was Director Chopra weaponizing the CFPB to pursue policies that would have destroyed the overdraft protections many of my constituents rely on or Vice Chair Bar's efforts to impose the harmful Basel 3 endgame capital requirements on banks. We have seen how far out of bounds agencies can venture because of DoddFrank. Mr. Koopiaak, do you think the current DoddFrank regulatory regime is accountable to the American people?
▶ 4:03:59And is this expansive regulatory regime watering down congressional authority? I I don't exactly know how it could be accountable to the American people. Does it serve the American people? Well, parts of it work well. lots of it is too complicated and lots of it I think could be could be revised and serve the people better. Um I'll leave it at that.
▶ 4:04:26It's it's certainly we're certainly not at a perfect uh regulatory balance. What about the relationship with Congress? Oh, I I think Congress has delegated too much authority to things like the FSOC to make designations and I think I think that those kind of powers belong in the legislature and you guys should debate it and decide who gets regulated and who doesn't and the regulators shouldn't shouldn't decide on their own.
▶ 4:04:50They should advise you who they think who who you should be talking about, but I I would not give them powers if it were my choice. Thank you. Um, here in Washington, we have far too many agencies that seem to be more interested in expanding their own power than actually serving the public. Americans across the country and certainly in my district are fed up with this. As we just discussed a little bit, a prime example of this is the Office of Financial Research, which was created by DoddFrank to aid in data collection.
▶ 4:05:17The problem is is that prior to DoddFrank, federal regulators already had an extensive ability to collect data. The Federal Reserve Board alone employs over 400 PhD economists. Um, in addition, each of its regional banks can conduct its own localized research, not to mention the extensive data collected by our other financial regulators. Mr.
▶ 4:05:38Benson, can you elaborate on how OFR has failed to add significant value beyond what existing agencies already provide and how do you think this reflects the broader problem of regulatory sprawl under DoddFrank? Um, thank you, Congressman. So, OFR does have OFR does collect a lot of data. You're right. Other agencies collect data.
▶ 4:05:57So I I and Congress has talked about this before of looking to see can there be some coordination or streamlining of of financial data collection and and by in addition protection of that data I would add as well because we know the government is susceptible to cyber risk just as the industry is um but on top of that I mean OFR does on the one hand does play an important role they collect data for the sofur reference rate that's very important on the other hand uh they have had situations of mission creep so I do think it's appropriate for congress to take a look at that all right thank you u my time has expired I would like to thank
▶ 4:06:27all of the witnesses for their testimony today. 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. Witnesses, please respond no later than August the 20th of 2025. This hearing is adjourned.