▶ 0:14:21>> financial institutions and subcommittee hearing to order. Good afternoon. Welcome to today's hearing, in title ensuring fair access to banking. I want to thank the ranking member. This is our first hearing. For working with me to hold this hearing and for the witnesses, your willingness to testify and to do the preparation necessary before this hearing.
▶ 0:14:52Law-abiding americans deserve to be banked, full stop. They rely on core banking services, deposit taking, checking, lending, and transaction processing to go about their daily lives. When access to these services are denied, not because of risk or credit worthiness or illegal activity but because of politics, religious beliefs are involvement in illegal but disavowed industry, we have serious problem that demands
▶ 0:15:25Congressional action. The banking -- debanking exists in two primary forms. The first happens in open and easy way to spot. Financial debanking institution initiated -- financial institution initiated debanking.
▶ 0:15:53Often, this action occurs companies and dealers in digital asset companies have borne the brunt of his harmful practice over the recent decades. The second form, regulator initiated debanking is more opaque and in many ways more sinister.
▶ 0:16:15Using the regulatory apparatus, regulators pressure or direct financial institutions to terminate relationships with certain customers or industries. Infamously, operation chokepoint under the obama administration saw the department of justice at the fda see systematically target firearms dealers, ammunition retailers, payday lenders, and other legal businesses they found politically objectionable.
▶ 0:16:42More recently, the biden administration deployed a similar playbook against the digital asset industry and what many call chokepoint. Both forms of the banking share common threads. The user financial system is to enact outcomes outside of the democratic process. Legal U.S. companies and their employees are harmed and public confidence that our banking system remains independent from passing political winds has eroded.
▶ 0:17:12These three are outcomes we should seek to prevent, not allow. That is why I released the discussion draft of 2025 which takes a comprehensive approach to ending politically motivated debanking. First, it establishes a strong federal fair access standard that prohibits denying core banking services based on first amendment protected activities where the business type of a legally operating enterprise.
▶ 0:17:42By enacting this standard, congress would provide regulatory clarity and uniformity for customers and financial institutions nationwide. Importantly, the bill preserves the bank's legitimate financial and risk management discretion through exceptions for safety and soundness, profitability considerations, risk assessment, and ongoing compliance with existing laws and regulations. Second, my discussion draft permanently repeals the use of reputational risk in examination and supervision.
▶ 0:18:12By incorporating chairman scott's firm act, we can ensure regulators no longer use this amorphous standard to pressure banks into the banking customers -- debanking customers that a future administration disfavors. The legislation implements targeted reforms to bring transparency and accountability to the examination process. It allows select members of congress to request confidential supervisory information, giving us the ability to conduct meaningful oversight of examiner conduct.
▶ 0:18:42It also creates a special inspector general within the treasury department to receive and investigate allegations of regulatory abuse. Ensuring that when examiners overstep their authority, there is a meaningful avenue for accountability. Finally, the bill modernizes outdated thresholds that have not been adjusted since the 1970's in the 1990's.
▶ 0:19:06These hard caps come out when leisure suits were popular and gas was $.49 a gallon, or routine transactions and increase the likelihood that ordinary customers are mi flagged over standard lawful activity.
▶ 0:19:23The ensuring fairness acts-two banking act of 2025 represents a systematic approach to addressing the dual forces debanking and regulatory levers that enabled it to occur. I want to thank our witnesses for joining us to discuss these important issues as we move forward this important legislation.
▶ 0:19:45I look forward to a productive discussion about how we can ensure every american regardless of the politics, their faith, or their profession, as for access to banking services they need to participate in our economy. At this point, I will turn to ranking member cornyn as. >> Mr. chairman, thank you for convening this hearing today. I bet you at one point in time had a couple of leisure suits that you owned. I bet.
▶ 0:20:15Thank you. I want to thank the witnesses as well. Thank you for being here. I look forward to the conversation. We are here today to discuss strategies to improve access to necessary banking services. Here are my three priorities. Provide low-cost basic banking services to the american people, ensure that our bank regulators are independent, adequately staffed, and that our financial institutions are safe, sound, and protecting consumers.
▶ 0:20:41Enact the safer banking act to provide banking services to canvas businesses in the 40 states in washington, D.C. -- in washington, D.C. where cannabis is illegal. We have to expand banking services to the 19 million people who are under banked and nearly 6 million people who do not have a bank account. In nevada, we ranked eighth in the nation for unbanked households.
▶ 0:21:10Without a bank account, the family struggle to pay bills and save up for future expenses. There are many reasons people cannot access a bank account. Sometimes, people may not have enough money to meet the minimum balance requirement. Sometimes, they cannot afford nonsufficient fund fees and sometimes, they are the victim of a scam that requires them to file for bankruptcy. Many americans are forced to use expensive alternative financial products.
▶ 0:21:39A couple of months ago, president trump issued an executive order that he claims would guarantee their banking for all americans. Despite its name, the executive order would not help the 25 million americans who are unbanked were under banked. -- or under banked.
▶ 0:22:01The president is destroying the consumer financial protection bureau which leaves people with without an agency -- leaves people without an agency. The consumer financial protection bureau insured consumers have access to fair and transparent financial products for more than 14 years. That is why I have a bill to stop -- the stop the scammers asked to ensure the funding.
▶ 0:22:27We want to make sure all americans have fair access to banking and fair access to consumer protection. The other topic I want to talk about today is state legal cannabis businesses who I hear from him about all the time because they are struggling to get access to financial services. There are so many nevada business owners who have opened legal cannabis businesses and created jobs across our state.
▶ 0:22:51As year, nevada's cannabis sales burned an 829 billion with 120 million dollars in taxes. The businesses and employees should be able to access the same banking services as all other businesses. In september of 2023, the banking committee passed the safer banking act. The house of representatives has passed safer numerous times.
▶ 0:23:14I hope we bring the safer banking act to this committee again and finally pass it into law in the new year. Even if the president reschedules marijuana, that will not address the limits on banking services that are harmful for our nevada cannabis growers and retailers as well as others in the cannabis industry across the nation.
▶ 0:23:37In 2026, I hope we hold more discussions on addressing banking by cannabis businesses and strengthening consumer protection. Thank you. >> I am going to do the witness introductions lee hill who serves as the university of wyoming college of law dean and
▶ 0:24:08Excellence chair. Prior to that, she was reichstein and professor of law at the university of alabama school of law and she also serves as a faculty member at the university of houston law center with more than two dozen articles examining unwritten rules of banking regulation. She's known for her expertise in banking and commercial law and is a frequent commentator for a national media outlets including american banker, bloomberg, npr, reuters, and wall street journal.
▶ 0:24:41Why don't you begin your statement? >> thank you, chairman, ranking member, and members of the subcommittee. Thank you for asking me to testify on debanking today. While my area of legal specialty is banking regulation and for the last 17 years, I have studied and taught and written about banking as an academic, I also have some practical banking experience prior to becoming an
▶ 0:25:11Academic. I practice law in washington, D.C. where I represented large financial institutions. Before I was an attorney, I worked at community banks. While I am currently privileged to lead the only law school in the state of wyoming, I am here today as a subject matter expert so the views that I express are my own and not necessarily those of the university of wyoming, it's college of law, or other organizations with which I have been affiliated. Access to banking is important.
▶ 0:25:42It enables people, organizations, and industries to participate in the economy. Debanking, that is, the closing or withholding of accounts for reasons unrelated to violations of law, financial risk, or business purpose threatens access to banking services, debanking, for example, occurs when a bank closes an account for political reasons. This of course is not the first congressional body to examine debanking.
▶ 0:26:09Beginning in 2014, there were hearings on operation chokepoint. At that time, congress was examining allegations that the department of justice, the fdic, and other regulators pressured banks to cut off services to payday lenders. More recently, hearings have focused on whether the crypto industry, the firearms industry, immigrant groups, and others have been two -- debanked.
▶ 0:26:40Our banks -- are banks being cut off for disfavored groups? Or do banks have legitimate business purposes or financial reasons for their account decisions? Some believe debanking is a large problem while others dismiss it as a conspiracy theory. I think that it is important to investigate how often debanking happens and why.
▶ 0:27:10I believe that persistent allegations of debanking alone are enough for congress to consider regulatory reforms. A stable banking system relies on public trust in government bank supervisors. Debanking and persistent rumors of debanking undercut trust in bank supervisors. Let me explain why banks, like a lot of businesses, depend on trust.
▶ 0:27:35But unlike other businesses, banks do not have good way to signal that they are trustworthy. Suppose you want to buy a refrigerator, you know some refrigerators are not going to work properly. The manufacturer worries that if you think you are going to get a bad refrigerator, then you are not going to buy one? What the manufacturer does to solve this problem is they offer a warranty .
▶ 0:28:01If the refrigerator turns out to be bad, the manufacturer will replace it and as long as only a small number of them refrigerators turn out to be bad, you can trust that you are going to receive a good refrigerator. Banks however are not like manufacturers. When a bank has financial difficulties, all of the bank's deposits are in payroll because banks lend out money, don't have a good way to allow for a sudden increase in withdrawals.
▶ 0:28:30We end up with the situation very much like the one depicted in the classic christmas movie, it's a wonderful life, where there is a bank run. A run can spread to other banks, causing a banking panic. Runs and panics have the potential to destroy even solvent banks by making them liquidate assets at fire sale prices. This is bad.
▶ 0:28:53Instead of expecting banks to rely only on their own reputation, our supervisory framework prevents runs and panics by allowing banks to rely on the trustworthiness of government insurance and government supervision. We trust banks because we trust government supervisors to keep an eye on them.
▶ 0:29:14If debanking were rumors of debanking because the public to view government bank supervisors as politically polarized, the supervisors lose some of their credibility. Banks might also be less forthcoming and is willing to cooperate with regulators. This has the potential to destabilize banking and contribute to runs and panics.
▶ 0:29:36There are two features of the banking regulatory system that prevent government supervisors from credibly assuring us that debanking does not occur. First, bank regulators have discretionary supervisory power to engage in debanking using reputation, risk, or other supervisory tools, bank examiners have the power to influence bank decisions for political reasons. Banks have little recourse when supervisors stretch their authority.
▶ 0:30:06The supervisory actions are largely secret. This means that those alleging government debanking rarely have proof of the reasons that their accounts have been shot but it also means the bank supervisors have a difficult time convincing the public that debanking does not happen. My testimony examines these two features.
▶ 0:30:26First, although bank regulators assured both banks and the public that they don't pressured banks to debanked customers, they have been unsuccessful in stopping persistent debanking concerns. The regulatory disavowals lack persuasive power because they are inconsistent with the discretion that bank supervisors claim. Banking agencies claim broad power including power that would allow them to force debanking but they asked the public to believe that they don't use that power.
▶ 0:30:54In many cases, the banking regulators power is so broad that banks have little opportunity to challenge it. Of course, some discretion is necessary for supervisors to exercise professional judgment, but other supervisory discretion serves little purpose other than giving supervisors authority to impose policy preferences related to banking safety. Congressional testimony is not the time or place for a complete catalog of overbroad supervisory discretion.
▶ 0:31:23Instead, I want to highlight two areas where regulators appear to have used their discretion to influence debanking. The first is reputation. >> if you could wrap it up, I want your written testimony on the record. Thank you. >> the first is reputation risk. As you noted. The second is brought supervisory discretion in terms of the management rating.
▶ 0:31:49Banks get rated on capital assets, management earnings, liquidity, and sensitivity to market risk. One of those is management. When determining the management rating, people -- supervisors evaluate whether or not bank's response to recommendations from government regulators and this gives them broad authority to pressure banks to debanked customers and that is part of what happened with operation
▶ 0:32:20Chokepoint 1.0. The other part of this leads to debanking, of course secrecy. It's very hard to get information out of financial regulators and it is illegal for banks to provide information about why they have closed accounts. When we have this broad discretion coupled with secrecy, it makes it very hard for regulators to credibly say to us that debanking doesn't happen.
▶ 0:32:48In conclusion, debanking and rumors of debanking have plagued the financial system for years. Complaints come from both sides of the political aisle. These complaints threaten the trust americans have in banking supervision and potentially destabilize the banking industry. Everyone interested in government should consider reforms that address the supervisory discretion to allow debanking to continue. >> I love the analogy on the manufacturer, too. I have questions about that.
▶ 0:33:16Our next witness is -- currently services principal, multiple use advocacy where she helps advance responsible energy ranching mining, timber, recreation, and other multiple use issues on public lands. She also helps companies navigate epa, air, and water issues.
▶ 0:33:41It focuses on energy and public land issues in the 13 state intermountain west of the united states. She testified before several congressional committees on energy and environmental topics and is regularly quoted on western issues in the national regional media including the wall street journal, new york times, fox news, bbc, national journal, and denver post. I should have said a lot. You may begin your opening statement. >> thank you, Mr.
▶ 0:34:09Chairman, ranking member. I appreciate being here today, members of the committee. That was a good primer on financial regulation. I do not have that background as you noticed from my bio.
▶ 0:34:26I really got into this issue about eight years ago when the bank of the west, affiliate of bnp paribas, decided that they were going to drop all the oil, gas, and -- oil, coal, natural gas from their portfolio, creating quite a stir on the west slope of colorado where I am from, not the west slope but in denver.
▶ 0:34:52We noticed the impact with my members, particularly with the small independent producers in the rocky mountain west who then had to scramble to find other banking options. We have seen this. Mr. chairman, I like the way your opening comments where you outlined some of the causes of this. I look at it as the activists working hand in glove persuaded the regulators under the biden administration.
▶ 0:35:22They approached it with this whole of government approach to use every financial regulatory lever to debanked, decapitalize my industry and of course what that does is raise prices for consumers ultimately. As my members could not find lines of credit or their cost of capital was so much higher, particularly the smaller companies versus many of the larger companies who always can absorb regulatory cost.
▶ 0:35:52So we had a situation where smaller and larger companies as well for a while were facing debanking pressures, de capitalization pressures. Some of the large foreign banks have not returned to the oil and gas industry. Some of the larger banks in the united states have had the pressure come off of them.
▶ 0:36:16President trump leadership has been very key for that but we are still seeing debanking effects in the oil and natural gas industry and ultimately, that raises prices for consumers. So I spent the last five or six years particularly under the biden administration really looking into this issue although I do not have that deep regulatory or financial experience that dean hill does. I am actually learning quite a bit and I appreciate that and look forward to hearing more.
▶ 0:36:47I tried to keep up with it for a while. I think I responded to eight different, it -- different comment periods, each one highly complex. I could barely keep up during the biden administration's whole of government approach with all of the financial regulation directed against the oil and gas industry. Mr. chairman, I really appreciate the bill.
▶ 0:37:10I urge the committee to move forward with it, particularly where we can ensure that financial regulators don't have the ability to repeat that cycle of debanking and d capitalize -- decapitalizing. The risk was a real thing. We saw companies harassed.
▶ 0:37:35We saw shareholder activism where companies were harassed with climate change regulations, with disclosures. Luckily, president trump has beaten a lot of that back. To ensure we don't see a repeat of the cycle, this legislation is very important and I hope the committee does indeed move forward with the bill. Thank you very much. >> thank you. >> I am -- tyler klimas.
▶ 0:38:13He is a constituent from nevada. He knows the people they are very well and currently serves as the principal of leaf street strategies where he works with private companies and governments on cannabis regulation. Prior to that, he was the first executive director of the nevada cannabis compliance board. In that role, he redesigned nevada's cannabis regulatory regime following nevada's legalization of adult use cannabis. He also served as a founding member and president of the cannabis regulators association.
▶ 0:38:45He is someone at my office has relied on to understand the cannabis industry in nevada and I thank him for traveling all the way from henderson, nevada, to be with us today. If you would like to give us your opening statement? >> ranking member and members of the committee, thank you for allowing me to be here today and I appreciate the opportunity to testify on the issue of fair access to banking.
▶ 0:39:12Because this is about ensuring fair access to banking, no discussion of this issue is complete without addressing the challenges facing the cannabis industry and the solutions like the safer banking act. As nevada's former chief regular overseeing $1 billion retail market, my job is to implement compliance programs designed to prevent diversion, insure product safety, and protect public trust and confidence through transparency across the industry.
▶ 0:39:41Each of those responsibilities is made more difficult by the lack of access for banking services. 40 states and territories have developed regulatory cannabis markets supporting hundreds of thousands of jobs and generating billions in state tax revenue. Many of these state legal businesses continue to struggle to access basic financial services. As a result, they remain cash intensive, creating a significant public safety risk and economic burden on small and medium-sized businesses that already operate on thin margins.
▶ 0:40:11The safer banking act would provide the certainty financial institutions need to serve this growing industry while making communities safer and improving transparency and accountability in the marketplace. More than half of americans now live in a state where adult use cannabis is legal in the industry is projected to generate over $44 billion in revenue in 2025. Despite this growth, banks and other financial institutions remain reluctant to serve cannabis businesses due to ongoing regulatory uncertainty.
▶ 0:40:44Some banks and local corporate debt credit unions serve -- the universe is small. They take on risk due to the uncertainty. Risk that results in high administrative and compliance costs, costs that are passed down to cannabis businesses in the form of high fees. These challenges are not limited to cannabis operators alone.
▶ 0:41:05Businesses that support or engage with the cannabis industry like industrial suppliers, agricultural vendors, commercial and industrial real estate firms and even automotive dealers fall victim to many of the same banking challenges because of their association with cannabis. Even state governments have challenges with banking if they are one of the 40 states that have a cannabis program.
▶ 0:41:26In nevada, our regulation of cannabis risk is disrupting the state's entire relationship with the banking partner, forcing us to spend countless hours to find creative workarounds and issue guidance to the industry and what language to avoid putting on payment notices. Instances like these are common. Without greater engagement by financial institutions, we are left with a growing lack of insight and transparency and to licensed operators and state markets. This impacts public safety.
▶ 0:41:55In nevada, we drew from our model to implement one of the nation's most comprehensive cannabis investigations. We understood the importance of not only compliance by understanding exactly who was operating in our industry and who is profiting from it. While states enjoy credible insight through mandatory tracking systems, reconciling that information with companies that have difficulty maintaining banking relationships deal mainly in cash and makes the job externally difficult.
▶ 0:42:25As a result, this creates opportunity for bad actors to exploit this lack of transparency with challenges and oversight simply because we have yet to fill this policy cap. I understand the desire to put effort behind a more comprehensive federal regulatory framework and that is a goal shared. Each day, we wait on commonsense measures like the safer banking act, causing friction for employees trying to earn a living by providing cover for bad actors to persist.
▶ 0:42:55Creating a level playing field and ensuring fair access to normalize banking services allows legal cannabis businesses to realize cost savings and efficiencies just like any other business. In cannabis, cost savings allows them to be more competitive in pricing, a key component in addressing the market.
▶ 0:43:15As long as the market operators are able to explain the unnecessary difficulties that legal operators phase, we will continue to see on safe and untested product available to consumers in a significant loss of tax revenue to states and the federal government. To conclude, allowing clear and certain access to the financial system for state businesses does not amount to the federal legalization of cannabis.
▶ 0:43:39Legislation like the safer banking act enhances and strengthens regulatory oversight that allows financial institutions to serve businesses and communities without unnecessary fear or uncertainty. Thank you for the opportunity to testify today and I look forward to answering your questions. >> thank you.
▶ 0:44:00For the record, senator cortez masto my absolutely agree with everything you said about the banking situation in this industry. We have got to realize that two thirds of the states have legal cannabis operations, either medicinal or recreational. I am a market capitalist. Whether or not I agree with the given market activity, the federal government should exist to regulate at -- regulate it and get out bad actions.
▶ 0:44:32I see that as a mechanism for a more conferences framework to get things right. I mean, from crop safety, usda regiment not unlike the tobacco industry to the fda, to flavorings, to advertising, you see some of these out there. It looks like an oreos package but they are guy means. We got all the stuff.
▶ 0:45:00It's a wild, wild west right now and we got to get it under control. Now, I'm going to get back to the main topic. You did a great job. I am sorry I cut it short. I was learning as you were going through as well. But have you had an opportunity to review our discussion draft bill? >> I have. >> can you give me any insight into areas that are good, bad, or ugly? >> so.
▶ 0:45:30>> I don't know if they use that rubric here but we will use it for the sake of argument. >> I agree congress needs to act on reputation risk. Some amount of discretion is really important in banking. >> what our problems? Let's cover any problems or concerns you have with the bill. >> well, I guess I think how to respond to state fair banking access rules is a hard question.
▶ 0:45:59I think it is not ideal to have 50 different states have 50 different fair access rules for banks because that makes it very hard, especially for banks that operate across state borders. On the other hand, I think it is difficult to draft a law that recognizes that we are a nation of thousands of banks and credit unions in each of them have their own separate business models and business purposes.
▶ 0:46:29We cannot expect a bank that operates in rural wyoming to have the same diversity of customers as banks that operate in every city. Quickset is a good point. One of the things I have said, if you want to charter a bank to serve, you know, I am not going to list the topic, but lists an unseemly legal market and that is all you want to focus on, I have no problem at all with doing that.
▶ 0:46:59So we need to make sure that if it works as a business model, the problem I have had -- I have had a number of the bigger banks in my office and I have told them all the same thing. If you start acting like a politician, expects to be treated like one.
▶ 0:47:15So my concern is more activist shareholders and board members forcing a ceo to do something that he or she probably does not want to do and in some respects, I think that they are violating their fiduciary responsibility to their investors when they do it. He was going to talk about cannabis. You can weigh in on this 1, 2. What do you think about that?
▶ 0:47:44>> that is what we saw in the natural gas industry. >> what happens when the oil and gas industry has all of that uncertainty? What happens to investment and the underlying health and hygiene of the industry? >> we saw many years of underinvestment in oil and natural gas and now we are bearing that with all the need for energy with data centers, ai and suddenly, we need all this new energy and you know.
▶ 0:48:11>> it has a perverse consequence of putting us further away from an energy transition which is going to happen at some point but we are not making investments in modernization because we cannot even figure out if we can get along. >> right. It has serious implications for the infrastructure for ai now and we are scrambling to catch up as a country. >> I am going to ask a follow-up question so I will go to center court is. >> thank you, Mr. chairman.
▶ 0:48:37I had mentioned that currently, there's a proposal to reschedule cannabis, right? And -- to a schedule three from a schedule one. Can you expand on why we still need, even if that happens, why do we still need to enact specific cannabis banking legislation?
▶ 0:49:01>> so you know, the protection for banks and the legality for banks is not tied to the scheduling. So there is indication from the administration that they may be looking towards directing agencies to move cannabis from schedule one to schedule three.
▶ 0:49:23That impact on state markets does not impact the state's legality of the market in the way that they operate and sell products. They are still illegal, not fda approved products so that does not do anything for the risk with banks and current financial guidance from 2014 would be the same type of guidance so it was still be illegal commerce at the state level, whether it was a
▶ 0:49:55Schedule one drug or a schedule three drug. >> I appreciate the chairman's comments with respect to the market as a whole and I noticed you might want to respond to some of it. Let me ask you this. Just like the patchwork of state laws that you just addressed, technically, when it comes to cannabis, each state right now, because of -- because the federal legislation is making it illegal, each state has its own regulations.
▶ 0:50:21How would you address some of the concerns the chairman talked about with guy means and the regulation of some of the flavoring? Is each state different? Is there a standard which should be looking at? Can you talk a little bit about that? Quite sure. Yes. We have a patchwork of regulations. Each state takes a different approach and I think overall, that is recognizing a lack of standardization among this industry over 40 states.
▶ 0:50:49There are groups, you know, the cannabis regulator's association, which I helped found. They do in the great work on trying to standardize that at the state level but each state legislature has its own opinion on how they want their programs to run so we are left with that patchwork. Chairman, I agree with you.
▶ 0:51:10The ultimate goal here is to create a global regulatory framework that inserts federal agencies like the fda to do research and to help set those standards. My fear is that that is going to take quite a bit of time.
▶ 0:51:25May be a move to schedule three is momentum and that would be positive but I worry about what happens not only to the small and medium-size businesses in the cannabis industry but you know, what happens to bad actors that have found a place in this industry while we wait for that but I certainly appreciate that and I agree with you.
▶ 0:51:44>> and then would you address the cash intensive nature question at that is still a concern and that is what this safer banking act is really trying to get at, this one small piece of it and the concerns about public safety when it comes to cash intensive businesses like cannabis businesses. >> absolutely. As a former regulator, our job was to protect public health and safety. That was our job and we did that through transparency in our operators and in our industry for initiatives.
▶ 0:52:15Most state regulatory bodies have a great understanding of the operations of cannabis businesses. We do that through seed to sale tracking which is a requirement. Most regulatory bodies have a really good understanding of ownership structures. There are pretty strict ownership requirements to try to look out for. What we don't have the most insight into is the financials, especially when we are moving large scale cash-based transactions back and forth.
▶ 0:52:46So what this safer banking act would do is bring financial institutions, given that protection and safe harbor and bring them into the fold on a more comprehensive basis because financial institutions are the ones that should be looking for -- looking out for this. They are the professionals at tracking money, sending those reports for anti-money laundering.
▶ 0:53:08That in combination with the work state regulators have done on operations and ownership, that is really how we get insight into the operators and make sure we are protecting the public safety aspect of this. >> thinking. I appreciate your comments sarah kramer? >> thank you, Mr. chairman.
▶ 0:53:35We should do more subcommittee hearings because I like this rather intimate opportunity and I am hoping for a couple of rounds like you because frankly, everything I was prepared to ask you all is secondary to everything you inspired in me. A few things. First of all, has your paper been published yet? >> not yet. Still working on it. >> I read the interview and it looks fascinating.
▶ 0:53:59One of the things I like to do right up front is you know the occ published its preliminary findings on debanking and it is a very short document. We are waiting for the full one to be done. But if it is ok, I would like to submit for the record without objection. Thank you very much for that. Looking forward to that. So where to begin?
▶ 0:54:21You know, I might just start where we ended up on the cannabis thing, particularly in light of what you had said. Our recent experience in the senate dealing with the appropriations bill that dealt with a simple hemp issue in one state was a good example of what happens if you do not take a thorough look at the whole industry. Now, that said, I am with you on fair access.
▶ 0:54:53We have to be careful. We just have to acknowledge the reality, right? So we are not supposed to do a lot. Interstate commerce is one of the things the founders thought we should have something to say about it. I wanted to say that upfront.
▶ 0:55:08But your point about the way I summarize this is as bad as bed regulation is, bad regulators are worse and as bad as bad regulators are, uncertainty is even harder. The reality is that reputation comes from rumors and rumors of rumors as much as it does from bad regulation.
▶ 0:55:34If we don't put some guardrails on the debanking side, we lead decisions up to a variety of political views and otherwise both in the industry and with the regulators. Am I on track here? >> in 2019, I did a study on just reputation risks. I look at the way they use reputation risk. Almost always, it's ancillary.
▶ 0:56:04They find a bank engaged in money laundering and they should not have engaged in money laundering because it is illegal and it causes reputation risk or they find a bank that opened unauthorized accounts and they say you should not open unauthorized accounts because it is illegal and it causes reputation risk. In those instances, reputation risk is not really doing anything. We one hundred percent agree it exists but regulators don't need that tool to stop that in the goal behavior or risky behavior.
▶ 0:56:36Reputation risk becomes troublesome when it acts all on its own so when it is just reputation risk, when you cannot point to a violation of the law or increased financial risk, that is when regulators can use it just to punish people for political reasons and in that case, it is not doing anything to make the financial industry safer. It is just politicizing the regulators and that is what is wrong. >> are going to ask an opinion question here that was not in my notes either but it occurred to me.
▶ 0:57:09There are a lot of people who think, and I think you are alluding to the fact that regulators have given mixed signals because of the lack of guardrails. Some people would submit to you that the regulators are sort of a useful excuse for bankers to do what they want anyway.
▶ 0:57:29I might ask maybe each of you if you think there is some truth to that because we are seeing bankers, especially large banks, who said we are never going to do that and then there is a change in the administration and they say we did not really say that and of course, they wait later and go with political whims. Do you think it is the banks as much as regulators?
▶ 0:57:50>> I think it is very hard to know and that points to another problem which is the secrecy surrounding financial supervision makes it very easy for both the regulators and the banks to point at the other and cast blame and we never really know who is telling the truth. >> go for a second.
▶ 0:58:14>> I would like to think I have established a reputation of trying to see both sides of the issue here in my time in the senate. Obviously, republicans are going to talk about the chokepoint. It was to me despicable so I want you to start thinking about an example and I want to ask another question but I want to give you time to think about any example where you think in a republican administration, there was an overreach if you can find any in the same vein, maybe not at the scale and chokepoint but
▶ 0:58:44While you are trying to think about that, I think that a select group of members of congress need to be able to have access to confidential supervisory information. I think the mere fact that we would have that ability would have a calming influence on over examination or over supervision. Do you agree with that? >> yes. I think -- congress ought to have some oversight.
▶ 0:59:08Of course, I would like it to be a little broader so people who research can have access to financial information. >> baby steps. Correct yes. >> the fact that it is extraordinary that I as a U.S.
▶ 0:59:22Senator would just like to see the confidential -- we get to see top secret, classified briefings anytime we want to down at the skip on matters of national security but I cannot necessarily see if I suspect a supervisor is over supervising, I cannot get access to that information as a member of the banking committee. It seems a bit silly even if we lift it up to the chair and ranking member, someone has to have access and it sounds like you agree with that. >> yes.
▶ 0:59:51I don't know that I have a strong opinion on that. I do feel that a lot of the reputation risk was generated by activist shareholders so I do have some sympathy for some of the financial institutions because they were getting a lot of pressure as well. You know, it was just that political theory that we were going away.
▶ 1:00:13>> even when you get out of that issue, if you take a look at silicon valley bank, they are fairly rare, I would like to see some of the supervisory notes on that to weave together exactly how that happened. It was obviously a failure by the management that there is also a little bit of a suspicion on my mind about the examiners not doing their job and forcing the issue. So I gave you a few minutes.
▶ 1:00:40Could you think of any example of where a republican administration or congress may have overreached a little bit? Over the last citation in my written testimony book is to a news article where the author is making the argument that the current trump administration is doing the same thing to antifa. >> very good point. Thank you. Senator cornyn has? What's one quick question. Thank you. First of all, I think this is a great hearing as well.
▶ 1:01:12I am always trying to find a balance. Is there any scenario where you think reputational risk should be utilized by the regulator or by the financial institution? >> I think it is fine for the financial institution to think about it.
▶ 1:01:26There are better positioned -- they are better positioned to understand what their customers, shareholders, employees are going to think about the actions that they take, but government regulators understand what the customers of specific banks want to especially if they are small banks operating in small markets.
▶ 1:01:51>> how do you bridge that gap between if a financial institution has an opportunity to decide reputational risk and say this is too risky, we are not going two with you? If the regulator does not have access to the information or understand what is going on there, how do you bridge the gap between the regulator and financial institution making that decision? >> so I think a financial institution can make decisions about reputation risk and I think that the government supervisor should not weigh in on that. Right?
▶ 1:02:23I think the government supervisors are best when they are focusing on credit risk and interest rate risk primarily. >> let's say we go back with miss gema -- is it llama? What if -- I almost feel like I am an appellate court judge. Let me ask you this.
▶ 1:02:45What if you have a financial institution that because of shareholder activity says they are going to use reputational risk to the chagrin of oil and gas? Should a regulator to that were not weigh in to say you can't do that, it's not appropriate? You think the regulator should not be involved at all in that determination of reputational risk?
▶ 1:03:08>> I think banks have to take a close look at how much they want to pander to shareholder activists but I guess, yes, I am more of a free-market person who would tell the regulators to let the bank make the decision themselves. >> no matter if it harms an industry? Because the politics is getting involved, the regulator should not be engaged in that at all? >> yes, that is what I think.
▶ 1:03:33Part of the reason I think that is is because I would think differently about it if our banking system looked like canada's were united kingdom's or europe's where we had a handful of large players. I think it is harder in the united states to say we are going to have captured by a few activist investors and we have thousands of financial institutions.
▶ 1:03:56Once we get through the really large banks, essentially, they have market power in various areas, it is to be a harder question but right now, I think I would leave hands off the regulators. >> thank. >> well, along those lines, so the center talked about his bill, fair access to banking, which is similar. He's a cosponsor as well.
▶ 1:04:23But the threshold is 10 billion instead of 100 billion and I think there are a lot of industries that bank more at that level than the high level. I just think that we -- penalize is a hard word but you have to have a penalty if you will for denying services for anything other than empirical data to establish impartial risk because we don't, then you are just
▶ 1:04:53Subjecting to political whims. So maybe from your perspective, would a penalty or enforcement mechanism help hold those banks accountable? I thought your discussion about this explosion of demand for power after all this and the lack of investment in reliable energy is kind of an interesting circumstance I could have been
▶ 1:05:24Avoided. Maybe I will go this way on that question. Would an enforcement mechanism help hold banks accountable and provide for better guidance? >> senator, I appreciate the question. This is not my area of expertise.
▶ 1:05:43>> I somewhat agree with the market access -- the free market argument and in some ways, we are seeing the pressure come off because of those free-market reasons as well. I forget the names of the two organizations that spawn all these shareholder activism -- and a president trump has taken action on it. Perhaps that is a better way to go about taking off some of that shareholder activism.
▶ 1:06:16Some of the publicity, the states did an excellent job. Texas, west virginia, oklahoma, in raising awareness by saying, hey, if you debanked coal, oil, natural gas, we are not going to do business with you and I think that was really pivotal so there are other ways may be to tackle it as well. Cracked and might be harder in places like wyoming and north dakota and south dakota, however, if we don't have that kind of market power. Let me put it another way.
▶ 1:06:50Does prohibiting debanking imply a mandate to banks? I think you're more libertarian point is accurate although I would also say banks are awfully subject to federal oversight and in many cases, federal support, but prohibiting debanking, does it have to imply you are required to bank? Which I think it should not be the case?
▶ 1:07:17Does that make sense? Does each of you want to try? >> it does make sense. It is a fine line at some point. To me, the biggest issue over the last five years from my industry has been making sure the regulators cannot, you know, use all these levers. To me, that is the really important part. >> similar?
▶ 1:07:43>> so it is certainly true that banks benefit from government supervision and government insurance which they pay for, right? So at least in theory, you should be pressing that into your bank's model, but the truth of the matter is there are customers which is just -- which it is just difficult to profitably bank.
▶ 1:08:10That can be people who overdraw their account or bad credit risks or it can be marijuana businesses. The compliance burden is so high that when you price that into the cost of the account, it becomes prohibitive and so, you know, I think that there is something of a line between debanking and being forced to bank but you have got to be careful about it because it will be difficult, very difficult, for banks to bank some
▶ 1:08:41Customers. >> I'm glad we clarified that. Great discussion. Thank you. >> I would like to thank everyone for being here, Mr. chairman, for the hearing today. I would like to submit three letters of support for the safer banking act, for the record. From the independent community, bankers of america, the american bankers association, and the U.S. cannabis roundtable that all support the safer act. Thank you.
▶ 1:09:07>> I want to be clear on the debanking phenomenon that bothers me is when somebody from big government tells you you have to do debanked and industry. I think in my opening questions, if you can build a bank with a market focused on people who own purple horses, great.
▶ 1:09:31If you can return value to your founding members, a small bank, and to your shareholders, I don't believe that government should exist to determine that but we have seen in red states and blue states what I think our debanking activities driven purely from an ideological perspective and I think that is a mistake and really underpins what we are trying to do with the access to banking act.
▶ 1:10:00Sarah kramer, I am glad you were here today. I created a debate club content in my committee hearings and I am glad that you indulged us. I want to thank all of my colleagues for being here and to the witnesses for sharing your expertise. The trump administration I believe has taken meaningful action to curtail debanking across the regulators.
▶ 1:10:21I strongly support these efforts yet it remains critical that congress addresses both financial institution initiated and regular initiated debanking so the future administrations cannot engage in the same malpractice. So thank you all -- to offer providing help and insight thus far. I appreciate your feedback on ensuring fair access to banking act of 2025 discretion draft. This concludes the hearing.
▶ 1:10:51For senators who wish to submit questions for the record, please do so. For the witnesses, you have 45 days to respond and we would appreciate your response. Thank you all. This hearing is adjourned. [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. Visit ncicap.org]