[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
H.R. 1375--THE FINANCIAL SERVICES
REGULATORY RELIEF ACT OF 2003
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
FINANCIAL INSTITUTIONS AND CONSUMER CREDIT
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
MARCH 27, 2003
__________
Printed for the use of the Committee on Financial Services
Serial No. 108-15
89-080 U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov Phone: toll free (866) 512-1800; (202) 512�091800
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa BARNEY FRANK, Massachusetts
DOUG BEREUTER, Nebraska PAUL E. KANJORSKI, Pennsylvania
RICHARD H. BAKER, Louisiana MAXINE WATERS, California
SPENCER BACHUS, Alabama CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice JULIA CARSON, Indiana
Chairman BRAD SHERMAN, California
RON PAUL, Texas GREGORY W. MEEKS, New York
PAUL E. GILLMOR, Ohio BARBARA LEE, California
JIM RYUN, Kansas JAY INSLEE, Washington
STEVEN C. LaTOURETTE, Ohio DENNIS MOORE, Kansas
DONALD A. MANZULLO, Illinois CHARLES A. GONZALEZ, Texas
WALTER B. JONES, Jr., North MICHAEL E. CAPUANO, Massachusetts
Carolina HAROLD E. FORD, Jr., Tennessee
DOUG OSE, California RUBEN HINOJOSA, Texas
JUDY BIGGERT, Illinois KEN LUCAS, Kentucky
MARK GREEN, Wisconsin JOSEPH CROWLEY, New York
PATRICK J. TOOMEY, Pennsylvania WM. LACY CLAY, Missouri
CHRISTOPHER SHAYS, Connecticut STEVE ISRAEL, New York
JOHN B. SHADEGG, Arizona MIKE ROSS, Arkansas
VITO FOSELLA, New York CAROLYN McCARTHY, New York
GARY G. MILLER, California JOE BACA, California
MELISSA A. HART, Pennsylvania JIM MATHESON, Utah
SHELLEY MOORE CAPITO, West Virginia STEPHEN F. LYNCH, Massachusetts
PATRICK J. TIBERI, Ohio BRAD MILLER, North Carolina
MARK R. KENNEDY, Minnesota RAHM EMANUEL, Illinois
TOM FEENEY, Florida DAVID SCOTT, Georgia
JEB HENSARLING, Texas ARTUR DAVIS, Alabama
SCOTT GARRETT, New Jersey
TIM MURPHY, Pennsylvania BERNARD SANDERS, Vermont
GINNY BROWN-WAITE, Florida
J. GRESHAM BARRETT, South Carolina
KATHERINE HARRIS, Florida
RICK RENZI, Arizona
Robert U. Foster, III, Staff Director
Subcommittee on Financial Institutions and Consumer Credit
SPENCER BACHUS, Alabama, Chairman
STEVEN C. LaTOURETTE, Ohio, BERNARD SANDERS, Vermont
Vice Chairman CAROLYN B. MALONEY, New York
DOUG BEREUTER, Nebraska MELVIN L. WATT, North Carolina
RICHARD H. BAKER, Louisiana GARY L. ACKERMAN, New York
MICHAEL N. CASTLE, Delaware BRAD SHERMAN, California
EDWARD R. ROYCE, California GREGORY W. MEEKS, New York
FRANK D. LUCAS, Oklahoma LUIS V. GUTIERREZ, Illinois
SUE W. KELLY, New York DENNIS MOORE, Kansas
PAUL E. GILLMOR, Ohio CHARLES A. GONZALEZ, Texas
JIM RYUN, Kansas PAUL E. KANJORSKI, Pennsylvania
WALTER B. JONES, Jr., North MAXINE WATERS, California
Carolina NYDIA M. VELAZQUEZ, New York
JUDY BIGGERT, Illinois DARLENE HOOLEY, Oregon
PATRICK J. TOOMEY, Pennsylvania JULIA CARSON, Indiana
VITO FOSSELLA, New York HAROLD E. FORD, Jr., Tennessee
MELISSA A. HART, Pennsylvania RUBEN HINOJOSA, Texas
SHELLEY MOORE CAPITO, West Virginia KEN LUCAS, Kentucky
PATRICK J. TIBERI, Ohio JOSEPH CROWLEY, New York
MARK R. KENNEDY, Minnesota STEVE ISRAEL, New York
TOM FEENEY, Florida MIKE ROSS, Arkansas
JEB HENSARLING, Texas CAROLYN McCARTHY, New York
SCOTT GARRETT, New Jersey ARTUR DAVIS, Alabama
TIM MURPHY, Pennsylvania
GINNY BROWN-WAITE, Florida
J. GRESHAM BARRETT, South Carolina
RICK RENZI, Arizona
C O N T E N T S
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Page
Hearing held on:
March 27, 2003............................................... 1
Appendix:
March 27, 2003............................................... 41
WITNESSES
Thursday, March 27, 2003
Buck, Carolyn, Chief Counsel, Office of Thrift Supervision....... 14
Dollar, Hon. Dennis, Chairman, National Credit Union
Administration................................................. 7
Gee, Gavin M., Director of Finance, Idaho Department of Finance,
on behalf of the Conference of State Bank Supervisors.......... 16
Kroener, William F. III, General Counsel, Federal Deposit
Insurance Corporation.......................................... 12
Lattimore, Jerrie J., Administrator, Credit Union Division, State
of North Carolina, on behalf of the National Association of
State Credit Union Supervisors................................. 17
Olson, Hon. Mark, Member, Board of Governors of the Federal
Reserve System................................................. 6
Williams, Julie L., First Senior Deputy Comptroller and Chief
Counsel, Office of the Comptroller of the Currency............. 10
APPENDIX
Prepared statements:
Bachus, Hon. Spencer......................................... 42
Gillmor, Hon. Paul E......................................... 43
Hinojosa, Hon. Ruben......................................... 44
Royce, Hon. Edward R......................................... 45
Sanders, Hon. Bernard........................................ 47
Buck, Carolyn................................................ 49
Dollar, Hon. Dennis.......................................... 62
Gee, Gavin................................................... 69
Kroener, William F. III...................................... 84
Lattimore, Jerrie J.......................................... 114
Olson, Hon. Mark W........................................... 124
Williams, Julie L............................................ 134
Additional Material Submitted for the Record
Buck, Carolyn:
Written response to questions from Hon. Ruben Hinojosa....... 161
Kroener, William F. III:
Written response to questions from Hon. Ruben Hinojosa....... 163
Lattimore, Jerrie J.:
Written response to questions from Hon. Ruben Hinojosa....... 166
Olson, Hon. Mark W.:
Written response to questions from Hon. Ruben Hinojosa....... 168
Williams, Julie L.:
Written response to questions from Hon. Ruben Hinojosa....... 172
America's Community Bankers, prepared statement.................. 176
National Association of Federal Credit Unions, prepared statement 204
H.R. 1375--THE FINANCIAL SERVICES
REGULATORY RELIEF ACT OF 2003
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Thursday, March 27, 2003
U.S. House of Representatives,
Subcommittee on Financial Institutions
and Consumer Credit,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to call, at 10:10 a.m., in
Room 2128, Rayburn House Office Building, Hon. Spencer Bachus
[chairman of the subcommittee] presiding.
Present: Representatives Bachus, Bereuter, Baker, Royce,
Gillmor, Biggert, Capito, Tiberi, Hensarling, Brown-Waite,
Barrett, Oxley (ex-officio), Sanders, Maloney, Watt, Sherman,
Moore, Waters, Hooley, Lucas of Kentucky, and Ross.
Chairman Bachus. [Presiding.] Good morning. This is the
Subcommittee on Financial Institutions and Consumer Credit. The
subcommittee meets today for a legislative hearing on H.R.
1375, the Financial Services Regulatory Relief Act of 2003.
That legislation was introduced by our colleagues on the
subcommittee, Ms. Capito, of West Virginia and Mr. Ross of
Arkansas. It is similar to the regulatory relief package, H.R.
3951, that was approved last year by the subcommittee and by
the full committee after two hearings before our subcommittee.
That legislation was largely a product of recommendations that
the committee received from federal and state financial
regulators in response to a request for regulatory relief
recommendations from Chairman Mike Oxley.
Earlier this year the Chairman again requested that the
financial regulators recommend regulatory relief proposals.
And, H.R. 1375 is essentially last year's legislation with the
addition of various, what we think are uncontroversial
provisions recommended by regulators. The banking industry
estimates that it spends somewhere in the neighborhood of $25
billion annually to comply with regulatory requirements imposed
at both the federal and state level. A large portion of that
regulatory burden is justified by the need to ensure safety and
soundness of our banking institutions to enforce compliance
with various consumer protection statutes and combat money
laundering and other financial crimes.
However, not all regulatory mandates that emanate from
Washington or State capitols across the country are created
equal. Some are overly burdensome, unnecessarily costly or
duplicate other legal requirements. Where examples of such
regulatory overkill can be identified, Congress should act to
eliminate them. The bill that Congresswoman Capito and
Congressman Ross have introduced, and which, I, Chairman Oxley
and several other members of this body are co-sponsors,
contains a broad range of constructive provisions that, taken
as a whole, will allow banks and other depository institutions
to devote more resources to the business of lending to
consumers and less to the bureaucratic maze of compliance of
outdated and unnecessary regulations.
Reducing the regulatory burden on financial institutions
lowers the cost of credit and will help our economy as it
strives to emerge from recession.
In closing, let me once again commend Ms. Capito and Mr.
Ross for this important legislative initiative, as well as the
full committee chairman, Mr. Oxley, who is an original co-
sponsor of the legislation. I also commend the ranking member,
Mr. Sanders, for the cooperation that his staff and the
democratic staff has put forth in composing this bill.
Chairman Oxley's demonstrated a strong commitment to
getting regulatory relief legislation enacted this year. The
Leadership has endorsed his efforts. And, finally, I want to
thank the federal banking agencies represented on our first
panel for their important input and technical assistance in the
drafting in process.
With that, I am pleased to recognize, the ranking member,
Mr. Sanders, for an opening statement.
Mr. Sanders. Thank you, Mr. Chairman. And thank you for
holding this hearing. Let me begin by apologizing and saying I
am going to be running back and forth between this hearing and
another hearing on a committee that I am in. So, I will be
drifting back and forth.
Among other things, the Financial Services Regulatory
Relief Act would make it easier for some of the largest banks
and other financial institutions in this country to merge.
Specifically, the bill would reduce the federal review process
for bank mergers from 30 days to a mere five days. The bill
would allow the Office of the Comptroller of the Currency to
waive notice requirements for national bank mergers located
within the same State. The bill would end the prohibition of
out of state banks merging with in-state banks that have been
in existence for less than five years.
The bill also gives federal thrifts the ability to merge
with one or more of their non-thrift affiliates. Finally, the
bill would eliminate certain reporting requirements for bank
CEO's in regards to inside lending activities.
Mr. Chairman, I have serious concerns regarding these
provisions in the bill. During the past 22 years the banking
industry has experienced unprecedented merger activity. From
1980 to 2002 there were over 9,500 banking mergers with total
acquired assets of more than $2.4 trillion. During the 1990s
many of these mergers involved large banks. Some of the
proposed mergers had the potential for serious anti-competitive
effects in local markets.
Yet, during this period, hardly any mergers were denied
based on competitive grounds. Huge anti-competitive situations,
but none of these mergers, very few of them were denied. As a
result of merger mania there has been a substantial decline in
the number of commercial banking organizations in the United
States. We have gone from 12,741 commercial banks in 1989 to
7,903 in 2002. In 1998 several of the largest bank mergers in
history took place. For example Nations Bank merged with Bank
of America resulting in the third largest banking organization
with approximately 580 billion in assets.
In addition, Norwest merged with Wells Fargo and Bank One
merged with First Chicago. Finally, Travelers Group and
Citicorp has merged and formed the largest banking organization
in the United States. The 25 largest banks in this country now
account for more than half of all of the total deposits in the
United States. It is my understanding that the Federal Reserve
Board and the Office of the Comptroller of the Currency have
published descriptive material on fewer and fewer of these
merger decisions. And I think that that is, in itself a serious
problem.
I am very concerned that as a result of these mergers an
increasing number of banks are considered too big to sale, too
big to sale. In other words, these banks are now so big that if
they should get into trouble it will be the American taxpayer
who will have to bail them out because the argument will be
made that the consequences of those failures are so great for
our economy that the taxpayers of this country must bail them
out.
I would like to hear discussion today from some of our
witnesses as to how many banks they consider too big to fail.
What are the dangers for the taxpayers of this country in terms
of reliving the S&L crisis, which cost us so many billions of
dollars?
Mr. Chairman, has merger mania led to reduction in bank
fees for the American consumers? We are talking about fewer and
fewer and larger and larger banks that obviously the assumption
is the average person benefits. I guess fees must have been
reduced. Low-income people, working people, must be better off.
Unfortunately, the evidence seems to indicate that mergers have
not worked for the benefit of ordinary people. In fact, the
American consumers today are facing a real crisis in banking
services. More than 12 million American families cannot afford
bank accounts and those who can afford them are paying too
much, especially if they bank at big banks.
Since bank deregulation began in the early 1980s consumer
groups, such as U.S. PIRG have documented skyrocketing consumer
banking fees. Bank fees are rising dramatically. Big banks are
getting bigger and bank fees are going up. And I think the
American people want a hard look at that. The average annual
cost to a consumer of maintaining a regular checking account
rose to more than $200 over the past few years, an increase of
$17 compared to 1997. Consumers who bank at big banks paid more
than $220 a year for the privilege of maintaining a regular
checking account, that is a lot of money for a regular checking
account.
Furthermore, what needs to be looked at what are the
implications of these mergers for workers, the people who work
at banks? Are we creating more jobs or are we creating fewer
jobs? What happens when the workers in one bank have a defined
benefit pension plan and they merger with another bank that has
a cash balance pension plan and when these two banks merge, do
the workers who had the better pension lose out? There is
evidence that that may be the case.
So, Mr. Chairman, I want to thank you for holding this
important hearing. And I will be skipping in and out and
apologize for that. But, there are some important questions
that I think need to be answered by our witnesses and I thank
you, again, for holding this hearing.
Chairman Bachus. Thank you, Mr. Sanders for pointing out
those issues.
I want to first apologize to our State banking regulators
and credit union regulators. Mr. Gee and Ms. Lattimore are here
representing State regulators. So, when I commended our Federal
regulators for being here, I did not mean to leave the two of
you out, but obviously I did and I apologize for that. Our
state regulatory bodies are very important to us. So, please
accept my apologies.
At this time I am going to recognize the chairman of the
full committee for remarks. And, then, the ranking member, Mr.
Frank, is not here, if he arrives. And then the two sponsors of
the legislation for their opening remarks.
So, at this time I am going to go to Chairman Oxley.
Mr. Oxley. Thank you, Mr. Chairman. And I appreciate you
holding the hearing today on this important subject of
regulatory relief. Two years ago I asked the financial
regulators to recommend current statutes that could be altered
or eliminated to lighten the regulatory burden on insured
depository institutions, as well as much needed technical
corrections. Part of our role in this committee is to
periodically review and, if necessary, change banking statutes
that have outlived their usefulness. It was also my intention
to counter-balance the added regulatory responsibility given to
the financial services industry in the Patriot Act, which had
gone through our committee in the last Congress.
In response, the regulators, as well as the industry,
submitted a number of wide-ranging proposals affecting banks,
savings associations and credit unions resulting in H.R. 3951,
which was introduced last year by Representative Capito and
approved by this subcommittee and the full committee. I am
pleased that Ms. Capito recently introduced H.R. 1375, the
Financial Services Regulatory Relief Act of 2003. H.R. 1375 is
essentially last year's bill with a few revisions and about a
dozen new items requested by regulators to achieve the
balancing act necessary for this bill. Not only does
Representative Capito deserve a great deal of credit, but so do
the regulators who have come to the table to identify the
provisions included in this bill and are testifying today.
And, let me say that we are particularly appreciative of
the regulatory agencies' suggestions. It is pretty easy to go
to the regulated community and ask for horror stories and ask
them about regulations that they feel are unfair or burdensome.
It is quite another for the regulators to step up and identify
those regulations and, indeed, some statutes that have outlived
their usefulness as a result of changes in technology and
changes in the market place. The financial services industry
spends a lot of money complying with outdated and ineffective
regulations. That is money that could instead be lent to
consumers and businesses for new homes, cars and projects that
fuel growth in the local community.
Financial institutions play an important role in preventing
money laundering and protecting against terrorist financing.
They should not be burdened by unnecessary regulatory
requirements.
So, I look forward, Mr. Chairman, to working with you and
Ms. Capito and Representative Ross, who have joined me as
original co-sponsors as we begin hearings on this important
legislation. I am pleased to yield back.
Chairman Bachus. Thank you.
At this time Ms. Capito?
Mrs. Capito. Thank you, Mr. Chairman. I appreciate you
holding this hearing today and I want to thank our
distinguished witnesses for appearing before this subcommittee.
I want to thank Chairman Oxley and my colleague from Arkansas,
Mike Ross, for working with me on this legislation.
As was the case last year, the intent of this bill is to
eliminate outdated laws, update those requirements that have
not kept pace with technology and streamline several reporting
requirements to eliminate unnecessary redundancies. This type
of regulatory review is especially important, given the
significant changes that the Gramm-Leach-Bliley Act and the
Patriot Act brought to the financial services industry.
H.R. 1735 is essentially the same legislation the committee
considered last year, incorporating most of the changes made
during the subcommittee and full committee markup. Regrettably,
we were unable to consider this on the floor in the 107th
Congress, but since that time we have received additional
feedback from the various regulators, and, as a result, have
added several new sections to the bill, many of which I hope
will be discussed during this hearing.
Many of the provisions in this legislation are very
technical in nature. And I will encourage my colleagues to take
full advantage of the experts before us this morning.
Mr. Chairman, while federal regulation plays an important
role in protecting consumers, instilling confidence and
ensuring a level playing field, over regulation can depress
innovation, stifle competition and actually inhibit our
economy's ability to grow.
I look forward to working with my colleagues and the
chairman in reviewing the changes outlined in this legislation
with the goal of creating common sense regulatory relief bill
that will help the financial services community thrive, compete
and offer the best services for its consumers.
I thank the Chair.
Chairman Bachus. Thank you.
At this time I am going to recognize Mr. Ross for an
opening statement. And are there other members on our side that
wish to make an opening statement? So, if not, we will have Mr.
Ross's opening statement and then we will hear from the panel.
Mr. Ross. Well, good morning, Chairman Bachus and Ranking
Members Sanders and members of the committee and I think by the
time it gets to me just about everything that can be said has
probably been said. But, I want to thank you, Mr. Chairman for
this hearing today on H.R. 1375 to discuss ways that Congress
can provide the regulators with the assistance needed to
streamline the operations and hopefully improve productivity.
I can say a lot of things about this bill that I am proud
to co-sponsor, but the bottom line is its common sense
legislation that is badly needed. And I look forward to the
testimony of the witnesses and working with my colleagues on
this important piece of legislation.
Thank you, Mr. Chairman.
Chairman Bachus. Thank you.
At this time, if no other members have an opening
statement, let me introduce the panel. And I am going to go
from my left to right. We have the Honorable Mark Olson, who is
a member of the Board of Governors of the Federal Reserve
System here in Washington. Welcome. We have the Honorable
Dennis Dollar, Chairman, National Credit Union Administration.
We have Ms. Julie L. Williams who is the First Senior Deputy,
Comptroller and Chief Counsel for the Office of Comptroller of
the Currency. We have Mr. William Kroener, General Counsel of
the Federal Deposit Insurance Corporation. And, I drop the
third from my name sometimes, so I am doing this to you this
morning.
Ms. Carolyn Buck, Chief Counsel, Office of Thrift
Supervision; Mr. Gavin Gee, Director of Finance, Idaho
Department of Finance, on behalf of the Conference of State
Banking Supervisors; and Ms. Jerrie J. Lattimore, who is the
Administrator of the Credit Union Division, State of North
Carolina, on behalf of the National Association of State Credit
Union Supervisors.
So, we welcome all of you all. We will start our opening
statements. You have probably been told to limit it to the five
minutes. But, we do allow people to run over a minute or two.
And we will do that this morning. But, it is not encouraging
you to go more than five minutes, but you do have that
opportunity.
Governor Olson, we will start with you.
STATEMENT OF MARK OLSON, MEMBER, BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
Mr. Olson. Thank you very much, Mr. Chairman, and thank you
for holding this hearing. And, thanks also, to the chairman of
the full committee for his asking us, as you pointed out in
your opening remarks, to submit suggestions to you for
inclusion in this legislation.
We have submitted a statement for the record. I would just
like to highlight a few of the items that we have included and
then we will be able to respond to questions in greater detail
if there are any from the members. One of the suggestions that
we have included concerns interstate branching. In the Riegle-
Neal legislation interstate branching was allowed for the first
time, but it was allowed on an opt-in basis by the State.
17 States have adopted the opt-in and 33 have not. And, as
a result of that, it particularly impacts, we believe, the
smaller banks whose natural markets are along State borders.
Whereas, a large bank organization could branch into a state
through an acquisition, a smaller bank would find that to be
expensive and cumbersome. And we think that this will encourage
branches in those markets, many of which are now somewhat
underserved.
We would also point out, however, that if the committee
chooses to include this recommendation, that it would not
include the ILC's, the industrial loan companies that operate
outside of the construct of the Gramm-Leach-Bliley provisions
that were so carefully put together by the Congress in 1999.
A second issue that is important is allowing insured banks
to engage in interstate mergers with thrifts. Right now banks
are allowed to merge interstate with other banks, but not with
thrifts or with uninsured trust companies. So, those
acquisitions now do take place, but they only take place after
the thrift goes through a conversion to a bank charter. And it
is an unnecessary, expensive and time-consuming step.
The third provision that we have interest in involves the
merchant banking provisions under the Gramm-Leach-Bliley Act.
There are certain cross marketing opportunities that are
allowed in a very narrow sense for merchant banking, companies
that are held in the merchant banking portfolio by insurance
entities that are part of the financial holding company, but
are not allowed at the moment for banks that have ownership of
a corporation in its merchant banking portfolio. These are very
limited cross marketing opportunities, and we are suggesting
that the banks ought to have the same opportunities as the
thrifts.
Also, we do not believe that the cross marketing provision
should be included where the banks portion consists of less
than a controlling ownership in the merchant banking
investment.
A fourth provision that is of interest concerns the
attribution rule for stock that is owned under trust
provisions. In certain instances, where a company's stock is
owned under certain trust provisions for the benefit of the
employees or stockholders or members, those shares are included
in the attribution rule for purposes of determining whether or
not there is control.
We have found that there are a certain limited number of
cases, mostly involving the 401k's or IRA's where there are
self-directed investments; where the attribution rule in net
appropriation. We are asking for the opportunity to waive the
right, not to repeal the statute, but to waive the right in
certain instances where that is determined to be the case.
A final one that I would like to mention this morning is
the post-approval waiting period. That is now a 30-day period
by statute. It can be reduced to 15 days. We are suggesting
that it could be reduced again to a five-day waiting period.
Importantly, that would only be done after the U.S. Attorney
had reviewed the case and determined that there were no anti-
competitive issues involved.
We have some other provisions, Mr. Chairman, that I would
be happy to respond to questions, but I think those are the
ones that I would like to mention in my opening statement.
[The prepared statement of Hon. Mark Olson can be found on
page 124 in the appendix.]
Chairman Bachus. Thank you.
Chairman Dollar?
STATEMENT OF HON. DENNIS DOLLAR, CHAIRMAN, NATIONAL CREDIT
UNION ADMINISTRATION
Mr. Dollar. Well, thank you, Mr. Chairman. We appreciate so
much the opportunity to be here today on behalf of the National
Credit Union Administration. I think it would be very difficult
with our names for Ms. Buck and I not to be here to discuss
common sense legislation.
Chairman Oxley, we appreciate his leadership and
Representative Capito and Representative Ross for theirs as
well on this particular piece of legislation.
We continue to believe that this legislation will
positively impact our ability to provide a safe and sound
regulatory environment for America's credit unions in what is,
indeed, an ever-changing and dynamic financial marketplace. And
I would like to just briefly discuss the following
recommendations that are included in H.R. 1375 that address
regulatory relief and productivity improvement for federal
credit unions.
These proposals, as presented in the bill, are consistent
with the mission of credit unions and the principles of safety
and soundness. First is regarding check cashing, wire transfer
and other money transfer services. In order to reach the
unbanked, Mr. Chairman, Federal credit unions should be
authorized, we believe, to provide these services to anyone
eligible to become a member. This is particularly important to
the overwhelming majority of federal credit unions whose field
of a membership include individuals of limited income or means.
These individuals, in many instances, do not have mainstream
financial services available to them and are often forced to
pay excessive fees for check cashing, wire services, wire
transfers and the like. We are pleased to see that Section 307
of the bill does include this provision and we certainly
support that.
The one-size-fits all 12-year maturity limit on federal
credit union loans is also outdated and unnecessarily restricts
federal credit unions' lending authority. NCUA is pleased that
our recommendation regarding this has also been incorporated in
the bill in Section 304, and we support this.
The 1 percent aggregate investment limit for a credit union
in a CUSO or a credit union service organization, is a
statutory provision that is unrealistically low and forces many
credit unions to either bring services in-house, thus,
potentially increasing risk of the credit union and the
insurance fund or to turn to outside providers and run the risk
of losing control.
NCUA is very comfortable with the solution that has been
proposed by the legislation in Section 305, which increases
that CUSO investment limitation from 1 percent to 3 percent.
The Federal Credit Union Act also, we feel should be
amended and this legislation does do so to provide some
additional conservative investment authorities that have been
proven sound and safe by State chartered credit union and some
other financial institutions. With proper restrictions as
drafted in the legislation, as has been provided in Section
303, we can support the provisions that you have given to
expand credit union investment options in a safe, sound and
conservative manner.
The Federal Credit Union Membership Act also allows
voluntary mergers of healthy federal credit unions. There is no
logical reason, however, to require in connection with those
mergers, that groups of over 3,000, or any group for that
matter, be required to spin-off and form a separate credit
union. These groups are already included in a credit union in
accordance with statutory standards and that status is
unaffected by a merger. NCUA is pleased to see that Section 308
of the proposed legislation as drafted addresses these
concerns.
Another item that we are pleased to see included in this
year's bill, Section 313, is the provision to provide
regulatory relief from the requirement that credit unions
register with the Securities and Exchange Commission as broker
dealers when engaging in certain specified de minimus
securities activities. The requested parity relief is
consistent with that granted to thrifts in this legislation and
it would apply only to those activities otherwise authorized
for credit unions under applicable credit union chartering
statutes. It does not in any way increase the authorities of
credit union for such things, but it does allow them to
continue to do such things as third party brokerage
arrangements, sweep accounts and certain safekeeping and
custodial activities without requiring the cost and the burden
of registration.
We have also reviewed the other provisions that have been
added to the bill that were above and beyond the items that
were submitted by us as a regulator last year. All of those
provisions we have reviewed from a safety and soundness
perspective and have no safety and soundness concerns
whatsoever with those additions.
One last item I would like to address before I close, Mr.
Chairman, is regarding the issue of privately insured credit
unions and the Federal Home Loan Bank membership. Last year,
NCUA took no formal position on that section of the bill. And,
again, we take no official position on the public policy issue
involved in that section this year. However, we do find
ourselves uncomfortable with changes to Section 301 as it
appears in that section of the bill this year for the following
reasons:
Our concern stems from the language which has been added to
the original section, which makes it appear that oversight
responsibility for non-federally insured credit unions and
certain State regulated private share insurance companies rest
with NCUA. NCUA, Mr. Chairman, has no legal authority,
regulatory or supervisory jurisdiction over these non-federally
insured credit unions or commercial insurance companies, nor do
we seek it. In our view the language requiring private
insurance providers to submit copies of their annual audit
reports to NCUA should be considered for being removed to avoid
any potential consumer confusion and misunderstanding. In its
passage of the FDICCIA Act in 1991, Congress designated the
Federal Trade Commission as the agency responsible for
oversight of private deposit insurance companies and the
protection of consumers through appropriate disclosure
provisions. As the matter remains one of consumer awareness,
disclosure and notification, and not of federal credit union
regulation, NCUA feels strongly that the Federal Trade
Commission should retain this oversight authority. The
additional language, which could be interpreted to infer an
NCUA role that is neither appropriate, nor statutorily
authorized to provide oversight to either State chartered
privately insured credit unions or a private insurance company
regulated by an agency designated by State statute should, in
our opinion, be removed from Section 301.
It has been five years, Mr. Chairman, since Congress has
thoroughly addressed our statutes and the regulations that
emanate from them. The review and relief sought in this
proposed legislation is, indeed, both needed and timely. Our
goal at NCUA as we implement these regulatory relief provisions
and any others that Congress ultimately chooses to enact, will
be to take all actions with an eye towards removing unnecessary
regulatory burdens while maintaining, as is proven by the
historical strong performance of America's credit unions, our
first and foremost priority and commitment to both safety and
soundness and necessary regulation to protect the American
public. On behalf of the NCUA board, I am glad to be here today
to work with the committee, to work with the subcommittee as we
draft this important, and, I agree, again, common sense
legislation.
Thank you, Mr. Chairman.
[The prepared statement of Hon. Dennis Dollar can be found
on page 62 in the appendix.]
Chairman Bachus. Deputy Comptroller Williams?
STATEMENT OF JULIE L. WILLIAMS, FIRST SENIOR DEPUTY COMPTROLLER
AND CHIEF COUNSEL, OFFICE OF THE COMPTROLLER OF THE CURRENCY
Ms. Williams. Chairman Bachus and Members of the
Subcommittee, I appreciate this opportunity to appear before
you again to express the views of the Office of the Comptroller
of the Currency on H.R. 1375. Let me also thank Congresswoman
Capito again for sponsoring a bill that includes sensible and
appropriate regulatory burden relief for national banks and for
other financial institutions. Let me also note that we very
much appreciate the courtesies extended by Committee staff as
we and the other federal banking agencies have developed
proposals and discussed issues with the staff leading up to
today's hearing.
This morning I will highlight just a few of the provisions
in the bill that we believe are especially important. My
written testimony goes into additional detail and covers a
number of other provisions.
The bill contains several provisions that streamline and
modernize aspects of the corporate governance and interstate
operations of national banks. We strongly support these
measures. Although some may seem like relatively technical
points, as Congresswoman Capito pointed out in her opening
remarks, they can make a big difference in practice for banking
institutions.
For example, the bill modifies the so-called qualifying
shares requirement currently in the National Bank Act, which
has made it difficult for some national banks to obtain
favorable tax treatment as a Subchapter S corporation. The
qualifying shares provision currently requires every national
bank director to hold a minimum equity interest in his or her
national bank. Because of this requirement, however, some
national banks may end up with more shareholders than the law
permits for a corporation wishing to elect Sub-S status.
Community banks are most disadvantaged by this result.
The bill would solve this problem by authorizing the
Comptroller to permit the directors of banks seeking Sub-S
status to hold subordinated debt instead of equity securities.
Holding subordinated debt would not cause a director to be
counted as a shareholder for purposes of Subchapter S and would
address the problem that I described.
A second important provision that has been added to the
bill this year clarifies that the OCC may permit a national
bank to organize in business forms other than what is known as
a body corporate. This may sound arcane, but if a national bank
were able to organize as a limited liability national
association, for example, the bank may be able to take
advantage of the pass-through tax treatment that is available
to comparable limited liability entities under certain tax
laws. This would eliminate double taxation under which the same
earnings are taxed both at the corporate level as corporate
income and at the shareholder level as dividends.
Some States already permit state banks to be organized as
unincorporated limited liability companies, and the FDICC has
recently adopted a rule allowing state bank LLC's to qualify
for deposit insurance if they meet certain conditions. This
provision in the bill may be especially useful for community
national banks, again, in the long run.
Another provision we strongly endorse repeals the
requirement in current law that a State must affirmatively
enact legislation in order to permit national and State banks
to conduct interstate expansion through so-called de novo
branching. Banks and their customers would benefit from this
change, which would permit a bank to choose the form of
interstate expansion that makes the most sense for its business
needs and customer demand.
Federal thrifts have enjoyed this type of flexibility for
decades. In today's internet age when customers can communicate
remotely with banks located in any state, restrictions on where
a bank may establish branch facilities in order to serve
customers in person are an unnecessary legacy from a
protectionist era that detracts from healthy competition and
from customer service.
The bill also contains provisions that help enhance the
safety and soundness of the banking system. For example, the
bill expressly authorizes the agencies to enforce an
institution-affiliated party's or a controlling shareholder's
written commitment to provide capital to an insured depository
institution. This provision would enable the agencies to hold
parties to the capital commitments that they make and could
help mitigate lawsuits against the deposit insurance funds.
Two other important new provisions have been added to the
bill since last year that promote safety and soundness. First,
the bill addresses the fact that independent contractors, such
as accountants for insured depository institutions, are treated
more leniently under the enforcement provisions in the current
banking law than are directors, officers, employees,
controlling shareholders and even agents for the institution.
The bill addresses this disparity by holding independent
contractors to a standard that is more like the standard that
applies to other institution-affiliated parties.
The bill also addresses safety and soundness issues that
have arisen for the banking regulators when a so-called
stripped-charter institution is used to acquire a bank with
deposit insurance through a Change in Bank Control Act notice
without the prospective acquirer submitting an application for
a new charter or an application for deposit insurance. The
agency's primary concern with this type of Change in Bank
Control Act notice is that the acquirer of the stripped charter
is effectively buying a bank charter without the scope of
safety and soundness review that the law requires when
applicants seek a new charter and deposit insurance even though
the risks presented by the two sets of circumstances may be
substantively identical.
In conclusion, as I noted, my written statement makes
suggestions for some additional amendments to the current law
that we believe would make useful improvements to the bill. We
very much look forward to working with the Subcommittee and
with the other federal banking agencies as the bill advances.
Mr. Chairman, Congresswoman Capito, on behalf of the OCC,
we thank you for your support of this legislation. At the
appropriate time I will be happy to answer any questions you
may have.
[The prepared statement of Julie L. Williams can be found
on page 134 in the appendix.]
Chairman Bachus. Thank you.
Chief Counsel Kroener?
STATEMENT OF WILLIAM F. KROENER, III, GENERAL COUNSEL, FEDERAL
DEPOSIT INSURANCE CORPORATION
Mr. Kroener. Thank you. Mr. Chairman, and Members of the
Subcommittee, I appreciate the opportunity to present, again,
the views of the Federal Deposit Insurance Corporation on
proposed legislation to provide regulatory burden relief.
The FDICC shares the Subcommittee's continuing commitment
to eliminate unnecessary burden and to streamline and modernize
laws and regulations as the financial industry evolves. FDICC
Vice Chairman John Reich is leading the Federal Financial
Institutions Examination Council effort to conduct a thorough
review of regulations to identify outdated and otherwise
unnecessary ones.
This review, which is mandated by the Economic Growth and
Regulatory Paperwork Reduction Act of 1996, is not due until
2006. By advancing it as we have, the FDICC sees it as an
opportunity to reinforce ongoing efforts to lessen regulatory
burden and identify other areas of regulatory overlap and
inefficiencies. The FDICC is also leading interagency efforts
to implement improved collection management and distribution of
Call Report information using XBRL, a data standard for
transporting and displaying financial reporting information
using the Internet.
We are working with other regulators, accounting firms,
software companies and financial services providers around the
world to promote transparency, processing efficiency and
improved risk management techniques using the new data
standards.
The FDICC continues its extensive efforts to provide
regulatory relief for the industry by streamlining examination
processes and procedures with an eye toward better allocating
FDICC resources to areas that could pose the greatest risk to
the insurance funds. These FDICC efforts to reduce burden
include targeted examinations based on the institution's risk
profile. By use of risk focused examination procedures the
FDICC has reduced the average time spent conducting risk
management examinations in qualifying institutions by well over
our original 20 percent goal.
Chairman Powell remains keenly interested in exploring all
measures to eliminate inefficiencies and costs in the
supervisory and regulatory systems. We have on our website an
opportunity for institutions to suggest ways to reduce burden,
and we take those suggestions seriously and follow-up on them
as promptly as we can.
The FDICC commends the Subcommittee for holding this
hearing and Representative Capito for introducing legislative
changes to lessen the regulatory compliance burden on insured
depository institutions. The FDICC staff worked closely with
the Subcommittee staff in developing several of the provisions
contained in the proposed legislation, including many that will
help the FDICC become more efficient and effective in
regulating insured institutions.
The FDICC enthusiastically supports the provisions in H.R.
1375 that we suggested for inclusion in the bill. The
provisions that the FDICC endorses include:
(1) those that clarify that the agency may suspend or
prohibit individuals from participation in the affairs of any
depository institution and not solely the insured depository
institution with which the individual is or was associated;
(2) those that specify the time period during which the
appointment of the FDICC as conservator or receiver of a failed
insured depository institution could be challenged;
(3) those that modify the requirement for retention of old
records of a failed insured depository institution at the time
a receiver is appointed;
(4) those that permit the FDICC to rely on records
preserved electronically such as optically imaged or computer
scanned images; and,
(5) those that clarify existing authority of the FDICC as
receiver or conservator to enforce written conditions or
agreements entered into between insured depository institutions
and institution affiliated parties and controlling
shareholders.
The FDICC also supports section 409 that amends the Change
in Bank Control Act to address an issue that arises when a
``stripped charter'' institution is the subject of a change in
control notice. This is the provision that Deputy Williams
mentioned in her oral statement. Section 409 clarifies the base
on which such notices may be disapproved and expands the base
for extensions of time for considerations of notices raising
novel or significant issues.
The FDICC also supports a number of the provisions that
were requested by our fellow regulators here on the panel today
and were included in the proposal. For example, the provisions
that streamline merger application requirements and those that
permit bank examiners to receive credit from any insured
depository institution so long as it is on the same terms and
conditions as credit offered to the general public.
The FDICC recommends that the Subcommittee include a number
of additional regulatory relief items in the bill. For example,
we recommend inclusion of language that provides each of the
other federal banking agencies with express authority to take
enforcement action against banks they supervise based on
violations of conditions imposed by the FDICC in writing in
connection with approval of an institution's application for
deposit insurance. We also recommend amendments to the Bank
Merger Act and Bank Holding Company Act to require
consideration of potentially adverse effects on the insurance
funds of any proposed bank merger transaction or holding
company formation or acquisition and language that improves our
ability to act as receiver of failed institutions--language
that provides for the FDICC to gain access to individual FICO
scores to improve our ability to evaluate assets and recommend
transaction structures for failing banks, and a provision to
clarify the FDIC Act relating to the resolution of deposit
insurance disputes in the case of failed insured depository
institutions.
I have included the legislative language on these and
several other provisions with my written statement. Thank you,
again, for the opportunity to present the FDICC's views on
these issues. The FDICC supports the Subcommittee's continued
efforts to reduce unnecessary burden on insured depository
institutions and we continually strive for efficiency in the
regulatory process and are pleased to work with the
Subcommittee in accomplishing this goal.
I look forward to your questions at the appropriate time,
Mr. Chairman. Thank you.
[The prepared statement of William F. Kroener, III can be
found on page 84 in the appendix.]
Chairman Bachus. I thank the General Counsel.
Now, we will hear from Chief Counsel Buck.
STATEMENT OF CAROLYN BUCK, CHIEF COUNSEL, OFFICE OF THRIFT
SUPERVISION
Ms. Buck. Good morning, Mr. Chairman and members of the
subcommittee. Thank you for the opportunity on behalf of OTS to
testify on H.R. 1375, the Financial Services Regulatory Relief
Act of 2003 sponsored by Congresswoman Capito and Congressman
Ross. I commend them on the bill and their efforts to reduce
regulatory burden on depository institutions.
During periods of economic uncertainty it is particularly
important that we make every effort to remove unnecessary
regulatory obstacles that divert valuable resources and hinder
innovation and competition in our financial services industry.
In my written testimony I discuss a number of proposals that we
believe would significantly reduce burden on thrift
institutions. And I ask that the full text of that statement be
included in the record.
Today, I will highlight the portion of H.R. 1375 that would
provide the most significant relief to thrifts. These are the
proposed amendments that would treat thrifts and banks the same
under the federal securities laws. Banks and thrifts may engage
in the same types of activities covered by the investment
advisor and broker dealer requirements of the federal
securities laws. And these activities are subject to
substantially similar supervision by OTS and bank regulators.
The key point is that banks, but not thrifts, are exempt from
registration under the Investment Advisors Act of 1940 and
banks, but not thrifts, enjoy an exemption from broker dealer
registration under the 1934 act for certain activities
specified in the Gramm-Leach-Bliley Act. For purposes of the
broker dealer requirements the SEC does treat thrifts the same
as banks. That is the commission has exercised its exceptive
authority, for now, to treat thrifts the same as banks. But the
SEC has not extended that same parity to the investment advisor
requirements. We believe that treating thrifts and banks the
same under the federal securities laws makes sense for a number
of reasons. Thrifts fill an important niche in the financial
services arena by focusing their activities primarily on
residential, community, small business and consumer lending.
The Homeowners Loan Act allows thrifts to provide trust and
custody services on the same basis as national banks, and
investment advisor and third party brokerage in the same manner
as banks. Not only are the authorized activities the same, but
OTS examines activities in the same manner as the other banking
agencies.
While the bank and thrift charters are tailored to provide
powers focused on different business strategies, in areas where
the powers are similar, the rules should be similar. No
legitimate public policy rationale is serviced by imposing
additional and superfluous administrative costs on thrifts to
register as an investment advisor or broker dealer when banks
are exempt from registration. There should be similar
treatments for regulated entities under similar circumstances.
And the circumstances here are that, first, thrifts, like
banks, have a regulator that specifically supervises the type
of activities covered by the investment advisor and broker
dealer registration requirements. Second, thrifts, like banks,
are subject to the same functional regulatory scheme that was
endorsed by the Gramm-Leach-Bliley Act. And, third, thrifts,
like banks, are subject to substantially similar customer
protections with respect to the activities covered by the
registration requirements, which, by the way, are based on the
SEC's own customer protection rules.
The only difference is that thrift, unlike banks, are
subject to an additional and clearly burdensome administrative
registration requirement. As best stated in the SEC's own
words, from the preamble to their May 2001 interim rule
extending broker dealer parity to thrifts, quote, insured
savings associations are subject to a similar regulatory
structure and examination standard as banks. Extending the
exemption for banks to savings associations and savings banks
is necessary or appropriate in the public interest and is
consistent with the protection of investors. End quote. We
could not have said this better ourselves.
For that reason, OTS strongly supports the amendments in
H.R. 1375 to extend the bank registration exemption to thrifts.
Absent this treatment, thrifts are placed at a competitive
disadvantage that is without merit and that imposes significant
regulatory costs and burdens. As recently as the Gramm-Leach-
Bliley Act, Congress affirmed the principles underlying the
bank registration exemption. We believe the best way to resolve
this matter for thrifts with certainty and finality is for
Congress to extend by statute the same exemption to thrifts.
This would also have the beneficial effect of avoiding the
need for a series of SEC administrative exemptions as the need
arises, another potential regulatory burden. OTS itself is
committed to reducing burden whenever it has the ability to do
so, consistent with safety and soundness and compliance with
law. The proposed legislation advances this objective and we
appreciate that many of the reforms that we have long desired
are included in the bill.
I especially thank you, Mr. Chairman, Congresswoman Capito,
Congressman Ross and all the others who have shown leadership
on this issue and we look forward to working with the
subcommittee on this legislation. Thank you.
[The prepared statement of Carolyn Buck can be found on
page 49 in the appendix.]
Chairman Bachus. Thank you.
And, Mr. Gee, and it is Director Gee, I pronounced your
name Gee when I introduced you. We have a Gee's Bend in Alabama
and it is spelled the same way, so I guess in Mississippi it
may be Gee, but everywhere else it is probably Gee.
STATEMENT OF GAVIN M. GEE, DIRECTOR OF FINANCE, IDAHO
DEPARTMENT OF FINANCE, ON BEHALF OF THE CONFERENCE OF STATE
BANK SUPERVISORS
Mr. Gee. That is fine, Mr. Chairman. I have been called
much worse.
Good morning, Mr. Chairman and members of the subcommittee.
My name is Gavin Gee I am the Idaho Director of the Department
of Finance and Chairman of the Conference of State Banks
Supervisors. Thank you for asking us to be here today and to
share the view of CSBS, the Conference of State Bank
Supervisors, on regulatory burden reduction and the Financial
Services Regulatory Relief Act of 2003. And, thanks also to
Representatives Capito and Ross for your hard work on this
legislation. We applaud your efforts to reduce the burdens
imposed by unnecessary or duplicative regulations that do not
advance the safety and soundness of the nation's financial
institutions.
The most important contribution toward reducing regulatory
burden may be empowering the State banking system. State banks
and State chartering system have created the vast majority of
innovations in banking products, services and business
structures. For this reason we are disappointed that a
provision to allow State chartered member banks to utilize the
powers of their charter is not included in the bill. Through
innovation, coordination and the dynamic use of technology,
States have made great strides in reducing regulatory burden
for the institutions that we supervise.
My submitted testimony describes these efforts in much more
detail. The Financial Services Regulatory Relief Act of 2003
can be a valuable federal compliment to these efforts. With
respect to interstate branching requirements, as you may know,
current Federal law has taken an inconsistent toward to how
banks may branch across State lines. While Riegle-Neal gave the
appearance that States could control how banks may enter and
branch within their borders, this has not always been the
reality. Perhaps, because it was believed that the federal
thrift charter would be eliminated at the time Riegle-Neal was
adopted, the law was not applied to federally chartered
thrifts. The result is, that a federal thrift can branch
without regard to State law and rules of entry. Since the
passage of Riegle-Neal, the OCC has promulgated creative
interpretations of the National Banks Act that effectively
circumvent the application of Riegle-Neal to branch-like
operations.
The result is that State chartered institutions,
particularly community banks wishing to branch interstate are
at a competitive disadvantage to those institutions that can
use federal options to branch without restrictions. Presently,
only 17 States now allow de novo branching. Whatever the
outcome of your review of Federal law, we urge Congress to
eliminate the disadvantage it has created for State banks
because of the inconsistent application of Federal law.
CSBS also hopes that the committee will rethink, including
the State member bank powers amendment. There is a detailed
discussion of the amendment in my written testimony.
Additionally, we encourage the committee to work with the
Internal Revenue Service to reconsider its interpretation of
the tax status of State chartered banks structured as limited
liability corporations. While we understand that tax issues are
not in the committee's jurisdiction, this would be meaningful
regulatory relief for community banks.
CSBS believes that improved coordination and cooperation
between regulators should be a cornerstone of regulatory
relief. In that spirit, we suggest that Congress could improve
the Federal Financial Institutions Examination Counsel by
changing the State position from one of observer to that of
full voting member. We also ask the committee and Congress to
address the implementation and implications of regulatory
preemption by the Office of the Comptroller of the Currency and
the Office of Thrift Supervision. CSBS believes this request
for review of preemption and applicable law is appropriately a
regulatory burden reduction matter as well. Our banking system
is a complex and evolving web of State and Federal law,
particularly for State chartered institutions. Greater sunshine
on OCC and OTS interpretations of applicable law for the
institutions they charter would also help clarify applicable
law for our nation's more than 6,000 State chartered banks
representing nearly 70 percent of all insured depositories.
A clear articulation of OCC and OTS standards of preemption
would also lessen the legal burden of litigation over the
federal regulators sometimes-tenuous interpretations of federal
law.
In conclusion, the quest to streamline the regulatory
process while preserving the safety and soundness of our
nation's financial system is critical to our economic well-
being and to the health of our nation's financial institutions.
We commend this committee for its efforts in this area.
Thank you for the opportunity to testify on this important
subject. And we look forward to any questions that you and
members of the subcommittee might have. Thank you.
[The prepared statement of Gavin M. Gee can be found on
page 69 in the appendix.]
Chairman Bachus. Thank you. And, for the record that was
four minutes and 53 seconds. You have the record right now.
Administrator Lattimore, we welcome you.
STATEMENT OF JERRIE J. LATTIMORE, ADMINISTRATOR, CREDIT UNION
DIVISION, STATE OF NORTH CAROLINA, ON BEHALF OF THE NATIONAL
ASSOCIATION OF STATE CREDIT UNION SUPERVISORS
Ms. Lattimore. Thank you, Mr. Chairman and members of the
subcommittee. My name is Jerrie J. Lattimore. I am the North
Carolina Regulator for State chartered Credit Unions and the
Chairman of NASCUS; NASCUS is the National Association of State
Credit Union Supervisors. We regulate 4,300 State chartered
credit unions throughout the United States, which is almost 50
percent of all the credit unions.
NASCUS is supportive of your efforts to reduce regulatory
burden. I will comment today on those aspects of H.R. 1375 that
directly impact State chartered credit unions and also would
suggest some further revisions to the Federal Credit Union Act
as outlined in our letter to Chairman Oxley dated January 23,
2003.
Section 301 of H.R. 1375 would authorize State chartered
privately insured credit unions to be eligible for membership
in the Federal Home Loan Banks. Expanding the field of
institutions eligible for membership in no way alters the
vigorous credit underwriting standards that an institution must
meet in order to join the Federal Home Loan Bank or receive an
advance. In addition, every Federal Home Loan Bank advance is
fully secured by marketable collateral. It is our understanding
that none of the banks has ever had a loss on an advance. This
provision would allow qualified institutions to have an
additional source of credit to use for the purpose of extending
homeownership to their members. We urge the committee to
approve this provision of the bill that would help achieve our
nation's goals of homeownership.
Secondly, Section 313, NASCUS supports that section that
would provide credit union's relief from the SEC registration
requirements. The NCUA has endorsed provisions of this bill
that would grant parity of treatment to all Federal and State
federally insured credit unions and has previously submitted
language to that effect.
NASCUS would urge the committee to approve such a provision
for all State chartered credit unions. It should be clearly
understood that this provision does not create any new powers
for State chartered credit unions.
There are two other legislative issues that NASCUS would
like for this committee to consider. The first is relief from
member business loan constraints that were added by the Senate
to the Credit Union Member Access Act of 1998. Historically,
many credit unions have provided loans for their members'
business purposes. Member business lending not only meets the
credit needs of the member, but also serves as a valuable
source of financing for community development and local job
creation.
Credit unions are not in the business of lending to foreign
corporations or governments. Their business loans are made
locally and the funds recycle throughout the community. In an
economic environment where entire industries are severely
affected, businesses are closing and jobs are being lost, these
member business loans are vital to the economy.
NASCUS would urge that the restrictions on member business
lending be removed from the Federal Credit Union Act for State
chartered credit unions and returned to the State legislators
and the credit union supervisors to regulate. If that solution
is not acceptable, NASCUS would then urge that credit unions be
granted business lending authority equivalent to that proposed
for federal savings institutions, that is, the asset limitation
contained in the Federal Credit Union Act for business loans
should be raised from 12.25 percent to 20 percent, which is the
same percentage proposed for federal savings associations.
Secondly, micro member business loans that are less than
the Fannie Mae and Freddie Mac ceiling, which is roughly
$322,000, be excluded from the member business loan definition.
The second issue is to permit credit unions to include
supplemental capital as part of net worth for prompt corrective
action. The combination of prompt corrective action
requirements established by Congress in 1998 and the subsequent
rapid deposit growth has created a financial and regulatory
dilemma for many State chartered credit unions. PCA net worth
requirements are higher for credit unions than they are for all
other financial institutions. All types of financial
institutions currently employ supplemental capital in some
form. It is already authorized for low-income and corporate
credit unions. All credit unions should be afforded the use of
supplemental capital if they so desire. With the flight to
quality from the stock market, many credit unions are
experiencing rapid share growth, which results in reduced net
worth ratios. It makes good business sense to include other
forms of capital that lend additional soundness to an
institution. We should take every financially feasible step to
strengthen this nation's credit unions, which, in turn,
strengthens the financial condition of its members.
To further support this proposition I have a Filene
Research Institute Study done by Dr. James Wilcox of the
University of California at Berkley. His conclusion was that
marketing of subordinated debt would require increased
transparency and disclosure about a credit union's financial
condition. And it would create a larger cushion for the share
insurance fund. Subordinated debt would impose an element of
direct market discipline on the industry. This study is
lengthy. I will not submit it for the record. But, I do have it
for any members of the committee, who would like a copy.
During the last Congress, Representatives Brad Sherman and
Robert Ney introduced amendments addressing supplemental
capital and we hope these amendments will be enacted during
this session. Again, we thank you very much for this
opportunity to testify and we look forward to helping this
subcommittee in any way that we can.
Thank you.
[The prepared statement of Jerrie J. Lattimore can be found
on page 114 in the appendix.]
Chairman Bachus. Thank you.
I have got one brief question I am going to ask Mr. Gee.
And then I am going to surrender the balance of my time to Ms.
Capito.
You talked about a possible disadvantage of a State
chartered institution branching across State lines and I want
to address that. You talked about the improvements in
coordination between the State regulators to support interstate
operations. We have received a proposal, which would give
greater certainty to State charters operating interstate
reflecting the current state cooperative agreements signed by
all the States. Does the Conference of State Banking
Supervisors support that amendment? Are you aware of it and do
you support it?
Mr. Gee. Thank you, Mr. Chairman, for the question. You
mentioned the interstate cooperative agreements, and yes these
agreements have been in place, I believe, since about 1994.
Generally they have worked very well among the States. We work
to provide seamless supervision, a single point of contact. We
have similar agreements with the federal agencies to provide
the same thing. And I would have to say from our perspective,
for the most part, those work very well on an interstate
environment. We are aware of these proposals. And, to answer
your question specifically, yes, we do support them. We would
look forward to providing greater certainty for those banks
that are, I guess, either uncomfortable with just the
cooperative agreement that are essentially voluntary
cooperative agreements. They do not have the force and
effective law. So, we would be very interested in working with
the committee and you, Mr. Chairman, on those proposals, and,
yes, we would support them.
Chairman Bachus. Thank you. And I know that there is some
controversy. Mr. Hensarling was here earlier and I know he has
some interest in the State of Texas. I am not sure that it will
be in this legislation.
Ms. Capito?
Mrs. Capito. Thank you, Mr. Chairman.
And, thank you all for your testimony.
I would like to ask Governor Olson a question as to the
shortening of the post-approval waiting period for bank
mergers. In some of the opening statements, it was alluded to
and I would like for your clarification on this. Would you
describe the review process and the waiting periods? And, it is
my understanding the Attorney General would have to sign off on
this before the five-day waiting period would go into effect.
Mr. Olson. You are correct, Congresswoman. The process, the
application process is a lengthy and very time-consuming
process and there is a lot of input that is received regarding
all of the implications of the application. After the approval
has been made by all of the appropriate regulatory authorities
there is then a time period that is allowed for the U.S.
Attorney General to determine if there are any anti-trust
implications in it. That is a 30-day period that can now be
reduced to 15 days.
And we are suggesting that when, and only when, the
Attorney General indicates that there are no anti-competitive
implications of the merger, that then it could be reduced to a
five-day period.
Mrs. Capito. But, in no way would it affect the overview
oversight?
Mr. Olson. It does not. This is post-application approval,
during which time it is the time period allowed only for the
Attorney General to respond.
Mrs. Capito. Thank you.
I have a question for Chairman Dollar. You support Section
313, which exempts the federally insured credit unions from
certain broker dealer, and you spoke about this in your opening
statement. You point out that this is--this exemption will have
somewhat more limited application to credit unions than to
other depository institutions. There is some concern from
others about this provision. Would you explain how the
exemption would apply in the credit union context and why it is
more limited at scope and how does NCUA oversee investment and
advisor activities specifically regarding disclosure and level
of competency?
Mr. Dollar. Well, Congresswoman, the primary reason why it
is not as in broad scope as other financial institutions is
that credit unions are limited by law as far as the types of
services they can provide. And nothing in this provision, as
you well know, expands in any way the authorities that credit
unions are able to offer.
I think that the reason that this, of course, comes to the
forefront, the reason that it has been included in the bill is
because the parity provision that was provided for the thrifts
was then brought to bear for credit unions as well. And I think
that this is appropriate because there is a burdensome nature
to the registration as a broker dealer. When all you are going
to be doing is basic safekeeping, serving as a depository, or
holding of items that the credit unions are authorized to do.
Credit unions that might buy a municipal bond and decide that
they are going to hold it in their portfolio rather than having
it held by another broker or safe keeper. Certainly there are
some sweep account arrangements that credit unions do that are
very basic de minimus type of activities that they are able to
do that we just feel like it would be very burdensome for them
to have to register as an SEC--with SEC as a broker dealer to
be able to do that. But, this does not, you are correct, in
anyway increase credit union authorities in any areas of
investment services or brokerage services that they do not
presently have the legal authority to offer.
Mrs. Capito. Okay. Thank you.
And I would like to ask Ms. Buck the same question. I know
you addressed this in your opening statement. In terms of
disclosure or level of competency, do you see this having an
impact?
Ms. Buck. No, it does not, Congresswoman Capito. We have,
just in the last two years, updated all of our examination
guidance on these kinds of activities so that they would be
equivalent to what is provided in the national bank context and
last year we updated our regulation applying to securities and
record keeping requirements for entities that are engaged in
these kind of activities, again, to make them consistent to
those that apply in the bank context.
We have a regular examination process. We examine every one
of our institutions on anywhere from a 12 to 18 month basis, so
we are taking look at the kinds of activities they are engaging
in and making sure that they are complying with laws. So, I do
not see any diminution of customer protections in these
activities.
Mrs. Capito. Thank you.
I would like to ask Ms. Lattimore along the same lines. Do
State Regulators oversee this investment advisor activities in
terms of competency and disclosure? Do you have any role in
that?
Ms. Lattimore. We do. We oversee all parts of the credit
unions in every business that they are--and every investment
that they are involved in. But, as Mr. Dollar pointed out, the
credit union's role is much more limited just by its very
nature.
Mrs. Capito. And I have one final question again for
Governor Olson. There is a section that is related to insider
lending. And, would you explain what the reporting requirements
are and why they should be eliminated? My understanding is
there is duplication, but if you could just explain it.
Mr. Olson. Well, let me first talk about what they do not
alter. They do not alter in any way any of the regulation
provisions, and they do not alter any way any of the rules
regarding insider lending. But, there are three separate
reports that are required now, one of which is a report for
loans by an executive offices of a bank from another bank in
excess of the lending limit of that bank. Another involves
loans that are made between reporting periods. And another
involves the report that I cannot--I do not have the third one
right in front of me, but I can find it for you real quickly if
you would like.
In each case they are reports that, in our judgment, do not
contribute to or assist us in the enforcement of the insider
lending provisions, but are simply additional reports that are
required under the statute.
Mrs. Capito. Thank you. I would say in the sense of the
bill in terms of being common sense regulatory reforms,
certainly in eliminating duplication is one of our goals here,
but certainly not any kind of lessening of enforcement powers
or in any of the areas that we have discussed today.
Mr. Olson. That is an important clarification. And this
does not in any way reduce any of the impact of the insider
lending laws, which we take very seriously.
Mrs. Capito. Thank you.
I have no further questions. Thank you.
Chairman Bachus. Thank you.
Ms. Waters?
Ms. Waters. I thank you very much, Mr. Chairman. I am sorry
that I could not be here for the entire hearing. But, I thank
all of the representatives of the regulators that are here. I
have a lot of questions. I cannot possibly ask them all. But,
let me target a little in on payday lending.
As you know, payday lending is a big concern of some of us
who represent districts where these operations are
proliferating. As I understand it at OCC you have some
oversight when they are connected to a national bank. How do
you feel about banks renting their charters or allowing their
preemption privileges to be rented or purchased by payday
lending? Should this practice continue or should we try and
outlaw that practice all together?
Ms. Williams. Congresswoman, we have very, very strong
feelings against the so-called rent-a-charter relationships
that we have seen. We had four situations, not a whole lot,
where we had national banks that entered into contractual
arrangements with payday lenders. As a policy matter, those
arrangements raised substantial concerns in the rent-a-charter
category that you described. I think it is important to also
emphasize that as a supervisory matter, the way in which those
arrangements were actually being conducted, the way in which
the banks were conducting their operations, the way in which
customers were being treated pursuant to those arrangements,
raised very, very substantial safety and soundness and
compliance issues. We have taken consensual enforcement actions
in all of those four cases, and there are no longer any
national banks----
Ms. Waters. I appreciate that, but I do not have a lot of
time. Should we outlaw the practice all together?
Ms. Williams. I am not sure how you would specifically
define a rent-a-charter arrangement; that might be challenging.
Ms. Waters. All right. Let me ask some of these payday loan
operations have operations in more than one State.
Ms. Williams. That is correct.
Ms. Waters. The definition of a national bank is a bank
that has chapters or operations in more than one state.
Ms. Williams. Not necessarily. We have many national banks
that are located in multiple states, but we have many community
national banks that are locally based.
Ms. Waters. If, in fact, we are not sure about whether or
not we should outlaw the practice all together because it is
hard to define, should we then preempt the states and take
under supervision payday loans, particularly where they are
interstate operations?
Ms. Williams. I think that raises the larger question of
creating a federal standard with respect to payday lending, if
I am understanding you correctly.
Ms. Waters. Yes.
Ms. Williams. That in and of itself raises some issues, but
that certainly would be one way to go at the problem.
Ms. Waters. Would you favor if we could do nothing else but
disallow the practice of postdated checks in these
transactions?
Ms. Williams. I am not sure if I understand the----
Ms. Waters. When pay lenders operate in such a way that
when they make these small loans they had to borrow, make out a
postdated check for the interest and the principal. So, that if
it is $100, as indicated in some of the information we have
today, it would be $115. When they come back to repay it two
weeks later, if they do not have that money they can roll it
over, roll it over, roll it over and I am really interested in
what we can do about interfering with the ability for these
rollovers that increase the amount of the loan to sometimes
1,000 percent interest rates or something like that.
Ms. Williams. I think that one of the areas where the
abuses are most notable is where you have multiple rollover
situations, and that would be one way to go at it. And, if you
are focusing just on the use of the postdated check as the
vehicle for the payday loan, I think one important thing to
note here is that there can be different ways that one
structures a payday loan product. I would not want to foreclose
the possibility that you could have a small denomination loan
product that would not be abusive.
Ms. Waters. Would you favor putting a limit to the number
of rollovers that could be done in one of these kinds of loans?
Ms. Williams. When we looked at the characteristics of
payday lending, we thought that would be one area that would be
most promising to avoid abuses. Yes, Congresswoman.
Ms. Waters. I am going to be looking for something in
legislation that is going to deal with the abuses of the payday
loan industry. And while your oversight is very limited to
those national banks who rent their charters, I certainly hope
you would help to give us some assistance and leadership to do
something about this terrible practice.
Ms. Williams. I think probably all of the banking agencies
would be very interested in providing what they know about how
this affects their regulated institutions if you want to pursue
that.
Ms. Waters. That is some help in the legislation. Thank
you.
Thank you very much, Mr. Chairman.
Chairman Bachus. Thank you.
Mr. Bereuter?
Mr. Bereuter. Thank you, Mr. Chairman. I want to thank the
witnesses for their testimony today as we consider this
important legislation.
Prefatory to my questions, I want to say that I think that
one of the reasons the stock market is doing so badly, one of
the reasons are economic recovery is being delayed is because
of lack of investor confidence. They are concerned about high
profile abuses in corporate governance and they are concerned
about abuses and incestuous relationships between the
securities industry and the corporations whose stock they are
attempting to advise their clients on.
And, so, following up the kind of question that Ms. Capito
asked to Chairman Dollar, I would like to pursue that area a
bit with two other panel witnesses. First, Ms. Buck, the OTS
supports Section 201, according to your testimony, which
exempts thrifts from broker dealers and investment advisor
registration requirements. How would the OTS oversee investment
advisors' activities specifically regarding disclosure and
level of competence?
Ms. Buck. As I was explaining, we have regular examinations
that we conduct on 12 to 18-month basis. Initially when the
institution or entity comes to us and either asks to engage in
trust powers if it is an entity we already regulate, or if an
institution or entity comes and want to obtain a thrift chart
and wants to engage in trust activities, we look very closely
at the competence of the individuals who will be running those
operations and determine that they do have the ability both to
manage the asset and to provide the necessary protections for
the customers. In fact, there are times when we would not allow
them to open until we are sure that they have those people on
staff and ready to operate.
As far as the customer protection requirements are
involved, we do look at these for compliance with our own
regulations and our handbook requirements on assuring that
customers understand that the individuals who are operating the
thrift are disclosing any conflicts of interest and are
conducting the other kinds of disclosures that are necessary
for the customers.
Mr. Bereuter. Is the OTS prepared to exercise this
regulatory authority very aggressively, especially in light of
all the lack of consumer investor confidence?
Ms. Buck. Yes, we are. We have approximately 100
institutions right now that have trust powers and we have
expanded both the number of examiners who are experienced in
this and we have expanded our training in this area to make
sure that we are fully capable of overseeing this activity.
Mr. Bereuter. Thank you.
I would like to ask related questions to Administrator
Lattimore. You support Section 313, which gives both federal
and State chartered credit unions an exemption from broker
dealer and investment advisory requirements. Why should we have
the confidence in state-by-state quality of regulatory
oversight?
Ms. Lattimore. I do not know why there would be a lack of
confidence. The state supervisors are very diligent in carrying
out their duties. We have a responsibility to the citizens of
our State to be sure that the financial institutions that we
regulate are closely regulated. We take action when it is
necessary. If such a new program were instituted we would
carefully examine that program and, as Ms. Buck said, if they
were--if we did not feel like the institution could offer the
services we would not allow them to do it. But, I think State
chartered credit unions are as well regulated as other credit
unions. And, certainly the numbers prove that out.
Mr. Bereuter. Do you understand my point of view? I think
it is representative of a lot of people that you have to pursue
this very aggressively if you have this responsibility.
Ms. Lattimore. Yes, sir. And, we would take that
responsibility very seriously. Our credit unions are owned by
the members. That is what makes them very unique. And we cannot
allow credit unions to offer anything to their own membership
that owns them that is not completely on the up and up. So, the
members would not stand for it. And, that would create real
problems in the credit union, that is why we would ask to take
it and would take it very seriously.
Mr. Bereuter. Thank you very much.
Director Gee, I have an unrelated question. There are some
33 States that do not allow de novo interstate branching, I
believe, something like that, 33 States. Yet, you say in your
testimony we appreciate your revisiting the Riegle-Neal Act and
we urge Congress to eliminate the disadvantage it is created
for state banks because of inconsistent application of federal
law. I am kind of surprised that that point of view is offered
for you in behalf of the people you are representing today. Can
you explain?
Mr. Gee. Yes, Representative. Thank you for the question.
As I commented in my remarks, and there is more detail in my
written comments, the biggest problem is that the state charter
is disadvantaged. Right now, federally chartered thrifts,
federally chartered credit unions, largely national banks, can
branch interstate. And, so, this puts the state charter, the
State chartered bank at a disadvantage. They do not have the
ability to do that in most states and, because of those
interpretations of federal law and because of the application
of federal law. And in many States they would like to have that
ability especially community banks where they are on the border
or near the border of another State to be able to branch across
the State line. But, we see it as a charter disadvantage for
the State charter and only for the State chartered bank,
because virtually every other charter has the ability to engage
in that activity across State lines.
Mr. Bereuter. It is a disadvantage. But, would you admit
that some States are not in favor of de novo branch banking in
general for any kind of institutions, federal or State
chartered?
Mr. Gee. I would absolutely agree with you. The problem is,
that because the other charters do have that ability it creates
a disadvantage for our charter, for the state bank charter, and
we do not like to see our State bank charters disadvantaged.
Mr. Bereuter. Mr. Chairman, thank you very much.
Chairman Bachus. See, I told you it was controversial. I
told you that might be a controversial.
Mr. Watt, the gentleman from North Carolina?
Mr. Watt. Thank you, Mr. Chairman. And, I want to do two
things preliminarily. First of all apologize to the witnesses
for not being able to be here for all of your testimony.
Unfortunately, I had to do something on the floor of the House
and could not get here until I did. And, second, thank all of
you for being here, particularly Ms. Lattimore who does such a
find job in the State of North Carolina from whence I hail, and
welcome her in particular, not that I am not welcoming
everybody else too.
Ms. Lattimore has put a couple of things on the table that
I want to get reactions of other panel members to. The first
one has to do with the desire of credit unions to do business
loans to their members. And, I am wondering two things about
that.
Number one, Mr. Kroener, whether that would have any
deposit insurance implications and if so, what they are.
And the second thing I am wondering for anybody else on the
panel who might have a position on it is whether there are any
policy differences that would come into play, is that a good
idea, if there is anybody on the panel who has a different
perspective about whether it is a good idea as a policy
perspective.
So, Mr. Kroener, first deposit insurance implications. And,
second, anybody who might have a different policy perspective.
Mr. Kroener. I thank you for the question, Congressman
Watt. From a deposit insurance perspective, we do not, at least
any longer--I think we did in the 1940s--insure credit unions.
We insure banks and theifts. So, you are talking about a group
of institutions that the FDICC does not insure. So, any deposit
insurance implications would be quite indirect instead of
direct for that reason. There has been general concern among
the institutions we insure about the competitive parity between
banks, insured banks as a group and credit unions because of
their different tax status. But, that would be quite remote,
quite indirect. This would impact that competitive parity I
think.
But, even those are quite remote from any implications from
a deposit insurance standpoint. But, I defer to others on the
panel if they care to add anything.
Mr. Dollar. Congressman, if I might and the NCUA is the
agency that insures federally insured credit unions.
Mr. Watt. I got the wrong person to ask the question to, I
am sorry.
Mr. Dollar. That is quite all right.
Mr. Watt. Sorry about that.
Mr. Dollar. I whispered to Bill that he could kick it to me
if he wanted to and I do not think he got my whisper. But, let
me just say that we are of the belief that there needs to be
more start up entrepreneurial capital in this country, not
less. And there needs to be more access to it, not less. And we
believe that credit unions are a viable source for small start
up entrepreneurial capital. We call it member business lending.
That is a distinction from commercial lending as we may know it
in the traditional financial institutions.
Mr. Watt. Where would you draw that line? I mean, how do
you draw that line?
Mr. Dollar. Well, Congress drew the line in 1998 when
Congress said that anything below $50,000 did not have to count
as a member business loan. We actually believe, though, that as
the credit union community begins to extend itself more and
more as it is into underserved communities, one of the
advantages of the field of membership law that you passed in
1998 enabled credit unions to adopt underserved areas into
their field of membership, which they have done by record
numbers, over 40 million Americans living in underserved areas
that were not eligible to join a credit union two years ago are
now eligible to join. We think if those credit unions are going
to really make a true difference in those communities they have
to be more than merely an alternative to the payday lenders.
Mr. Watt. So, you think it is a good idea. I do not mean to
rush you. I just want to make sure I get to the second----
Mr. Dollar. I think it is a great idea.
Mr. Watt. ----the policy side of this before I run out of
time.
Mr. Dollar. But, the one size fits all statute that you
have in place which limits credit unions to 12.25 percent of
their total assets in member business loans is thwarting many
credit unions who would like to offer those small business
start up loans.
Mr. Watt. Okay. Does anybody have a response on the other
policy issue?
Mr. Olson. Congressman, on behalf of the Federal Reserve
Board, we have not taken a position on that issue.
Mr. Watt. Has any of the regulators taken a position on it
or they--you all want us to grapple with it? Okay.
All right. Well, I thank you. I am just trying to figure
out where people--the various regulators stand on these things.
I appreciate it.
I yield back.
Chairman Bachus. Instead of alternating, I am going to go
to Ms. Maloney. She has been here quite some time and then I
will----
Mrs. Maloney. I thank you, Mr. Chairman. And I have to
mention your positive role in deposit reform. And I understand
it is going to be on the floor next week. So, congratulations
on your leadership on that.
And I thank Mr. Bereuter on the help that we--the work we
did together to make sure that banks pass credit with observed
included in the bill.
I want to thank the sponsors of this legislation for
putting this package together. And I am very supportive of the
bill and regulatory relief efforts in general, provided it does
not endanger the safety and soundness of the financial system.
And, I have a few brief questions about certain sections in the
bill and I would like to ask each panelist to respond with
their views as to whether these sections will in anyway affect
safety and soundness.
I do want to make it clear that I supported the legislation
last year and it is not my view that the bill negatively
affects safety and soundness. However, I believe that it is
very important to hear from the regulators and to have your
points of view placed on record on this issue.
First, Ms. Williams, Section 601 of the bill allows the OCC
to adjust its mandatory examination schedule to concentrate
examination resources on troubled or risking institutions. And
what is the impact of this provision on safety and soundness?
Ms. Williams. Just to clarify at the outset, it is not
limited to the OCC; the flexibility would be available for all
of the federal banking agencies. I would hope that the impact
of the change would actually be to enhance safety and
soundness. It is designed to accomplish that purpose. It would
give the regulatory agencies a little more flexibility in
scheduling their exams so that they can concentrate their
resources on particularly troubled or risky institutions and
institutions with emerging problems. None of us intend or
envision that this would result in any substantial slippage in
the exam schedules, but it will give us a little bit more
flexibility in order to tailor where the exam resources are
used in order to address the highest risks in the system. So, I
think it would enhance safety and soundness.
Mrs. Maloney. Okay. Thank you.
Chairman Dollar, I want to thank the credit unions for
providing the financial services in many areas of districts
that I have represented that had really no banks there, really.
It was the only source of banking services, loans and so forth.
But, I would like you to address the impact of Section 308,
which repeals the requirement that groups of over 3,000 be spun
off into new credit unions during mergers and the impact of
Section 303, which relaxes some restrictions on credit union
investments and what is this impact, if any, on safety and
soundness?
Mr. Dollar. Let me start with the first one as it relates
to the merger authority. In actuality I believe that it would
have an adverse effect upon safety and soundness if you have
two credit unions that sought to merge and we were to intervene
regulatorily to say that before you can merge you have to spin
off one of your larger groups because they might or might not
be viable enough to charter a credit union on their own. They
had already made the business decision to affiliate with the
existing credit union that is being merged. So, actually the
present situation, which requires us to evaluate the
possibility of a spin off has potentially more adverse safety
and soundness ramifications than it would with what the bill
has provided and that is to say that a spin-off of a group is
not required.
From the safety and soundness perspective as it relates to
investment authorities, the investment authority basically that
we are looking for and that the language of Section 303
provides is very strictly drawn, very conservative in nature,
very consistent with the types of investments that credit
unions presently are authorized to make. The only thing we are
asking is if some of the investments that have proven to be
very conservative and workable at the state level be also
authorized for federally chartered credit unions.
Mrs. Maloney. Thank you.
Thank you and my time is almost up, but Governor Olson,
Section 404 raises the restriction on the size of institutions
that can have common management officials and are you confident
that this will not lead to business loans to bank insiders that
could endanger safety and soundness?
Mr. Olson. Congresswoman, there was a provision put in the
law in 1978 allowing for overlapping directors only in standard
metropolitan areas, MSA's, where the institutions were very
small. And it addressed the issue of small banks being able to
attract directors who would be helpful to them in the
management of that institution. $20 million was the figure that
was put in in 1978, we are suggesting $100 million at this
point. If we raise it every 25 years or so, which is what the
request would be, we think an appropriate level would be to go
to $100 million at this point.
Mrs. Maloney. Thank you very much. My time is up.
Chairman Bachus. Thank you.
Mr. Sherman?
Mr. Sherman. Thank you.
Mr. Dollar, during the consideration of the regulatory
relief at the full committee last year, Representative Nye and
myself offered an amendment dealing with supplemental capital.
And this would have allowed credit unions to apply secondary
capital to their net worth for purposes of meeting the minimum
net worth ratio requirements mandated by the prompt corrective
action regulations. This supplemental capital would be similar
to that available by banks, to banks, rather, by the Office of
Comptroller of the Currency in determining the definitions of
capital. It is allowed to low income credit unions. They can
get supplemental capital. I would like to know whether you
think that this is an effective way of allowing credit unions
to service their existing customers and accept new customers
and whether there has been any problem with the use of
supplemental capital by low-income credit unions?
Mr. Dollar. Thank you, Congressman. Indeed, as you are
aware, Congress in 1998, when you passed the Credit Union
Membership Access Act defined in the prompt correction action
section of the law, what can count as net worth for credit
unions, which was retained earnings only. That was a public
policy decision that Congress made at that time. It has been
suggested by some credit unions, particularly those that, as a
result of deposit growth, may be bumping against some of those
prompt corrective action guidelines that an alternative for an
additional buffer might be secondary capital.
Certainly, as the regulator who is responsible for
protecting the share insurance fund, which is the buffer
against the taxpayers and when net worth is the buffer against
the share insurance fund, anything that might provide an
additional buffer we would be more than willing to sit down
with the committee and work on.
But, I am sure that you are aware that the concept of
secondary capital for credit unions is quite controversial,
both within the credit union community and outside the credit
union community. There are issues that we would have to address
that we would be willing to work with you on, such as should it
be limited to only members of credit unions or could non-
members be able to purchase this subordinated debt? Can you
restrict one credit union who receives supplemental capital
from being able to then deposit in another institution's
supplemental capital where you might have one credit union take
the same a million dollars, deposit it in this one, then this
one deposits in this one and 25 credit unions pass around the
same million dollars, all of them counting it in their net
worth. There are issues that would have to be addressed.
Mr. Sherman. That we would clearly--since it is quite
possible that we will reintroduce an amendment this year, I
would hope that your office would provide us with language that
might solve that problem.
Mr. Dollar. We would be glad to work with you. If you and
the Congress are interested in pursuing this public policy
decision of reexamining PCA in this regard, we would be glad to
work with you. And may I just quickly say that if we are going
to look at reexamining PCA, one of the issues we may want to
look at is whether or not PCA should be made risk based instead
of based upon total assets as it presently is. Prior to 1998,
credit unions reserved based upon their risk assets, not their
total assets. One of the reasons credit unions are bumping
against the PCA one-size-fits-all target is because it is based
upon total assets rather than risk assets. In a risk-based
safety and soundness structure, risk-based assets should be the
denominator.
Mr. Sherman. That would be more sophisticated. We now have
low-income credit unions accepting supplemental capital.
Mr. Dollar. That is correct.
Mr. Sherman. I am not aware of any of the low-income credit
unions getting together and passing around the same million
dollars, although it would be good to plug that theoretical
loophole. Have you discovered any problems with supplemental
capital usage by the low-income credit unions?
Mr. Dollar. Frankly, there are many low-income credit
unions, Congressman, that without supplemental capital would
not be in operation today. It is essential for the
establishment of the net worth that they need. However, at this
stage, as you know, it is limited only to low income credit
unions. But, there have not been any problems----
Mr. Sherman. So, it has been priory positive, then you are
not aware of any negatives?
Mr. Dollar. There have not been any negatives that have not
been manageable, Congressman.
Mr. Sherman. Another approach to this would be lowering by
1 percent the required capital, make it more equivalent to
other depository institutions. What is your view on that?
Mr. Dollar. Well, there is no doubt that the credit union
prompt corrective action, one-size-fits-all number is 1 percent
higher than the other financial institutions. I personally
think, rather than lowering that number, that, again, a better
answer would be to calculate that percentage with a denominator
of risk-based assets rather than total assets, then you would
have many credit unions that would not fall into potential non-
compliance.
Mr. Sherman. Now, with risk-based asset structure, is there
subjective decisions that would have to be made by your
auditors and, or, is it simply well you are in the category of
credit cards, your category of this kind of this kind of asset,
credit card or auto loan or home loan. Is it just put it in the
right box or is it evaluated loan by loan?
Mr. Dollar. It would have to be done through regulation.
And if you did authorize the prompt corrective action
percentages for net worth to be calculated on risk-based
assets, then we would have to come forward as a board and set
that regulatory policy. But, everyone must understand that 7
percent capital in a credit union that has all U.S. Treasury
securities is different than the one that has 30-year fixed
rate mortgages. There is a difference in the risk portfolio in
individual institutions. We would have to, by regulation, draft
a proposal that weighted those risk factors. But, this has been
done previously. It was the way that we did prior to 1998 by
statute and it can be done again.
Mr. Sherman. So, you do have the staff resources to make
and audit these more sophisticated decisions?
Mr. Dollar. Indeed and to address it from what is our first
priority of safety and soundness.
Mr. Sherman. I wonder if Ms. Lattimore could comment on
this as well?
Ms. Lattimore. Yes, sir, I would be happy to on several
issues. We have a lot of low-income credit unions in North
Carolina. We probably have 20 CDCUS. I would say that probably
all but one of them uses supplemental capital. It does not make
good business sense to me to have a low income credit union
have that ability, but not a healthy credit union, particularly
when you are all in the same PCA box. The standards are not
different for those when you put them in PCA. But, your
suggestion of lowering from 7 percent, if you lowered it by 1
percent that would match the other financial institutions. That
would only help in the percentage, it would not assist in
anyway in the retained earnings being the only way to achieve
net worth.
Mr. Sherman. And, that was not so much a suggestion as a
question. I would like to see credit unions with more capital,
with more cushion and able--as far as I am concerned, since I
know whose the taxpayers behind is ultimately behind all of
this, my constituents would like as many different cushions of
as many different sizes, shapes and colors as possible. And the
fact that all credit unions do not have this cushion simply
exposes taxpayers to more risk then they would face otherwise.
I have concluded my questions.
Chairman Bachus. Thank you.
General Counsel Kroener, we are attempting in Section
Section 615 to address misrepresentations of FDIC deposit
insurance coverage. And I know that you we are going to work
with you on fine-tuning that section. But, would you briefly
describe such misrepresentations, what they are today in the
market? Also, what is the extent of your current enforcement
abilities, first of all and then I will ask a follow-up on----
Mr. Kroener. Right. Let me start with the efforts we
undertake. We do it just through monitoring market developments
and through people reporting to us. We do become aware, in the
course of our normal supervisory and regulatory activities of
instances where institutions, that are, in fact, not insured
banks, may be misrepresenting, particularly on the Internet--
and this is a particularly recent development--that their
products, in one way or another are insured products. Under
existing law we refer those instances to appropriate U.S.
Attorneys. In general we are talking about a violation of a
criminal law here. We are not a criminal enforcement agency.
Frequently these may be involved in jurisdictions that are
outside the United States where we do not have the right kind
of subpoena power. That describes the legal picture. As a
practical matter, where we can find out who it is, we will
contact them and seek to get them to discontinue the activity.
And, in some instances then, in fact, in most instances where
we can find out where it is coming from, which is not always
the case, we have been successful in having that activity
discontinued. As a legal matter, as I say, what we do is refer
it to U.S. Attorneys and they may, depending upon how serious
it is and what their priorities may be, they may or may not
take action.
Section 615, as it was proposed, I think is going to
require a great deal of work with your staff because there is a
mismatch. Right now our jurisdiction is over banks, not
persons. The standard that is brought in there is a criminal
standard of beyond a reasonable doubt, which is one we do not
normally deal with. And, it may be difficult to get to
something at the end of the day that we can really get
comfortable with. It is worth the effort. I should add that on
the pure misrepresentation side it is an area that falls into
the FTC jurisdiction right now I believe.
But, we are prepared to try to work with the staff to see
where we can get on this.
Chairman Bachus. Sure.
Mr. Kroener. Or there might be other ways to approach the
problem. As I say, just the straight going back and trying to
discourage it has been, I think, reasonably successful in
instances where you are not dealing with a remote jurisdiction
that we cannot get to.
Chairman Bachus. Okay. The section before that, Section
614, concerns your enforcement actions against independent
contractors like accountants.
Mr. Kroener. Right.
Chairman Bachus. What problems have you encountered with
independent contractors and how will this provision make your
job easier? And it is my understanding that you are comfortable
with Section 614?
Mr. Kroener. Right. Yes, we are. Deputy Comptroller
Williams, in fact, mentioned that in her oral statement, it is
something that affects all the agencies. And, as she said, we
have enforcement authority against a wide range of parties.
But, for independent contractors, unlike all other parties, the
standard is higher. It is a knowing and reckless standard and
where, for example, you are dealing with accountants, there has
been a concern and a reluctance to bring enforcement actions
because of the facts of the higher standard. We have had some
situations involving accountants, particularly in recent bank
failures, where I think there has been some reluctance to bring
enforcement actions because of this higher standard. And the
section is intended to address that concern for all of the
agencies, not just the FDICC.
Chairman Bachus. Chief Counsel Williams, anything you would
like to add? Not suggesting that you do.
Ms. Williams. No. I agree completely with what Bill just
said.
Chairman Bachus. Sure. Okay.
And, I think my question will be for you, but it is on
Section 101. That expands the eligibility of community banks
for treatment as Subchapter S corporations. In addition to
Section 101 we have got Section 110, which makes it easier for
community banks with national bank charters to qualify for
certain favorable tax treatment as limited liability companies.
Now, both those, I believe, were suggested by the OCC. And,
would you explain why you made those requests and that we
include them in the present legislation, which we have now? I
know easing the tax burden on community banks is commendable
and I am sure that is part of it, so they can devote more of
their resources to lending to the community. But, I would like
your further response.
Ms. Williams. I could not really say it too much better
than that, Mr. Chairman. Both sections address issues that
arise out of relatively old provisions in the National Bank Act
that are not completely in sync with some of the flexibilities
that are available today under modern corporate forms or, with
respect to Section 101, the qualifying shares requirement, the
fact that you can reflect the director's interest in the
institution in ways other than the typical stock in the
institution. And, so, the changes are designed to modernize the
law. The burden relief, I think, will be primarily felt by
community national banks. And, we are very comfortable that
there are not any negative safety and soundness implications
with these changes.
Chairman Bachus. Thank you. Okay.
My last question is for Governor Olson. Section 501 amends
some cross marketing restrictions that were imposed by Gramm-
Leach-Bliley. How would this change current law and practice
and will it expand the ability of financial holding companies
or their subsidiaries or affiliates to engage in otherwise
prohibited commercial activities? Will it expand their merchant
banking authority?
Mr. Olson. To the last two questions, no. But, let me
address your question in reverse order. It does not expand the
merchant banking authority. But, there are different
provision's within the merchant banking section for an
insurance company as opposed to a bank. There is an exception
that is now provided for insurance companies that hold stock in
companies in their merchant banking portfolio. It is a very
limited exception involving statement stuffers and use of the
Internet. What we are suggesting is that same provision ought
to be allowed for banks. But, it does not, beyond that, broaden
in any way the cross marketing provisions and it does not limit
in any way the anti-tying provisions either.
Chairman Bachus. So, it tries to eliminate a competitive
disadvantage that you might have----
Mr. Olson. That is correct.
Chairman Bachus. ----with anti----
Mr. Olson. And our recommendation includes one more change
where the bank, in its merchant banking portfolio does not have
a controlling interest, it eliminates the prohibition of cross
marketing where control is not at issue.
Chairman Bachus. So, it gives parity between----
Mr. Olson. That is true.
Chairman Bachus. Okay.
Mr. Sanders?
Mr. Sanders. Thank you, Mr. Chairman. Again, my apology to
you and the panel. I just have to be at another hearing.
Chairman Bachus. And, let me say in the defense of all the
members, we have briefings this morning again on Iraq. As I am
sure to most of you all, some of the reports are very
disturbing about Iraqi soldiers basically violating the Geneva
Convention in all sorts of ways using civilians as human
shields, dressing in coalition uniforms, offering to a
surrender and then executing ambushes. And, apparently, some of
the latest activity is setting up and firing from schools with
children there. So, that obviously is a distraction from this
hearing.
Mr. Sanders?
Mr. Sanders. Thank you, Mr. Chairman.
A couple of issues that I would like to pursue, the first
issue, going back to my opening statement is that in recent
years, as all of you will concur with, I think, and if you do
not, please tell me, there are fewer, as a result of a lot of
mergers, there are fewer and fewer banks and they are, in many
instances, larger and larger. The phenomenon of too big to fail
is something that interests me very much because I think it has
huge potential danger for the taxpayers of this country. If a
decision is made that a bank is about to fail and it is the
economic implications of that are such that it would be a huge
disaster for the economy, then what people here in Congress
would say, well, we are not happy about it, but we have to bail
it out because it will be less painful, less onerous to bail
them out then allow them to fail.
But, you have that potential when you have banks that reach
huge size.
So, Mr. Olson, if I may start off when you and anyone else
who wants to pipe in on this, please do. In your judgment, how
many banks do we have in this country that, in fact, are too
big to fail? Is Citigroup too big to fail? Is Bank of America
too big to fail? Is JP Morgan Chase too big to fail?
Mr. Olson. Zero. There are no banks in this country that
are too big to fail. You are on a subject that I feel very
strongly about and I have looked at very carefully. I began
most of my banking career as a community banker, although I did
work for a large banking organization. During the deliberations
on FDICCIA, during which the Congress directed the regulators
as to what our responsibilities are with respect to that issue,
I do not see how any regulator could read the provisions of
FDICCIA and have any feeling that there is any ambiguity in the
directive that has been given to us by the Congress with
respect to too big to fail.
There is a provision in the FDICCIA legislation that would
require a process that would go all the way to the president if
we were to pursue it. But, I would say to you that one of the
reasons that we have continuous supervision of our largest
banking organizations is that we do not believe there should be
and do not believe that there is a too big to fail policy.
Mr. Sanders. Let me just--I am glad to hear that. I am not
sure that I agree with you.
Mr. Olson. Well, can I----
Mr. Sanders. Let me just ask you this----
Mr. Olson. Okay.
Mr. Sanders. Several years before the S&L fiasco, which
costs us what, several hundred billion dollars, the taxpayers?
Mr. Olson. It is a large number, you are right.
Mr. Sanders. Okay. Might it not have been possible that
somebody sitting over your chair would have said the same thing
in response to a question from up here? Now, for example, we
can all understand that this is a very unstable international
economy. I do not think there is any doubt about that. You have
got war. You have got terrorism. You got all kinds of strange
economic things happening all over the world. Now, what happens
if a bank like Citigroup, which has huge foreign investments,
suddenly started losing their shirt? What you are telling the
chairman and myself, now that you have not the slightest doubt
that Citigroup, you know, the airlines are running in here for
their welfare payments right now. But, you are absolutely
assured that CitiGroup and JP Morgan will never come in here
and say, look, if you do not bail us out these are the
ramifications. And, you better bail us out because it will be
worse if you do not.
Mr. Olson. I cannot tell you what they will do. But, what I
can tell you is what we will do. Because you have given us a
very specific directive in the prompt corrective action that we
do not have in this policy is too big to fail. We do not have
in this country a too big to fail policy. I do not see how you
can read the prompt corrective actions provisions and have any
other--if you are a regulator, and have a sense that we have
any other policy at work in this country.
Mr. Sanders. But let me, in English, for the three people
that might be watching this on closed circuit television, what
you are saying, and I am not sure that I agree with you, is
that the chairman and I need not worry that there will be a
hearing at some day lined up with all of the big banking
executives begging for their welfare payments and telling us
what will happen if the taxpayers do not bail them out? You are
absolutely assuring us that they will never come?
Mr. Olson. Well, now you have just changed the question.
Mr. Sanders. Not really.
Mr. Olson. Because what you have asked me now is will the
chairman hold a hearing where the banks will be invited----
Mr. Sanders. Well, no, let's not play with words.
Mr. Olson. Okay.
Mr. Sanders. You know what I mean. Are the taxpayers going
to be held liable for these huge mergers, which have enormous
potential dangers?
Mr. Olson. I can say to you with absolute full confidence
that we do not have a too big to fail policy with respect to
large banks.
Mr. Sanders. But, you are not answering my question. You
may not have that policy. Now, you are acting like a lawyer
here. Are you a lawyer, sir?
Mr. Olson. By the grace of God I am not burdened with a law
degree.
Mr. Sanders. All right, then do not sound like one. All
right. You are telling me--I am asking you about the danger----
Mr. Olson. Yes.
Mr. Sanders. Are you telling me, in your judgment, there is
no danger that taxpayers in this country will be held liable
when banks become so big that if they fail the economic
implications are so huge that it makes sense for the government
to bail them out?
Mr. Olson. The reason I think there is--I cannot tell you
with that sort of specificity. And the reason I cannot is there
is a provision in the bill that does allow for a too big to
fail. But, that is only--that would involve all the regulators,
it would involve the Secretary of Treasury and it would involve
the President of the United States. And I believe that the
reasons that that provision is in the bill and it would require
that sort of complexity is because the direction that the
Congress has given to the regulators is not to have a too big
to fail policy.
Now, I think there is a difference between today and the
time to which you referred to the thrift industry problems of
the early 1980s. My association with this issue goes back to
the early 1980s with Continental Illinois. There is an all-
together different regulatory environment, post FIRREA and
FDICCIA. And, so, I think we have been given very specific
instruction. And I share your concern. And I applaud you for
brining it up.
Mr. Sanders. You share my concern. Boy, that sort of popped
up. I thought you did not share my concern. Do you share my
concerns or do you not share my concerns.
Mr. Olson. No, our concerns are the same----
Chairman Bachus. He said that he had concerns, but not--I
think what he was saying is he feels those institutions are
sound at this time.
Mr. Sanders. Well, I am not arguing that. But, we are
worrying about in an unstable, as you know, Mr. Chairman, it is
a very volatile world out there. I assure you the airline
industry five years ago probably felt pretty good too.
All right. Let me go on to another.
Mr. Kroener. Mr. Sanders, if I could please?
Mr. Sanders. Yes, please.
Mr. Kroener. Bill Kroener from the FDICC. First of all, let
me say that I agree with everything that Governor Olson has
said on this subject. I just wanted to add that to the extent
there is a macro concern about going through resources in the
insurance fund and ultimately reaching the taxpayers, one of
the ways that that can be mitigated and this Congress can
mitigate that, is with the deposit insurance reform proposal
that I guess is going to the floor next week we now understand,
because it would merge the funds and give us more flexibility
to deal with your concerns. And I would call that to your
attention and suggest that that is one way of responding to the
concerns.
Mr. Sanders. I understand that. But, you will, perhaps,
disagree with me or not, but in the event of a real financial
calamity there may not be enough money in those funds to do
what has to be done and there be a necessity of going to
taxpayers. Is that true or not?
Mr. Kroener. I agree with the prior discussion with
Governor Olson that you had--yes.
Mr. Sanders. Let me change subjects, if I might, Mr.
Chairman.
Chairman Bachus. And I would remind--you know, this hearing
is not on FDICCIA. It is on a limited bill----
Mr. Sanders. No, I do understand that.
Chairman Bachus. ----on reg relief, so it really is not the
subject matter of this hearing. But, it is a concern.
Mr. Sanders. And it touches in the sense that we----
Chairman Bachus. ----and I know you are addressing it.
Mr. Sanders. Because it----
Chairman Bachus. This legislation is not----
Mr. Sanders. No, I know. It is not 100 percent----
Chairman Bachus. Except in that it will--and I think that
it has such broad bipartisan support it will relieve some
unnecessary regulatory burdens, which will strengthen all our
institutions and be good for our economy.
Mr. Sanders. If I might, Mr. Chairman, because, again,
going back to the implications of mergers and I think too big
to fail is one. Let me touch on another one that concerns me.
And, I do not know about you, Mr. Chairman, but I hear from
constituents fairly often on this, and that is the issue of
banking fees. When people have an account at a bank. My
question is, let me start off with the easy one. I am assuming
people disagree with me if you might, if you want, my
assumption is that bank fees have gone up in the last five to
10 years. Does anyone disagree with that?
As they say for the record, Mr. Chairman, I do not see
anyone jumping up and down and saying they disagree with this.
I am taking that as a yes.
In terms of bank consolidation why should the average
person, who is paying more for bank fees? And, in some
instances really getting ripped off, if I might say so. Why
would they want to see banks become larger, less competition
and be forced to pay more in fees? Why is that a good thing Ms.
Williams?
Ms. Williams. Congressman, I think that what you are
raising is a very complicated issue. What we have seen evolving
in the banking industry over the period of time that you are
describing is more large institutions, but also many very
healthy and competitive community-based institutions. And, in
fact, in many situations in many markets, what we have seen is
that consolidation has actually created opportunities for new
banks to be chartered and for banks that have a more local
orientation, a more specialized orientation to operate. So, I
think that customers of financial institutions today have more
choices. There may be certain institutions that have had fees
that have been increased, but there are other institutions that
compete very effectively by promoting the fact that they have
lower fees then their competitors.
Mr. Sanders. Well, I am sure that in some parts of the
country what you are saying is exactly true. But, would you not
deny that with fewer numbers of banks that, in fact, in many
communities, the majority of communities, there is less
competition, not more. I am not going to say that is true in
every instance, and that the result of that has been or at
least one of the results of that has been higher fees for the
average person?
Ms. Williams. I am not in a position to say that that is
across the board the case.
Mr. Sanders. Well, I am not saying it is across the board.
But, I am saying in many instances----
Ms. Williams. I think the other thing to introduce here is
that with the increased use of technology in the provision of
financial services, individuals that are located in particular
communities can do their banking very effectively with an out-
of-market institution that offers them the best price. So, the
mix here, I think is more complicated than just that
consolidation means higher fees across the board.
Chairman Bachus. Mr. Sanders, actually we have run about
seven minutes over, but I am going to allow----
Mr. Sanders. I am sorry.
Chairman Bachus. ----you one other question.
Mr. Sanders. Okay. Thanks. Thank you, Mr. Chairman.
A question for anybody who might know something about the
issue, I represent a lot of workers who are concerned about
various aspects of the economy. In your judgment, would
somebody want to comment, how has--my impression is that
mergers in many ways are resulted in fewer number of employees,
layoffs and in some instances cut backs in pension benefits.
Have mergers--my impression is that mergers have not been a
positive thing for workers in the banking industry. Will
somebody comment on that? Am I right or am I wrong?
Mr. Olson. Congressman, I cannot speak to the pension
benefits issue, because I do not have that information in front
of me. But, there has been a reduction in the numbers of people
employed in the banking industry. And, in part, I think it is
because of the fact the banking industry is a mature industry.
It is an industry that has not had the opportunity to grow
laterally like a number of other industries have. And, as a
result, as the banks have become increasingly efficient,
largely through the opportunities available through technology,
there has been a reduction in the numbers of jobs in the
industry.
Mr. Sanders. So, the growth, mergers, technology has
resulted in fewer employees?
Mr. Olson. I could not break it down specifically as to the
extent to which it has been merger related. But, certainly
there is a great deal for efficiency, much of which is a result
of the--well, it is a result of a number of things. It is the
desire to become increasingly efficient----
Mr. Sanders. You are looking at it from the bank----
Mr. Olson. ----and the opportunities of technology.
Mr. Sanders. ----when you use the word efficiency, I use
the word layoffs and workers who have lost decent jobs. And I
understand where you are coming from. But, do not always look
at it from one said.
Mr. Olson. Okay.
Mr. Sanders. Look at it from the worker who had a job for
20 years, no longer has a job. Okay.
Okay, Mr. Chairman, thank you very much.
Chairman Bachus. This will conclude the hearing. I do want
to make one general response to Mr. Sanders, just something for
us all to think about. Twenty years ago if I wanted to bank I
had to do it between the hours of 9:00 and 5:00. And I normally
had to go anywhere from five to 15 miles to do it. Now, most of
the transactions I want to do I can do within two blocks of
where I am or four blocks from where I am. There are
underserved areas. But, I can go to an ATM machine and quickly
conduct my business and I pay a fee that did not exist 20 years
ago, but certainly it saves me a lot of time and effort. So, in
that regard, technology has certainly opened up our opportunity
and the locations for banking.
One thing that Mr. Dollar has said, and I would agree with
him, is that we all go into certain communities where we see
loan title shops, we see payday lenders, we see check cashers,
we see pawn shops. And we are trying to find ways to give those
people alternatives through both the provision in the FDICC for
people with low income to have basically check free services,
and some to reduce their fees, and also to allow our
institutions to meet some of those that are underserved. In
that area, I would agree that we have more work to be done.
But, I think the way to eliminate payday lenders, is to offer
an alternative to those people.
Thank you.
I appreciate the professional manner in which you all have
responded to questions and given your testimony. And I ask
unanimous consent to enter into the record statements that the
subcommittee regards concerning this hearing. If there no other
business before the committee, the committee is adjourned and
the panel is discharged.
[Whereupon, at 12:21 p.m., the subcommittee was adjourned.]
A P P E N D I X
March 27, 2003
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