that talks about qm, even, without him even understand that go his bank under qm, a bank under $2 billion, you can keep all of your loans in portfolio as long as they're not predatory loans, no documentation loans, those kind of loans. and you have some protection under safe harbor. so i'm going to go to barney frank. let's talk about what we have done and what you have done to be of assistance to small banks and community banks. >> a couple things. first, on the point you raised, i am, again, very surprised to hear my republican friends now say our problem is that we have toughened up the standards for banks to low-income people. i thought that was a general agreement that was part of the problem. but there is this myth that somehow democrats were pushing for these loans. in fact, during the period from,

really, the mid h-'90s, it was people on our side that were trying to restrict these kind of loans, and we passed the home protection act and he wouldn't use it. the state of georgia passed laws to assist subprime lending abuses and the bush administration preempted it. then i was working with brad miller and mel watt from the democratic side. we were trying to put regulation through to regulate subprime homes, and the public leadership shut it down. and on the day this committee wants democrats in control, again, to regulate subprime loans, it was over the objection of several members here who said subprime loans were good. and the wall street journal rejected it and said, these are good loans. 80% of them are paying on time, which didn't seem to me to be a great statistic. in fact, what happened was this. people on the conservative side were generally pushing these loans until the crisis hit. and then they needed an

alternative victim -- villain to blame for the crisis. so they retroactively became opposed to these kind of loans. then they reverted so there was a period they were blaming us. i think there is a great inconsistency between saying the act forced people to make loans to low-income people and then complaining that we have regulated and restricted those loans. to the community bank, i would be in favor of saying that people who kept the loan portfolio should not have these problems. i, on the other hand, think what's important, and this is one criticism i have of the regulators. i believe risk retention is the best way to go about this, because risk retention leaves the decision in the hands of the market. mr. carstead said you can't get away from it but you can shift it. this goes also, i would say, to

the question of regulation. yeah, there was some regulation before the crisis, but there wasn't regulation for two very important things: financial derivatives, and i agree with much of what he says about the end user and i also appreciated his acknowledging -- not acknowledge, noted that there was respective derivatives. but the biggest problem was the motto for a lot of loans in the mortgage area shifted from the kind that mr. wilson makes and keeps in portfolio to those that are made and then securitized. securitization, i think, is a great example of what mr. carstead said of getting rid of it and not passing it off. so i would require that if someone were going to secure ties --

securitize a loan, they had to risk revise it. then people could keep things in their proefortfolio but emphasi that the community banks have always been covered by the reinvestment act. it's inconsistent to talk about what a good job they did and then blame them for messing it up. we did reduce the premiums and we did exempt them from being examined by the cfpb, and there were other areas. people read to me the section of showing compliance. a suggestion was made that they be strictly exempted since they don't apply. i think that would be a good way to not weaken the regulation because some banks still have to spend money to show they're not violating the boca rule or having this kind of stock-based compensation. i think for banks at a certain

level, they should be kpechlt from those rules since they never use them, anyway, would ease the problem. those are two small ones that i would be for. >> the chair now recognizes the gentlelady from west virginia, the chair of the financial institution subcommittee. >> thank you, mr. chair, and i want to thank the witnesses for their testimony. i would like to ask mr. chairman for unanimous consent to enter into the record a very detailed description from a community bank in my district with ten very specific examples on how the new atr/qm rules have had a negative impact on west virginia consumers. >> without objection. >> i almost said yes, shelley. >> mr. wilson, we're kind of seeing it from the same handbook here in terms of the value of community bankers. obviously i live in a rural state, west virginia, which is

served by rural banks. but i think it's also necessary to securetize with u.s. banks. 50% of residential mortgage lending, 43.8% of farmland lending and 34% of commercial real estate. so that's very significant, particularly in the areas where you do your business and where i live. and so when you say that you've gotten out of the mortgage busine business, is the reason for that -- even if you can hold them on portfolio, are the rules too constrictive? is it that you're finding that the qm box is something you can't lend in? are you worried about examiner oversight in this area? specifically, why would you get out of that business in terms of

the dodd-frank regulations? >> thank you. the mortgages we originate were all balloon type mortgages, so that was really discouraged. in my 35 years of banking, i have never sold a mortgage, and so we originate those for our customers and we keep them in the bank. so the qualified mortgage, if you look at those -- like the debt to income -- >> right. >> -- we use 50% debt to income. so the bulk of those people we served in our market would not have met the -- i believe it's 43% debt to income limitations in the qm rules. >> i guess in your prior practice of issuing mortgages under those parameters, would you say that the customers that you've been serving would be in the low to moderate -- you said $50,000 was your average

mortgage. obviously that's on the lower end of the scale. how else would these folks ever be able to purchase a home that they could call their own? >> many of them i would encourage to go try to get a permanent fixed rate mortgage for the life of their mortgage, no balloons would be in their best interest. but those that, because their credit scores weren't high enough or some other reason, we were able to help them, and i'll just confess that we do not have any problems in our real estate mortga mortgage, the ones that we underwrite and keep. but they just didn't fit for some reason. they may have been small business owners that had schedule c tax returns instead of a w-2. >> let me ask another question on another line that you -- when you talk about community banks and the constriction on the numbers and the different mergers and acquisitions.

what kind of effect do you think that will have on rural america? obviously your business model is relationship banking, and the bigger and larger institutions as they grow moves away from that model for obvious reasons. how would you express that concern? >> in our particular instance, we have no branches. we are in san diego. we have the board of directors that lives in that area. we have a president of the bank. we have senior vice presidents. in the branching environment, if we were to sell to a mega bank, you would have tellers and maybe someone to open a new account. all of those positions would be eliminated. >> mr. kubiak, let me ask you this. you didn't really address this in your statement but something i mentioned in my opening statement that there are still many, many rules and regulations that have yet to be written concerning dodd-frank. what kind of impact do you think

that has moving forward? >> well, the regulatory burden of dodd-frank has been significant. i think just a week or two ago, it was reported that, you know, jp morgan was laying off thousands of people but hiring thousands of compliance staff. so something like 7,000. so compliance staff, you know, that's to meet the regulatory burdens of dodd-frank. in terms of community banks, there is a lot of evidence. there is a mercata study that i cited in testimony in march that showed this study -- mercadis? >> i think i've run out of time here. thank you. >> the chair now recognizes the gentlelady from new york. >> chairman frank, we seem to hear a lot from the other side of the aisle on this committee about how dodd-frank's resolution authority for large

financial institutions somehow enshrines -- quote, enshrines bailouts, end quote. because the fdic would use money borrowed from treasury to facilitate a wind-down if you needed it. i remember when the financial reform bill was in this committee, it was the democrats on the committee that wanted to avoid the need for the fdic to borrow from treasury by creating an up-front resolution fund paid through assessments on financial institutions rather than taxpayers. but i also remember that it was the other side of the aisle who demanded that the up-front resolution fund be removed because they claimed it was -- you guessed it -- a bailout fund. now, i would like you to go back to the financial bailouts of 2008 and 2009 and tell us if there was any such action that we did back then that we could do now under the new rules of dodd-frank.

dodd-frank actually said that there is no legal authority to use public money to keep a failing entity in business. the law actually forbids it. and it repeals the power the federal reserve had to extend funds to any financial institution as with the bailouts with aig. so would you go back to this point? because this is a point we hear over and over again how dodd-frank resolution authority protects taxpayers' dollars. >> thank you. i would like to say preliminary to respond to a comment mr. kubiak said. to the extent we were responsible for jp morgan/chase beefing up its compliance debt, i am not embarrassed. if they had done that sooner, they would have saved themselves in the teens to billions of dollars of non-compliance. i admire you, i think you did a good job, but they were not overcomplying in a number of areas. the gentlewoman from new york is

absolutely right. we did have a fund. and there's been a fundamental difference between the two parties whether we should finance larger institutes, not community banks, at 50,000 more. in fact, when we were in compliance with this bill in 2010 and our position was with the senate when the cbo said it was going to cost $20 million over a 10-year period that we should get that fronted by large financial institutions, those at 50 billion or over, and that would have covered everybody. the republicans rejected this in the senate. there weren't that many republicans voting for it. but the senate republicans who were voting for the bill rejected it. senators brown, snow and collins, and made us take that out. it wouldn't be giving the senate the 60 votes they needed and they said put it on the taxpayers. so we have this history where the republicans objected to an assessment on the large financial institutions and said

give it to the taxpayers. the federal reserve couldn't do aig under this law. now, it is true. people say, well, they can set up a broadly applicable facility, but under this war -- and i think mr. sherman had a role in this -- they had to guarantee that it's a solvent institution with a very high percentage of probability. so we have specifically prevented the fed from doing what they did with aig. now, the argument, as i understand it, is even though the law says -- and the other difference is no money -- we do all recognize it. they said going back to ronald reagan that some institutions are so large, you just can't let them not pay their debts without having a reverberation. so the question is, what do you do about it? under the law now in place, that effort to deal with their debts can't happen until they've been put into receivership. the boards have dunaway with

th -- done away with this, shareholders are wiped out. then any money that was spent beyond what was available from the owners has to come back from an assessment and the secretary/treasurer is mandated to have it recovered. i've heard this from people. oh, in a financial crisis like that, there would be overwhelming political pressure to ignore federal law and use public money to keep a federal institution in business. i don't know in what universe people have been living -- i think there would be enormous political pressure not to do anything at all. i can't think of any of these past efforts that would now be legal under our bill. >> the time for the gentlelady has expired. the chair now recognizes the gentleman from new jersey. >> thank you, chairman, for a

very timely hearing. i guess it can only be former chairman frank who can put reference of secretary geithner's book all in one breath. you remind me of groucho marx's statement that from the moment i picked up the book, i was convulsed with laughter. maybe someday i'll read the book. was it your intention, when they do recognize a non bank sifi that it would be recognized as a non-bank sifi into perpetuity? >> no. >> thank you, because i didn't think there was. is there a way the fed is handling that right now, because i look at your testimony --

>> there was a premise in your question that i did not agree and you imputed me greagreeing h it. i've been very skeptical of them doing that. >> great, i appreciate that. i'm delighted. >> i said the comment to that effect. >> i appreciate that. mr. kubiak, in your testimony you pointed out that the fsoc makes it impossible to take steps to avoid it as a sifi. that makes no sense, so i agree with you. can you then just jump off what the congressman just stated? i guess you would agree with him that they should not be making these designations as well, and as long as they are, they are inadequately telling us how they would no longer be in perpetuity? >> i completely agree, and i thought there was some intention that the designation should be reviewed annually, anyway.

but since the designations themselves don't explain why the institution, what the specific characteristics that make it a sifi are, and what they would have to do to make it undesignated, the protcess is really broken. >> i guess we have agreement on that point. i did catch your one comment, congressman, earlier, you mentioned some areas that need to be changed in dodd-frank, and you said there are other areas that also need further correction. the senate recently unanimously passed one, which i'll call it the collins fix, to ensure the fed can appropriately -- that's my word, not theirs -- regulate non-bank sifis. i assume you agree with that unanimous change. >> i'm not familiar with the bill. i don't have to read them all these days. >> okay. >> can i say, if i might, this whole conversation the three of us have had starts from the standpoint that being designated a sifi is an unpleasant thing

and that institutions should be empowered to resist it, which i think undercuts the point that being named a sifi is such a great benefit and income thbein category is something that helps you. they all fight it so hard. >> we only have limited time. do you want to go to that point? >> the problem with that reasoning is if you're truly a systemic firm and you're going to get the bailout, then you don't have any of the regulations because you'll be bailed out, anyway. so you would fight. if you are systemically important, you're systemically important in the end and the government has to bail you out, and your best bet is to defuse any regulation, anyway. they would fight like crazy even if the too big to fail is a benefit. >> i think that's an important point. let's just give a hypothetical. someday in the future when a mega bank, a sifi, does go down, and that will happen again, part of the cost of that whole

process r process, the resolutions process, will be borne by the rest of the sifis, right? >> if it goes to a title 2. >> so the question is, now we've designated these non-bank sifis, including potentially for asset managers, right? so these asset managers will now be one that could be or would be bearing some of the brunt of the bailout. now, asset managers do not have a lot of capital. so where will the bailout actually be paid for? won't it be paid for by the retired widow who has funds in the asset manager? the retired widow will be paying for the reckless conduct of these sifis. is that correct, mr. kubiak? >> yes, the asset manager has to get the money from somewhere, so the fees would go up. it has to recoup it somewhere. >> is that your intention that retired widows and designated entities would be the ones who

would bear the brunt? >> if it was a serious question, you wouldn't ask me with no time left, so i'll wait for someone else to ask me that question so i can answer it reasonably. >> that's a very serious precedent and a very serious problem. >> the chair now recognizes the gentlelady from new york. >> thank you, mr. chairman. chairman frank, as you have seen here today, and you hear, we continue to hear that the dodd-frank act is having a negative impact on the economy. yet the stock market is reaching all-time highs, job creation is on the rebound, and access to capital for small businesses is the best it has been in four years. now that you are in the real world up there, do you think that main street is buying this rhetoric that is not in line with reality? >> i think main street is not,

and as you know, as chair with the small committee when we were writing the bill, you had a very significant input, and i think we tried very hard to deal with it. by the way, the argument the republicans gave at the time, remember, there was a bill we worked on that the treasury had asked us to do to encourage lending from community banks to small business, and the republicans opposed it and said, the problem is that banks don't want to lend to small businesses because the economy is so bad. so the problem was on the borrower end and not the lender end. if i can take time to respond to the last question that i got before. the fact is when we wrote the law talking about who would have to assess, we took into account the different levels of financial activity. and, in fact, asset managers are not exempt from contributing at all, but by formula they would

contribute a much smaller share than what they have. in fact, i don't think they should be included in sifi. that doesn't determine they don't contribute. but there is a formula that would minimize their contribution, and i would say, and i was proud to represent fidelity and putnam and other institutions, but if they had to make a contribution along with all the others, they would not have to go after old widows or even young widows. there were ways they could do that out of the very considerable profits that they made. but to go back -- even on community banks, we also increased the deposit limits to 250,000 which security banks wanted, and in our bill in the house, we indefinitely extended transaction account guarantees. so, again, many small banks said to us, we want to do business with small businesses, but they need to keep more than 250 around for transactions. we said yes to it. unfortunately, it was later terminated in the new congress. i do agree that -- and i think,

frankly, sometimes it's the lawyer's fault. i've talked to some people because i did not recall in the bill, other than the mortgage one, that affected smaller banks. something i found was that some lawyers were convincing community banks that they were in compliance with the boca rule or the compliance pieces. that's why i agree that if you don't do those things, you're exempt from them. and i think in some cases, people have overlawyered to try to prove that. but yeah, we tried very hard to be respectful of the community banks, and i was pleased when the independent community banker said they thought the bill was okay. >> thank you. mr. carson, you mentioned uncertainty facing the financial sector due to rule making. do you think they should implement dodd-frank to bring

certainty to the industry. >> i'm absolutely in favor of certainty, and if there can be an expedited process to this or a date certain when this ends or we have a period when we can operate, that would be a very good thing, yes. >> thank you. thank you, mr. chairman. >> the lady yields back. the chair will recognize the gentleman from texas, chairman of the housing subcommittee. >> thank you, mr. chairman. mr. kubiak, in your testimony you said that four years after the passage of dodd-frank that there is no evidence that it's really ended too big to fail, and indeed, dodd-frank probably reinforced investors' expectations that the larger financial institutions actually benefit from government safety that protects that are not available to smaller institutions. can you tell me quickly what advantages that you see those institutions have over smaller institutions like mr. wilson?

>> i think that the perception that the government is so closely watching them and they're subject to much, much tighter regulation and supervision gives investors the impression that they will be protected by the government. that the federal reserve who is intrusively involved in their operations is responsible for not letting them fail, and i think there is a system set up where the intrusive regulation thaz has replaced the market that you usually see, so the intrusive regulation is much less. it's on average 25 basis points. 22 was the smallest year and 32 was the biggest year i looked at. so there is a definite advantage to being a large bank. >> mr. frank mentioned several times that he felt that the larger financial institutions actually didn't benefit from dodd-frank that was onerous on

them. i wanted to quote some things that some people that run some of these financial institutions, for example, said that goldman sachs would be one of the biggest beneficiaries of this reform. jamie diamond even pointed out that while margins may come down, the market share may increase due to a bigger mode. several ceos here have said that dodd-frank -- for example, wells fargo said, i don't think dodd-frank got it right or solved the issue. so the question is we've gone through all these gymnastics of doing this, but in fact the bigger financial institutions have gotten bigger, and we've seen -- >> well, at first -- >> i didn't ask you a question. so the question is bigger financial institutions have gotten larger and we've seen a lot of consolidation in the smaller institutions, community

banks, we've seen a number of consolidations. if we continue without making some changes to dodd-frank, do you think that's the direction that we continue to go, the larger financial institutions with that advantage, get larger at the expense, in many cases, of the smaller institutions? >> yes, i think very definitely that the changes in dodd-frank will change the institute -- will increase the consolidation in the industry and tend to make assets and deposits be concentrated than in the largest institutions. there are a number of features, and it's not just regulation of the largest institutions. dodd-frank had a big impact on subchapter-s banks, which most small banks are. it doesn't allow you to pay dividends if you get below a capital threshold, and this is the means by which you get money out of a subchapter-s, so they can't pay their owners dividends.

it's the preferred-not preferred shares. it eliminated chups, which is major for small banks. if you're a large corporate or municipal, you're going to go to the largest banks where you think things will be protected in a title 2 resolution. i think there is a lot that tilts the whole system over the long run towards the larger banks. >> mr. wilson, if you're competing with deposits, especially if it's a large deposit, do you find it difficult to compete with larger institutions, say, on cd rates or money market rates? >> we have challenges in that, but we're in a market that is pretty much a wash in deposits right now. part of the oil field activity in our area. >> but would your cost -- you

said you had 17 employees. with your cost, and you add additional compliance costs, it is putting some pressure on your margins in what you can pay on deposits and what your loan rates are? >> yes, sir, our margins have squeezed considerably over the last four years. >> with that, mr. chairman, i yield back. >> the gentleman yields back his 10 segconds. the chair recognizes the gentleman from california, mr. sherman. >> thank you, mr. chairman. to set the record straight, this 50 billion we're talking about was originally 10 billion in the bill, and some of us had to fight very hard to raise that. the original approach was that the sifis get the bailout and the medium-sized institutions are among those paying for it, even though the million-sized institutions never could have

gotten the bailout. the problem we have is twofold, and these problems continue. first, the existence of entities that are too big to fail. and second, the credit rating agencies. as to the existence of entities that are too big to fail, we are told that the current law prohibits using taxpayer money to bail them out. well, i was here in 2008. the law prohibited using taxpayer money to bail them out. we passed a new law. one would suspect -- in fact, the markets are convinced that that is exactly what will happen again. and that is why mr. kupiec testifies that these giant institutions enjoy 22 basis point benefit. i submitted to the record in previous hearings that it's closer to 80 basis points of

benefit. and as mr. kupiec points out, the sweet spot is to be a sifi but not be classified as a sifi. so if the markets believe that you're so big that you'll take down the whole economy, they will loan you money at a lower rate knowing that congress acted in 2008 and would probably act the same way again. the solution to too big to fail is not to have institutions that can take down the entire economy. and mr. chairman, and i mean the current chairman who has just left the room, the republican report that we're here having a hearing on identifies that there are only two legislative answers that have been put forward to deal with this. one is mr. kapawano's bill that would require additional capital to be held by those, and then

there's my bill that say too big to fail is too big to kpes. sin -- exist. since the focus of this bill is to solve problems that haven't been solved, we may be asked to bail out institutions again, and there are only two legislative proposals to deal with the problem identified in the republican report. i don't know if the current chairman can speak for the permanent chairman of the committee, but i look forward to asking him why we can't mark up the only two legislative proposals identified in the republican report to deal with the problem that we're talking about here? i have a question for mr. wilson, and that is, as you

already know, the regulators are crafting -- regulators are currently crafting the qrm rule. do you agree that this rule needs to be issued promptly and closely track the language of the qm rule to ensure a transparent secondary mortgage market? >> i'm an advocate for if the bank keeps the mortgage in its portfolio, those rules should not apply to the bank. that's 100% risk retention. >> that's, i think, a different issue. mr. carr, do you have a different -- >> risk retention is a different thing. that's how it got worked on

appropriately. >> i think you were out of the room when i -- >> and i didn't hear you. >> that's why i will use my last half minute to ask you a question, and that is since the republican report says we have a huge problem, the too big to fail institutions might be bailed out. since your report indicates there are only two legislative proposals to deal with that problem, mr. kapawano's bill and mine, is there a chance instead of just talking about how bad some prior bill is that we would actually consider the only two legislative proposals identified in your report and mark them up? >> perhaps the gentleman missed the chair's opening comments when he said he would mark up too big to fail before this congress is over. the time of the gentleman has expired. the chair now recognizes the gentleman from oklahoma, mr. lucas, chairman of the agriculture committee. >> thank you, mr. chairman. i'd like to move over to the subject of title 7 and the derivatives markets. your testimony is a little more

than familiar to me. my committee and i have held 17 oversight hearings on the commodity futures trading commission, the derivatives market and the implementation of dodd-frank over the last four years. your testimony offering great oversight to the end process and the concern that end users are being treated like large oversized banks is something this committee has heard dozens of times from dozens of witnesses. that's why just about every issue you raised in your testimony we addressed in my legislation to reauthorize the cftc at hr 2013, which passed the house last month with a large bipartisan majority. and you are correct, end users did not create the financial crisis of 2008 and should not be regulated like they did. end users are the job creators and should be putting resources in the development of the projects to grow their businesses.

they should not be required to park valuable resources in large accounts. as you mentioned, the house has twice passed an act with large bipartisan majorities. 141 votes last year. unfortunately, the senate, that other body, has not acted on this bill, so i included the prohibition on charging end user margin in the cstc act. can you quantify the cost that msc would incur in possible job losses if this protection is not enacted to law and msc has to post large derivative actions? could you answer that, please? >> thank you for that question. smc is also a member of the business round table, which is itself a member along with fmc of the coalition for derivative end users, and we surveyed the other non-business end of the

round table and found that on average for fmc and other non-business users, it would be $269 million that would need to be set aside for meeting these margin accounts, and that was only assuming a 3% initial margin without allowing for any variation margin. and sir, that would be a direct subtraction of funds we would otherwise use to invest in capital equipment to expand our business, inventory to support higher sales, in research and development to innovate new products, and ultimately we hope to grow our employment. >> it seems hr 2014, then, would be an important thing to help our economy. mr. chairman, i would note on this 14th anniversary of dodd-frank, like other members of this room having been a part of the legislative action in the committee and across the floor and the conference committee,

you know, time tends to modify our memories about how things are done. but as i remember it, the derivatives section of what would ultimately be the dodd-frank act started as a very high piece of legislation, supported from both sides of the aisle. as i remember it, when we got to this committee, there was input from the minority, this side presently, but at that time the political minority. as i remember, the board went across the floor with support from all sides of the room. when we got to the conference, the decision was made by the conference chairman to set the housework aside and take up senator dodd's product. from that point on, as my memory goes, it was not too much of a bipartisan process. i just note to all my colleagues that serving on several committees, some with a very strong tradition of bipartis bipartisanship that we began dodd-frank, whatever the end

result was, i think approximainn that was appropriate for what we were trying to accomplish. but in the end, i don't remember the minority having much input, mr. chairman. maybe you remember things differently. with that i yield to the chairman. >> i think the gentleman's memory is quite vivid, notwithstanding the fact i recall being there for about 24 hours, but yes, the gentleman's memory is correct. does the gentleman yield back? >> a bill only reflects how it's put together. thank you, mr. chairman. i yield back. >> the gentleman yields back the balance of his time. the chair now recognizes the gentleman from new york, ranking member of the financial institution subcommittee. >> thank you, mr. chairman, and i appreciate the gentleman's last line of questions, but listening to the testimony of the witnesses thus far, i do want to see whether or not there is anything that we can agree upon. so i'll ask, i guess, mr. wilson first, do you agree that it was

some bad behavior by some financial institutions that created the problem that we had with reference to the financial crisis? >> there was no bad behavior on my part. >> no, i said some financial institutions. >> those guys did something -- financial institutions and non-financial institutions did something that got us in that mess. >> somebody did something. something happened and things went bad, correct? >> yes, sir. >> i'll ask the same question to mr. coffman. >> sure, there were a number of contributors. >> someone did something wrong. on our own we didn't have anybody covering it, but a lot of people did something wrong to cause the crash; is that correct? >> absolutely. >> mr. deas? >> sure, yes, there were financial institutions who engaged in risky activities, and

those risks blew up in 2008. >> mr. kupiec? >> yes. there were lots of guilty parties. the regulators missed lots of signs. there were consumers around the country that took out loans trying to profit by low rates and flipping houses, and they were taken advantage of or they were facilitated by the financial institutions, but it was not just financial institutions that caused the problem. it's widespread. blame is widespread. >> so let me go back. from what i'm hearing, and i've heard from a lot of my colleagues, especially the other side of the aisle, basically what they want to do is get rid of dodd-frank. if we listened to what they are saying, they are basically saying the cause of the problem and the problems we're having now is dodd-frank. dodd-frank didn't exist when the problem was caused. dodd-frank is as a result of the problem. so now, i don't know whether individuals tried to get rid of

dodd-frank, but the next question is, is there anything in dodd-frank that you agree with, mr. wilson? >> yes, sir. >> mr. kohl pack? >> yes. >> mr. kupiec? >> yes, and i think the goals of dodd-frank and too big to fail are goals. i appreciate those goals but i don't think dodd-frank does it at all. >> so now i go to mr. frank. mr. frank, would you tell us how you arrived at how dodd-frank came into existence and what it did to help save our economy and put us where we are today? >> there are two areas that the chairman mentioned that had been a lot of regulation, including some increased regulation. but there were two innovations, and i think the problem was not

so much that we deregulated as a society, but that we did not have new regulations to keep up with new activity. and there were two. one was the financial derivative business, and i noted what mr. deas said. i agree with him and the end users that there was risky speculative activity that became evident in 2008 basically from people who were using that themselves. it wasn't connected to helping the productive economy. secondly, and most troubling, was securitization of loans. people found a way to get rid of it. they said you don't get rid of it, you shuffle it off. in those two areas, these new financial derivatives -- remember, congress enacted in 2000 active legislation that said stay away from derivatives. we did have, we thought, in the

home mortgage protection act, and they said they wouldn't do it. we said we would stay away from subprime loans. people were making loans, and apparently they made a quantity of loans instead of quality. if we get to too big to fail, then things have failed. we don't want the institutions to fail. by stopping these irresponsible loans and making people stand behind the financial derivatives, you hope very much to make it unlikely that people will fail. if there hadn't been bad loans and aig hadn't sold credit to people who bought security from these bad loans with no idea of how much they owed, we wouldn't have that kind of a problem. >> time for the gentleman sex pird. t -- expired. the chair now recognizes the man from missouri from the house subcommittee. >> thank you, mr. chairman.

i appreciate the opportunity for all the folks to be here today and listen to their concerns. it's interesting, as somebody who is involved in the community banking industry and, you know, been on both sides of the table and then see the regulatory onslaught that's come as a result of the dodd-frank bill, it's mind-boggling to see the effect of what has happened. when i talk to community bankers, the first thing they talk about is the amount of regulation that's come out of washington. and mr. carpen, you talk about the fear and anxiety. i hear that all the time. i just talked to one a minute ago. it's uncertainty that causes them to not want to go out and invest, and the local community, the business people themselves, have the same fear and ambiguity and uncertainty of not wanting

to risk their hard-earned blood, sweat and tears business by expanding, and i've had a banker tell me before that -- i asked him, i said, how are things going? he said, well, last week i had three people come in who i had approved the loans for their businesses over the past two weeks, and all three sort of pushed themselves away from the table and said, no, we're going to wait. we're concerned about the economy, concerned about this regulatory environment coming out of here, and obviously the president's health care law is a big problem, but it also comes down to dodd-frank and the accessibility of funds, the cost of those funds and the uncertainty that it causes for their economy. so, you know, mr. wilson, you talked about -- basically, my view is community banks are not the problem, yet they've been roped in as part of the solution. as a result, you talked a while ago about less flexibility, and, you know, less ability to serve the unique needs of the communities that you set in.

i would like you to expound on that a little bit from the respect of what goes on in the community bank and how you fulfill those unique needs. >> we are in a market that is 85% hispanic, and the mortgage loans that we would originate were somewhat creative, you might say, but they were five-year balloons. they were not high-risk mortgages. we have very little losses in those portfolios, but we were able to uniquely tailor that loan to meet that customer's needs. and i might say during the lifetime of that loan, we were very flexible if crises happened in those families of working with those customers. >> one of the things, i think, that's happened, and as somebody who comes from a rural part of the country, i go back home every weekend, and you see that there is another bank that's sold out to a competitor, a neighbor, or a larger institution, and you guys have alluded to it this morning about

the cost of compliance. it's not that it's a bad economy. the economy is stagnated, but at some point there's not a particular law or particular rule that caused it to happen, but it's an accumulation effect that at some point is kind of like the straw that broke the camel's back that said we can't do it anymore, we can't continue to spread the costs over the entire business. i know yesterday in the wall street journal there was an article about some of the banks getting close to the $50 billion mark with regards to being designated as a sifi. i've got a bill to try and say, hey, look, it's not the size, it's the size complexity interconne interconnectivity and the risks they're taking. mr. carpen, you've got a lot of risk in this area. what do you think about the

situation of what we need to do about the sifi situation to protect kind of the mid-size banks as well. >> the fear of the sifi is it brings you under the jurisdiction of in when they believe that other regulators have failed. therefore, it creates another level of uncertainty. another bite at the apple, if you will. that creates a lot of concerns on the part of the financial institutions. the customers, the business borrowers are concerned that they will be able to assist then when they need them. >> one of the ones that hit the $50 billion mark, the stock went down 50%. there is another bank approaching the 50 billion mark. not because of anything they

have done but because of their size. that is an unintended consequence of this situation that can't be allowed to continue. mr. chairman, i yield back. >> the time of the gentleman has expired, the chair recognizes the gentleman from massachusetts, mr. capuano. ranking member of the housing urban subcommittee. >> thank you, mr. chairman. bonnie, do you miss us? >> no. >> i don't blame you -- >> i am not under oath. >> i think -- the gentleman of the panel, and barney, you're seeing this again, a show with no purpose to it. for me, i love you all, i would have left. because this seems to be going nowhere. it is going nowhere, mr. wilson, you already made a proposal, i would sign on this tomorrow for a small community bank holding their own mortgages at 100%. you should not be subject to qm. sign me up, that is easy. but we don't want to talk about that. we want to talk about how bad

dodd-frank is. we don't want to talk about some of the things we come to an agreement on that fix some of the things we need to fix. instead, we light the chambers of the outside ideologue think tanks. that's what we have to do. we can't talk about too big to fail. many of us think we did a pretty good job with too big to fail. but i for one think fine if we can do more let's do it. what is the problem? so i put a bill in, others have a bill in, 2266. i can't get the ideologues to support it or even to look at it unless we repeal dodd-frank. how are we going to get to the specifics if we simply say we love this, we hate that, here are my speaking points for my campaign. fannie and freddie, does

everybody realize that the u.s. government has made money from fannie and freddie? do you know that? do you know that? >> no, sir, it is all i can do to keep up with derivatives. >> fair answer, but a lot of the derivatives are tied to fanny and freddie mac, you should know who you're paying because they're actually costing you money. mr. kupiec, did you know we're making money on fannie and freddie? here we are, making money, costing homeowners more money than they should be charged so they can use it as a piggy bank, yet we can't have an honest discussion on how to fix it. instead we have an ideologically based bill that sits on the floor, never seen a major bill sit on the floor for as long as that proposal has because we can't get it passed. and that is just one of them. we're having trouble with tria, we can't do it with the highway

trust fund, we can't do it with immigration. we're lighting candles at the ideologue altar. help me find a way to get to these points. mr. wilson, can you talk to some of the friends over there to let us do what we can do. i love them all, but they won't listen to me because i'm from massachusetts, i guess, we're too liberal to be listened to. could you get them to listen to some of these things? >> i'm excited we have consensus on addressing the needs of community bankers. >> well, the independent community bank has actually supported 2266. the american banker wrote that it was a brilliant idea. by the way, it was not my idea, it was a professor's idea that i simply put into legislation. i guess -- i don't really have any questions because the truth is, i already know some of the things that need to be done and i'm happy to work with you and any of you or anybody else who actually wants to address some of the problems in a bipartisan way. but i got to be honest, i'm getting tired of the regular hearings that we have, simply stating political points over

and over and over. dodd-frank has done a very good job of containing the crisis that we had. putting us back in the footing. can it be improved? of course it can. barney will be the first one to tell you he didn't get everything he wanted. a 5% retention? i think it should be higher. there were others who would like to change some of the things. those are changes to a bill that works. it is not just throwing it out, pretending we did something terrible. gentlemen, i am sorry i don't have questions for you but i can only suffer this so much. thank you. imhe going to yield back. >> the gentleman yields back. the chairman recognizes the chairman from south carolina, mr. mull vain any. mr. mulvaney.

>> i guess in response to part of the questions by mr. capuano, let's see if we can agree on something. i was struck about the story that mr. wilson told about his compliance costs going up as a result of dodd-frank. and i'm reminded of a story about south carolina, the examiner, they told the story, the examiner asked them at the end, how are you finding the new regs, how are you finding the new environment? and the bankers of the small community bank said it is killing us. we have 18 employees and had to hire three people last year just to fill out paperwork. and it is just killing us. and he said the response with the examiner was outrageous, the response from the examiner was this blank look of non-recognition. the examiner said, i don't understand. it's working because you created three jobs. and if you have a complete misunderstanding of how you create wealth and how you create jobs, then maybe that part of dodd-frank is a success for you. and i think mr. kupiec mentioned the stories coming out that j.p. morgan chase said earlier this year they were going to hire

3,000 more compliance officers this year on top of 7,000 compliance officers last year, yet total employment at jpmorgan will go down by 5,000 people. so we're moving away from this concept of a productive financial sector into a compliant financial sector. i am fearful that may be part of the long-term legacy of this particular piece of legislation. but if we go to the point on focusing things that maybe we can agree on. i'm encouraged by his comments, by mr. frank's comments that perhaps banks holding loans should be exempt from qm. let's see if we can agree on maybe the arbitration bill is a bad idea. and that picking a number, i'm surprised to hear mr. sherman say, i was not here earlier, that that number is actually 10 billion, which means that we were actually contemplating a regime where a bank on a financial institution with 11

billion would be treated the same as 1 trillion, which is absurd. i'll start with you, mr. kupiec -- >> could i just add one point? >> i will give you a chance, mr. frank, i want to ask mr. kupiec if he thinks it is better to replace the $50 billion threshold with something, say, that looks at the complexity of the business, not the size but the business model and what the financial institutions are engaging in? mr. frank, i'll ask you the question afterwards. >> it is an excellent question, two aspects to it. on a positive note on what you can do to fix too big to fail in dodd-frank, title 1 should have been used to direct the fdic in their regular bank resolution process to be required to split up large banks to fail rather than to set up a whole bank resolution. that is how we got to too big to fail banks and dodd-frank didn't do that it would have to modify the fdic act so they didn't have

to do the lease cost resolution. so the whole notion that dodd-frank handles the too big to fail notion is nonsense. if you fix the banks, the ones between 50 and 250 billion, they don't pose a risk to the economy. the resolution process built up a too big to fail industry structure. that is what dodd-frank should have fixed. it should have addressed that flaw and didn't even touch it. the resolution plans, it doesn't speak to that at all. it is about a bankruptcy proceeding. it never recognized the resolution process that was in place, the regular fdic resolution process is broken when it comes to a large bank and doesn't have to be. >> we'll come back to mr. point which is this $50 billion arbitrary number, it doesn't come from anywhere, there is no

science that came up with $50 billion. the problem with having this potpourri of things and turning it over to the f-sock, if you turned it over and said 50 is out but the f-sock has to figure the complexity size, whatever else you want to care about. the f-sock could sit there and say, oh, yeah, we looked at these. $50 billion is where it saves. there is nothing that fixes the problem if you kick it to the f-sock. >> i did intend to ask you the question -- >> i think you may have misunderstood the chairman. the notion that it was once $10 billion, nobody ever thought about 10 billion as made into a siffy. the 10 billion was the number that you would have to contribute if there was a bailout. >> i wasn't suggesting it was a

siffy -- >> that was not about regulation. >> time of the gentleman has expired. chairman now recognizes mr. clay, the monetary policy and subcommittee. >> thank you, mr. chairman, and welcome back, mr. frank. just going along with that line of questioning, senator warren of massachusetts has advocated reinstate i reinstating glass-steagall in order to address the issue of too big to fail. what are your thoughts on that, mr. frank? should we go back and address? >> no, i voted against glass-steagall at the time because i thought it did not have enough of the new regulation. but glass-steagall is a 70-year-old bill. i think the problems i talked about, the financial derivatives without backing, credit to false swaps, insurance not regulated in the way insurance should be

regulated. securitization of mortgages. glass-steagah ll wouldn't have stopped any of that. then the question is well, do you break up the banks? and i did agree, the complexity is part of the issue. i agree with that. that is one of the things we asked them to look at with regard to those where there is a discretion about being a -- discretion about being a -- a siffy. that by the way is where i think the volcker rule is very important and why i changed my opinion on the question of the pushouts. i originally didn't agree about pushing out the derivatives but there are ways of reducing the complexity. and i think it is not just besides its collectionty and having them do less of the derivative area is a very good way to diminish the complexity. the other department, people say

well, the banks are too big. my question is what is the left which you got to get them down. remember, precipitating the events in 2008, was the failure of lehman brothers. so specifically, if you think the answer no bank should be too big so that the disappearance causes a tremor, the question is how do you get there? how does the federal government order the dismantlement. i do think the complexity of the issue of the volcker rule and the pushout's help, there was also an amendment to the bill that was adopted by paul canjorski when he was here that does give the feds the power to order the divesture of ordering any segment of any particular institution, if it has gotten out of hand and doesn't have appropriate control. so i do think there is room for subtlety in there. but i don't think glass-steagall

does it. if glass-steagall had been in effect it wouldn't have affected aig. nothing in glass-steagall would have kept them from saying we owe $100 billion, we don't know how much we owe and how to pay it off. we couldn't have stopped people from 100% securitization and making bad mortgages. these were new things that needed to be regulated in a new way. >> thank you for that response. you know, the housing market has

seen some signs of recovery with foreclosure rates declining. home sales rising, and equity creeping upward. do you think that dodd-frank had an effect over the housing market or just over time the housing market has corrected itself? >> well, we have had an effect. and i am surprised some people mentioned it, there are few loans available for very poor people. and i wish there were not poor people. but lending them money when they cannot afford to pay it back is not doing anybody any good on a lending institution, unless they securititize it and pass it on to some other entity. i think we're seeing stabilization in general, in the housing market. the combination of things have helped to turn around this very serious recession have been helpful. let me just comment on one thing. i appreciate it. people talk about the uncertainty. et cetera, some of that is inevitable, taking longer than it should have, partly because we have had funding. the transitions are painful.

we were in a situation until 2009 where a lack of regulation of some things, a whole set of practices that had grown up that out-stripped regulation were causing problems. and i think it is necessary to go to a new set of rules and it was painful to go through the transition. i accept there is uncertainty now. >> thank you, mr. chairman. to mr. frank's recent comment, i agree that if -- if you make loans to borrowers who can't pay them back, that is a good thing. but the pendulum has swung far over, traditionally there are people that could get loans and pay them back that now can't get loans because of dodd-frank. it is where the pendulum has swung that concerns me, where people who are not of the highest income but now can't get loans because of dodd-frank. i know when the bill passed i was not in congress. i had the privilege of viewing this from my home couch in wisconsin. but the claim was made about the

this would end too big to fail. dodd-frank has not ended too big to fail. we had larger institutions who partook in the crisis. the rules and regulations have now come out. and the rules and regulations, that the intent was to stay with the larger banks, have now come down to our community banks and credit unions, making it more difficult for community banks and credit unions to make loans across main street america. and if you're a large institution and you look at the new regulator regime, you would applaud it. you would say this is fantastic. because i have got economy to scale, i can deal with the rules and regulations far better than my smaller competitors. these rules, i might say they are bad but really they benefit me because now i have a competitive advantage. it helps the large institutions and crushes the small institutions. and this is what i hear from my smaller banks, my community

banks all across wisconsin. it is making it harder for them to compete. harder for them to do their job which means it is harder for families to access capital. it is harder for businesses to expand or that young entrepreneur who has an idea to access a loan and get a bank to take a risk on him in rural america. but i want to pivot to the consumer financial protection bureau. we have a very powerful agency that i would argue and i think many would agree is unaccountable. and to mr. frank, i don't know if that was the intent under dodd, but i think it is the reality under the regulator. but with regard to the consumer protection under the financial bureau you now have an agency that is collecting anywhere from 600 million to $850 million in the credit cards and data off the credit cards. they're partnering with the fha on the mortgage on the data base, collecting information on race, religion, gps to the home,

credit scores. the number of children you have and the age of children. an agency that is out of control. you have an agency that has been involved in racism. and sexism. spending $250 million on a renovation -- i know mr. chairman has asked this question. it is not a taxpayer money, but it is not taxpayer money, i don't know where they get it. i haven't figured that one out yet but it is an agency out of control. i know that some of my friends across the aisle believe that is a good thing, that only an agency that doesn't have any input and insight from congress can protect consumers. but listen, all -- whether they're individuals or organizations, through the history of humanity, they claim to do really good things for people. and for society. but it is under the auspices of the claims sometimes they have nefarious purposes. to think that this congress

doesn't have oversight with the pursestrings or through a commission of some sort that's bipartisan to help track this agency is of grave concern for us. i know there is even a debate that goes on right now with regard to what happens with the president who now believes he has the authority to wave and suspend laws that were originally passed by the congress. it is concerning. i think maybe there is a push on the other side of the aisle that says there is no need for congress. we just have to have an all-power executive and all-powerful agencies. but i will get to a question here. mr. wilson, do you believe that the cfpb rulings, although they were intended for larger institutions, have had an impact on community banks? >> absolutely. i am appreciative that we're not examined by them, but we're not exempt from their regulatory reach. >> and how is that? >> well, when they pass regulations we have to comply with those, the fdic will continue to examine us.

but we have to comply with those rules. >> so you're not exempt? they don't examine you, but you still have to follow the rules put out by the cfpb. so there is no fire wall that comes out between you and the cfpb? >> that is right. >> my time is expired. >> gentlemen now recognize the lady from new york, ms. mccarthy. >> thank you, and i would like to remind my colleagues with the poll numbers that are out there, we're not liked by anybody, so maybe we should all retire. barney, welcome back. it is good to see you. you know, i think a lot of people here, especially some of the new members don't remember that we were having meetings almost every day. it took us over a year to come up with the -- i call it the frank bill. i still don't like putting dodd on there mainly because of all

the headaches. and an awful lot of the headaches that we have had have come because of the dodd part of it. with that being said, there are many things in the dodd-frank that we had wanted. we couldn't get it in. then things had changed. certainly, you know, i'm one that was fighting for the community bankers. barney knows that, many of us here were trying to do that. we also felt with the business model of the insurance companies that really had nothing to assert the logic of the collapse. but i think that one of the things we have to keep reminding people, not only was the financial industry -- had nothing absolutely to do with the collapse. you know, small businesses in town all collapsed. a lot of people are still hurting even from that. unemployment. and yes, it was the fault of an

awful lot of corporations. now, someone has to start to take responsibility for that. because here we are, things are coming back but it took a long time and a lot of people did lose their homes. and i believe with barney, you know, when i first got my first mortgage, i mean, you had to go through some kind of background check and had to make sure how much you had. remember gentlemen, when i went for a mortgage they were not giving them out to women. it just was the case. but with that, barney, i'm giving you the time because i keep seeing you writing down things. and you know, i've been blessed to have you as my chairman for when i first got onto the committee. you taught me a lot. but i also know when you're writing things down you got a lot of answers you want to give. and to me, you know, you have been a wonderful teacher to all of us. so if you have something that you wanted to answer back onto the questions please take that time.

>> thank you, very much. there were things that i don't like that he didn't like, somebody mentioned the trucks, that was senator collins from main. stheefs she was the 60th vote. i did want to get back to this question of whether or not it is some boon, i think mr. kupiec has been a little inconsistent on this. i cite the fact that any institution over which there is discretion has vigorously resisted being named a siffy is a sign that it is more negative than positive by far. i accept their judgment. his response was well, they don't want to be designated but they get the benefit of being a siffy without the designation. he said at one point the fact they are closely supervised by the fed, the fact they don't want to be closely supervised by the fed, if it is simply the

size alone that does it, and there is nothing you can do about it unless you want to break up fidelity -- >> thank you for asking, but banks bigger than 50 billion -- >> i'm sorry -- >> i didn't ask you about banks over 50, we know that. why is it -- >> believe it or not, the time belongs to the gentle lady from new york, and she can allocate it. >> the question i ought to ask is this, why do they not want to be designated. you said the fact of designation and close supervision is what leads people to think that they wouldn't be allowed to fail. why would they then not want to be designated? >> i would rather hear the discussion between the two of them than the majority of people here on both sides. they're all taking too long.

>> banks are off the table. you have aig, which is a ward of the government. the other insurance companies are going to be subject to height and designation that is not mentioned anywhere. they're going to be treated like a bank. they're going to be treated, they have to do stress tests just like they're a bank, have capital like they're a bank, they have not -- >> we agree. they shouldn't be designated and they don't want to be designated. >> they have no clue what will happen to them. they have no clue. so they wouldn't want to be designated. >> time of the gentle lady has expired. chair now recognizes the gentleman from california, mr. royce, chairman of the foreign affairs committee. >> thank you, mr. chairman, the derivatives market are global. trying to get efficient global derivatives market should be a priority of this committee.

in order to meet that goal our regulators have to fully understand how europe and asia are going to implement the reform and sort of do things in concert here and not end up with income pat continually guides and rules that could harm our competitive position of our companies and the liquidity of our markets. while the sec adopted a formal rule, the cftc adopted guidance that has been subject to changes of interpretation and the resulting lawsuit also. which should be reinstated, i don't think it was the right decision, he said, to change the guidance and that equal governments in europe should be allowed. my question is to mr. dees and

carfan, the businesses, they need that liquidity, they need the willing counter-parties with which to trade, whether located here or in europe or asia. do you believe that the failure to have one joint rule to govern how title 7 of dod-frank will handle the ability of users to handle the ability of users to manage their risk? >> sure, the jurisdictional issues, the conflict and the inconsistencies among the various derivative regulations around the world is harming the ability of the u.s. companies to basically get a handle and appropriately hedge their risks, time their risks and -- frankly get visibility -- corporate cfos rely on the market to give the economic signals. and to the extent the signals

are muted or clouded, the corporate treasurers are more reluctant to make investments simply because they -- they don't have the economic clarity that they need to move forward. >> mr. dees? >> yes, thank you. there is uncertainty in several areas or potential bad outcomes from the lack of harmonization. that lack has created this uncertainty that we thought was clear in the bills that the users should be exempted from having to post margins. and i indicated earlier, the margin for the financial business round table and a coalition study we did, that was 269 million that represents a diversion of funds that otherwise would be used to business investment. the other element -- and the european regulators have been much more clear that they view

the derivatives activity by end user companies that is actually risk redusing. and so they appear not only to be exempting inld users from having to post margins but from exempting bank counter-parties to a deriff tifr end user from having to retain a higher capital level against that derivative exposure because of the risk-reducing nature. >> if i could -- this aspect could put american companies at a disadvantage. >> if i could quote -- i understand your point. if i could quote, he said if the cftc also gives equity to third clearing houses deferring to strong and rigorous rules such as the eu, we will be able to adopt equivalenc decisions, in other words, we'll treat you as you treat us. i did want to ask chairman frank a question. good to see you, mr. chairman, it was mentioned to me that you

had suggested exempting smaller banks from volcker. and as memory serves, you are not of the opinion that asset managers should be designated as siffys. >> correct. >> i was going to ask you, give you the floor here on other issues that regulators are pursuing. do you find some there that were not intended in your view by dodd-frank? >> with regard to asset managers, i don't think as a general rule they should be -- aig clearly should have been. i don't think insurance companies should have been. but aig has no right to complain. so it is not 100%. but the assumption would be no, my biggest problem with the regulators, frankly, is that they're equating two kinds of mortgages, i think there should be risk retention. i agree with mr. wilson, to keep 90 the portfolio, fine. but the flip side of that has to be strong risk retention. and am not happy with what the regulators are doing there.

>> thank you, mr. chairman, and thank the members of the panel, especially mr. frank. good to see you again. welcome back. i did see a good article yesterday in "the wall street journal." a few of the takeaways from the article, the address is really how wall street is adapting to the new regulatory measure with dodd-frank, they talked about how profits are up. banks are cutting ties with subsidies that are more risky. and storing up, shoring up their capital reserves in the case of an upset in the economy. and they're de-leveraging and becoming less complex institutions. they go on to say that goldman sachs last week announced its trim, $56 billion, the sharpest reduction in a very long time.

they're pro actively trying to comply with dodd-frank. they talked about morgan stanley. and they down sized their fixed income trading operation and they're focusing on less risky operations. citigroup has shed nearly $700 billion with the non-core assets, including the sale that they viewed as risky. the bank of america corporation has shed more than 70 billion worth of assets since 2010, including those that are more risky and allow the bank to hold capital against them. it also eliminated 746 legal entities, a 30% reduction. so dodd-frank, in part, they're doing their job. they're working to reduce the risk and also the likelihood that these banks will fail in the first place. mr. frank, i want to ask you

about -- you talked a little bit about this earlier with mr. garrett. i want to go to the issue of asset managers. now, they have, as you know, the dodd-frank act recognizes each financial institution and company. and differently. and it should be reviewed in its unique characteristics in mind. the fact is outlined as we know in dodd-frank includes the amount of leverage that the institution has. the off-sheet balance sheet exposure of the company and the degree to which the company is already regulated by the primary regulator. now, that seems to suggest that these asset managers are not folks that we intended to go after on the risk side. and i'm just wondering, do you believe that designation as a siffy is an appropriate way to address that industry?

>> no, absolutely not. i agree with them that that would be a mistake and i reiterate, there's been an argument on the republican side that being designated as a siffy gives you an advantage, yet every institution over which there is discretion has vigorously resisted. and the fact that being a siffy clearly means more regulation and the notion it is a benefit is belied by their response. there is another factor in there, i don't know if you read it, about the breadth of ownership. which was relevant. the more widely owned it is the more likely it is to be in there. >> that was a good example of that. >> and i don't think that -- if that is your major -- if that is all you do is asset management or sell life insurance, i don't think you should be a siffy, for one thing i think they have enough other things to do. and there is no sign of their causing problems. now, you did have an issue with money market funds, they have

shown their value, we'll get some regulations of money market funds now because of the f-sock, which they interviewed. i think it is a good thing they moved forward. i don't believe that the asset managers absent some other form of activity, poses systemic threat. >> okay, thank you very much. and i yield back. >> gentleman yields back and the chair now yields to the gentleman from pennsylvania. mr. rothis. would the gentleman yield to the chair for a brief moment? >> yes, mr. chair >> i just want to point it out because i heard chairman frank make the point a couple of different times. i don't frankly know if the siffy designation is a net benefit or a net cost, but, again, lloyd blankfein of goldman sachs will be one of the

biggest beneficiaries. jamie dimon, while margins come down may be an aig moat. and it is called a good housekeeping seal of approval. so, i think that some of the biggest banks and i respectfully disagree with our former chairman. and i yield back to the gentleman from pennsylvania. >> thank you, mr. chairman. western pennsylvanians are frustrated by the one-size-fits-all decisions coming from this town. these rules and regulations are not helping businesses in the communities i represent grow and create jobs. not helping an out of work person get a job. banks in western pennsylvania are telling me the same thing and telling me that the regulations coming out of the town are stifling their ability to left-hand and offer products to businesses and families in our communities. mr. wilson, has your institution or are there institutions that you know of that have stopped offering a product because of the regulatory cost associated with it? if so, what does this mean for customers? >> as i mentioned, i'm very sad

that we no longer serve that segment of our community who do no have access to credit because of the requirements of dodd-frank. >> that's with mortgages. are there other areas, also? >> no, sir. >> a recent study from the mercateur kren ter found that small banks are spending more in compliance in the wake of dodd-frank and that more than 80% of respondents found a compliance cost rise by more than 5% since 2010. statistics like this are why i believe that any regulation should have should undergo a rigorous cost-benefit analysis including a review of whether it would cost jobs and wages. mr. wilson, can you quantify for us the cost that you are institution has incurred to comply with dodd-frank in terms of dollars? >> my estimation is we

spend about three full time equivalents dealing with regulatory requirements. >> that's on an annual basis? >> yes, sir. >> and how much would that be? >> well, the bulge of that is a big piece of that is my time trying to read the regulations. trying to interpret them. getting training on what they are. some of those are not clear. they conflict be other regulations. >> this is not -- this is not time that you'd be spending with a customer trying to help that customer access a credit product that could help him or her grow a business or get into a mortgage? >> i would much prefer to be calling on customers and offering them credit solutions. >> i've also been concerned about the consolidation that we're seeing in dodd-frank's consolidation of the banking industry. a spoke to a group of bankers in pennsylvania, small community banks, about 20 of them, and i asked a question of whether or not in ten years they thought they would be independent and whether they would have to merge and be acquired, and every hand went up because there's a lot of concerns. and we're seeing that certainly with the numbers.

and in the four years prior to dodd-frank, 510 new bank charters were granted and after dodd-frank only 15 new charters have been granted. mr. wilson, what does this suggest to you? are you concerned that we'll see further consolidation of the banking industry once regulators get around to implementing the rest of dodd-frank? >> i think it would be a tragedy. however, i see that happening. and i feel that pressure myself, trying to keep up with the pace of change and the complexity of these changes and if they're not issues that we have caused or been a part of, i hope that the congress will exempt us from those sorts of regulations. >> thank you. chairman frank, on december 11th, 2009, your bill, the wall street reforming consumer protection act of 2009 was

wrought to the floor. that bill provided to the creation of a consumer finance protection agency. it also provided the converging of that agency to a commission. section 4103 subsection a said on the agency conversion date there shall be established a commission that shall by the operation of law the direct of the of the agency and further, it said the commission shall be composed of five members who shall be appointed by the president, by and with the advice and consent of the senate. you sponsored that legislation and then you voted for that, correct? >> yes, i voted for that bill? >> thank you. >> gentleman yields back. the chair recognizing the gentleman from georgia. mr. scott. >> thank you, mr. chairman. first, let me say, chairman frank, we really mess your as intelligence, witt and charm.

never did we need it more in a moment of crisis. and throughout history, moments of greatness shine at their most brilliant. at moments of crisis. this nation was on the brink of a depression, unemployment was racheting up at 12 and 13%. the worse economic conditions since the depression. and you were, sir, the right person at the right time doing the right job. and we are grateful for that. and america is grateful for that. and i want to say the folks in atlanta, georgia, are still talking about that wonderful time we had when you came down and was there at the riltz carlton. i think you remember that. hopefully that's one of the

highlights of your career. it certainly was of mine. let me ask you. i want to go back to a couple of things. i think the genesis of the dodd-frank bill is the essence of the too big to fail. and in there has been pointed out the threshold of $50 billion being that point and above where we designate the systemic important financial institutions. brings upon additional federal regulations. let me ask you, should a bank systemic importance be based strictly and solely on their asset size? >> well, at some point, yes. we get to -- i have a trillion dollars, i suppose, but i think

that $50 billion -- look, any number is arbitrary in the nature of the case. the governor talked about moving that. and i think that's a reasonable thing to do, and basically i think what you ought to do is a fairly high number as the automatic cutoff and then allow for inclusion if there are further complications. on that question and i was frankly pleased that the chairman felt sufficiently stung by the notion that nobody wants to be a siffy to read those comments. they're really not relevant. jamie dimon never had the option. it was obvious that goldman sachs and jp morgan and aig as the poster child, the fact remains, it's not controversial, every single entity over which there would be discretion, if not jp morgan chase or goldman sachs, has vigorously resisted being included.

they hire lobbyists to fight it. they appeal the decision. we had a panel of regulators on the subject and we asked them, has any institution told you they'd like to be a siffy or have they objected and every single institution said they fight it. it is much more of a burden than not. i also believe on the point that complexity is obviously could be an additional risk factor and i would reiterate, the volcker rule and the pushout, and comment on that. if i could comment on the question from the gentleman from pennsylvania. he came to think he had scored some great victory by getting to admit that i actually voted for this bill. i didn't think that was much of a secret but in fact, i preferred it to be a single director of the -- i didn't have the votes we had to give and -- >> mr. frank, i have only 40 seconds so i have to ask you this last point i think it's clear.

>> i apologize. >> no problem. >> i remember distinctly. a lot of people are watching. c-span's ratings are probably up because you're here. so i want to make sure that the nation knows that it was you, it was you who insisted that no taxpayer money be used for a bailout. it was you that provided. that's important. and i want to go back, mr. garret raised this point. i want to make it clear. then who, who has it under your bill in your estimate pays for that bailout. >> an institution with more than $50 billion in assets. there's a formula so that the asset management will pay much less. than a goldman sachs or jp morgan chase. >> time for the gentleman expires. chair recognizes the gentleman from virginia. >> thank you, mr. chairman.

want to thank the witnesses for being here. kind of interesting that there seems to have developed among some of the members here that really the costs of some of these regulations and the red tape that has resulted from these regulations, a lot of that has been testified to by mr. wilson, a lot of that is either not real or if it is not real it is not having an impact and it's not significant. in fact, it seems that we're heralding that this is a good bill because wall street has hit all-time highs. and i would suggest that may be true but it does not properly reflect the overall economy and the reality that the folks i represent are feeling. and i represent virginia's fifth district, a rural district. 23 counties and cities. mostly main street america. we've had in the last six years unemployment in parts of our

district as high as 20%. north of 20%. there's still localities in our district where we have unemployment almost as high as 10%. our economy is struggling and we need jobs and we need to capital. we had access to capital that creates those jobs, and we talk about the recovery. we talk about the full-time jobs that were created. there weren't any full-time jobs created. there were part-time jobs created in june and i think that's important so working families are paying more for gas and groceries, electricity, health care and it's costing them more to access credit. and they had fewer choices. so while this bill may be good for wall street, i would suggest to you that it's having a much harder impact on folks in the rural communities. place where community banks are a major part of providing that capital. so i guess my questions, i have two questions.

first would be for mr. kupiac and mr. carfang and mr. wilson. dealing with the issue of too big to fail which of course, is the wall street reform part of the dodd-frank act. it strikes me that since 1984, there were 18,000 community banks. now there are fewer than 7,000. the chairman indicated since 2008, we've lost 800 community banks. these are important banks to our communities. and with that kind of consolidation, it seems to me that not only hurts access to capital in rural areas but it also poses itself a systemic risk. i guess starting with mr. kupiec, are community banks, are they important to providing access to capital in our smaller rural main street communities?

and by this consolidation, are we by it's very nature, promoting systemic risk? two things this act purportedly trying to prevent? >> absolutely. there's an fdic study a year or two ago when i was still there, and they looked into the community bank issue, and community banks are especially important in rural areas. in small towns and in places where large banks don't want to branch you need a big enough customer base before a large bank is willing to go there and in many cases community banks are the banks that serve as places where large banks don't feel it's competitive to expand. when we lose community banks in those places and we are, it is very bad for the economy. the consolidation is ongoing and certainly the regulatory burden and i provided testimony to a subcommittee in march on the, of the estimates of the cost of the regulatory burden associated with compliance under the dodd-frank act, and i used some

estimates by a federal research board governor about how many people it would take for the size bank and then i multiplied it by the average earnings per bank and it was significant. it puts a lot of bank in a negative earnings position. the extra compliance cost. this is huge. i think it does banks to have to be of a bigger size or they're not going to survive the costs. >> mr. carfang, do you want to comment and then mr. wilson? >> you know, three premises of sound banking are the capacity to make loans to those who have the capacity, collateral and character. community banks are best able to judge the character of the borrowers in their local community. in addition, though, the problems actually larger than that because we've moved away from relationship banking to compliance banking today and that takes character out of the equation. we're now coloring by the numbers here, and we're losing a lot of the judgment and a lot of the flexibility that really needs to happen.

to fund innovation and risk taking at the most elementary levels. >> thank you. mr. wilson, i suspect i know what your answer would be. time is expired. >> we recognize mr. green, ranking member of our oversight subcommittee. >> thank you, mr. chairman. i would like to welcome you back, chairman frank. it was an honor to serve in congress under your leadership when i was a neophyte and i must tell you it's an honor to serve under the leadership of maxine water. you left the committee in capable, qualified hands and i believe she is following in the tradition and doing an outstanding job. with reference to several things. we talk about community banks

quite a bit, mr. frank. and when we talk about community banks in terms of the aid and assistance and changes necessary to make them effective, we use small banks. but when we start generate legislation, the size becomes very large. in fact, we've had testimony from at least one or two bankers who indicated that 30, 40, $50 million is a community bank. mr. wilson, we all support what you want in trying to help you but when we try to get a deaf e definition of a community bank it becomes very difficult when we reach the size of 30, 40, $50 billion, not million, billion dollars. therein lies the small problem. but for today let's deal with some other issues. mr. frank, i'd like for you if you would to come back to the question of a single director as opposed to a commission because i don't think you had the

opportunity to finish your answer and this is something we litigated at the committee level quite a bit. >> thank you. i can say with regard to the community bang problem obviously it's a problem if i could interject to have them diminish. i don't think it has systemic risk. there's a loss of social function of economic activity. a lot of the losses at community banks have been going to the regional banks, mid-sized banks so i don't think that's a systemic risk problem. that's a social problem i'd like to work on. a local service problem. as far as a single director, the member from pennsylvania made a point. i originally wanted to be a single director. the party votes in the house, they wanted it to be a commission. and we compromised and went to the senate and the senate wanted a single director and i didn't put up that tough a fight for the house position. that's in conference. people have alluded to other things. and then there's been this notion that something unique

about the consumer bureau. it doesn't go through congress. neither does the federal department of insurance corporation. neither does the federal reserve system. neither does the office of the controller of the currency. in fact, none of the bank regulators are subject to the appropriation's process. and i believe that what you got is an anticonsumer activism issue here, not a process issue because when i was here an amendment was offered to subject the consumer financial protection bureau to the appropriations process, i offered an amendment to do the same for the federal reserve. i would think people are worried about accountability would think it's a greater problem that the federal reserve wasn't subject to the appropriations process, and the consumer bureau gets their money from the federal reserve and i'll tell you that caused great problems and expectations.

but in fact, they were able to count on the fact that the republicans didn't want to have a consumer bureau running amok without any congressional appropriations. but was a much more powerful federal reserve that was fine. so the committee voted down my amendment when it was in the majority so that underlines what we're talking about these limitations. >> accountability, would you address that for just a moment please, because there seems to be the notion afoot that the cfpd is totally unaccountable. that it can make rules that cannot be overturned. that they simply have this inordinate amount of power with no restrictions. would you kindly address that? >> in the first place that's one of the most popular things congress has done and i know chairman had said if financial reform bill is damaging the health care bill. my recollection is that this republican congress votes on a fairly regular basis to repeal the health care bill. where is your bill to repeal the financial reform bill? if you have the courage of your convictions let's bring it on. the problem is the public is, in fact, much more supportive of it, particularly of the consumer bureau. and as to accountability, i don't know how many hearings i

was summoned to when we were in the minority oversight hearings by this committee in which the topic was the lack of oversight of the consumer financial protection bureau. i never spent so much time in oversight hearings complaining about an absence of oversight. and here's the final point, they don't like it. and they complain it's not subject to appropriations but nobody's pointed to do any abusive practice. no one has pointed to any unfair intrusion into the business models. >> thank you, mr. chair. >> time of the gentleman has expired. the chair recognizes the gentleman in florida, mr. ross. >> thank you, mr. chairman. and i thank the panelists for being here. the testimony today and especially that of congressman frank has illustrated there's some lingering problems with the implementation of the dodd-frank act.

even the rules that have yet to be promulgated creating a greater uncertainty in the environment and i wonder what the recovery would have been like if there were more certainty in the markets for financial institutions. it seems like the affordable care act also known as obama care and dodd-frank have created serious problems and may not have been totally thought out. in my district, of course, we have community banks, mr. wilson that i empathize with you that no longer do residential mortgages. credit unions are in the same arena. businesses feel there's a regulatory environment and when you couple that with operation choke point that's now saying you have a reputational risk and the d.o.j. says you will or will not do business with certain people, it creates a very unhealthy environment for the flow of commerce. and i'm rye mieminded that the fastest growing occupation in

the country now is compliance officer which does nothing to the bottom line of our financial institutions and does more egregious harm to the bottom line of our consumers and citizens back home. as if a patient will not get better if not taken off of bed rest we have to give some sense of certainty to an overregulatory environment. i understand there are some flaws that i think even chairman frank testified to that earlier in questioning from mr. garret. you say that dodd-frank was a tradeoff between economic growth and the probability of periodic recessions. why do you say that? >> yes, sir? >> financial remediation is important. it's one of the most important things that causes economic growth. if you think about it, if you have an economy that has a single bank and a bank gets into economic trouble, there's no way for savings to be translated into investment any longer if the bank fails. financial intermediation is the

way it collects savings and puts it into investment. what dodd-frank does is it tells the regulators to empower them and there are kinds of bad you figure it out what mediation you think is bad and go out and regulate it. the problem is, the goal is to create financial stability. but financial stability is the, is the absence of a crisis. a crisis, you can have a very stagnant economy with very little growth and there's financial stability. there's nothing in the dodd frank law that tells regulators that they have to take a tradeoff between the growth effects of stopping financial intermediation and this weeding out bad financial mediation and many times they don't get what's bad financial intermediation right. in 2005 up to 2008, the federal reserve ran a study for the financial we need more power and

let them pick out the bad intermediation and it didn't work last time so i can't see how it will work next time. >> i appreciate that. mr. wilson, you're not a health care expert, but you are an employer. you have to comply with the regulatory requirement and health care requirements now under the affordable care act as an employer. would you say the combination of these two regulatory behemoths have created a greater burden on your institution? and if so, has it been to the benefit of your employees or your customers? >> no, sir.

we always provided health care to our employees. since we are small we get a tax credit. this year i'm struggling because the irs is telling me one thing, my accountant is telling me another thing about buying on the changes. i've spent considerable time with that issue. in the financial institution regulations there's a lot of time and effort. it's not only complying with what is past but just think of 14,000 pages -- >> do you think the recovery could be better without that regulatory burden? >> it would free me up to do other things -- >> and make cash available to those you think would be qualified to use it to encourage a stronger and thriving economy? >> yes, sir. >> i yield back. >> time of the gentleman is expired. the chair recognizes the gentle lady from wisconsin. >> thank you very much, mr.

chairman. >> i'm so glad to see you chairman frank. let me say you've left the ranking member, the position in the hands of ms. waters and she has taught us, set up meetings us in the library of congress, we've had speakers, heads of agencies, journalists, and she's not yelled at us either. i read every single word of your testimony. this is such a boring subject to so many people who may be watching but you certainly make it exciting every single word and i notice you didn't wax on and on about too big to fail and how big the banks are and all of their more of them than there ever were before and they merged. instead, the nugget and i want you to clarify this for me, the nugget that you have gotten as given me is a cautionary note. instead of being distracted by

just the size of the bank that we ought to be looking more closely into what's happening in the d.c. court rulings where this cost-benefit analysis is hamper them to operate the appropriation's process starving to see the s.e.c. regulate and risk retention out of statutes, no skin in the game and we need to learn lessons from history or be doomed to repeat it. i would like you to sort of elaborate on your testimony with regard to that. >> i don't think your microphone is on. >> i was speaking too softly. i was promising not to yell. >> you're free to turn it off. >> if all i turn off today is the mic, i'll feel it was a pretty good day. the -- well, which issue did you

want me to address? >> the cost-benefit analysis. >> okay. i sympathize very much with the uncertainty. if you are in a situation where you think things are wrong and you want to correct them, there is an inevitable period of uncertainty. so the only way to avoid uncertainty is like where the stability argument is to perpetuate it. i am disappointed that things have taken too long, in particular, i think we've had a problem in the derivative area and we acknowledge there have been problems. it hasn't gone well enough for the end users. i had one magic wand i could have waved i would have merged the ftc and ntc. they represent one. they represent deeply rooted and economic and social and cultural divisions. it would be very difficult to do

that. sometimes people forget that america is a more complex country. one of the reasons we have a multiplicity of bank regulators is we have the duel banking system. we have state charted banks. there was a proposal by senator dodd to give all the regulation of the banks to the occ. and the state chartered banks, they said, no, we don't want to be in there with the big banks. we want to stay with the fed because we want to regulator that pays attention to us. and here the problem is this. one of the best things that happened from my standpoint from regulation going forward with senator reid getting the senate to say we're not going to allow judges to be filibustered because you're a very conservatism balanced court. and the circuit in d.c. you had a lack of funding and i think the biggest single problem has been the incredible underfunding of the cftc.

the cftc was given the biggest grant of new authority. derivatives are very complicated and wildly underfunded and that's why people regret that. what many of my friends here would like to do is follow the cfpb with underfunding the way they've done. and then you have the official industry with the comments on the agency and you have the court requiring a very specific analysis and then saying, oh, no, that's not good enough. we had an example. the ftc put out a rule in accordance with the bills clear language, regulating speculation. it basically said if you don't use oil except in your salad and your car don't buy a whole amount of it which will have an impact on price. the court threw it out and said congress didn't mean it but we did. >> i'm claiming my time. is this the sneaker risk thing that's happening to us? >> which? >> with your indulgence.

>> it's an indirect attack. you didn't hear the question. >> it's an indirect attack for people who don't want to bring it to the floor to try to repeal it because it's too complicated. >> time is expired. the chair recognized the gentleman in illinois. >> i'd like the thank all of you for being here today on the week of -- this grim anniversary of dodd frank. especially mr. carfang. good to have you from chicago, illinois, my home area. glad you made it all the way out here. it's increasingly clear dodd frank is doing real damage to our economy and installing the economic recovery we all want. it spans 2300 pages and poses 400 government mandates, but despite this, it has not corrected the problems arising from the financial crisis including the problem of too big to fail and the need for regulatory system that decreases the systemic financial risk instead of increasing risk. some on the other side of the aisle including the obama administration and most senate democrats view dodd frank like i view the ten commandments,

an errant, unchanging and demanding our complete devotion. with all due respect with chairman frank, i suspect even he would agree dodd frank did not come down from on high nor was it written in stone. thankfully many on both sides of the aisle recognize that some parts can be fixed especially those relating to community banks, credit unions and mortgage industry. dodd frank has had a disproportionately impact on those institutions. these smaller financial institutions help people access the american dream by extending credit necessary to own homes and start a business or to preserve a family farm. they provide at least 48% of small business loans and serve 1200 rural counties with otherwise limited options and they lend based upon personal relationships and local knowledge of a community and not just statistical equations. unfortunately, dodd frank too often forces these vital instant substitutions into regulatory straitjackets, designed for big banks forcing them to reduce

lending or shut down. my constituents, the 14th district of illinois demand answers to this problem which is why i'm grateful for this panel today. with that in mind i'll address my first question to mr. wilson and ask how dodd frank is impacting your community bank's bottom line. heard from financial institutions how high costs imposed by growing mountain of additional rules, regulations and compliance burdens are being faced by the industry. are you concerned the regulations could force the bank to limit its you have offering of certain financial products to consumers? and low income consumers, specifically? and what about the impact that the regulations as well as their subsequent enforcement have on the available and affordability of credit for small businesses and consumers? >> congressman, our market is low to moderate income people. the community we serve is 65% hispanic. the withdrawal of us offering home mortgages is not good. there are products that we