regulate sub prime loans, it was over objections of several members here who said sub prime loans were good. wall street journal objected and said, there's good loans, 80% of them are paying on time. which didn't seem 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. then they needed an alternative victim -- villain to blame for the crisis. so they became opposed to these loans. now they reverted. there was a period they were blaming us. this is great inconsistency between saying community reinvestment act caused the problem by forcing people to make these loans to poor minority people and now complaining that we have regulated it somewhat restricted those loans. as to the community banks, let me say this. i would be in favor of saying that people who kept the loan in portfolio should not have these problems. i on the other hand think what's

important -- this is the one criticism i have of the regulators. i believe risk retention is the best way to go about this. it leaves the decision in the hands of the market. you can't get away from the responsibility -- you can't get away from this. you can shift it. this goes also, i would say, to the question about regulation. there was some regulation before the crisis started. but it wasn't regulating -- there wasn't regulation for two important things, financial derivatives. i agree about the end user. i appreciate his noting that there was irresponsible speculative activity in derivatives which the cftc was length -- there were prevented from dealing with. the model for loans shifted from the kind that mr. wilson makes and keeps in portfolio to those made and then secure advertised.

passing the risk off. i want to do in the bill was to require that if people are going to secure a loan, they have to have a 5% risk retention. that was weakened in the senate. i would prefer a situation which there was risk retention if securing took place and no -- then you could be easier if people kept things in portfolio. again, emphasize, mr. wilson's bank and the community banks have always been covered by the community reinvestment act. it's inconsistent to talk about what a good job they did and blame the act fors ming things up. as for small banks, yes, we did reduce premiums and we did exempt them from being examined by the cfpb. there are other areas. show compliance with the forms

of xen tags. dan made a suggestion they be specifically exempted from those since they don't apply. that would be a good way to not weaken the regulation and ease the compliance. some banks feel they have to spend money to show they are not viet lating the rules or having this kind of stock-based compensation. i think for banks below a certain level to simply be exempt from the rules since they never use them would ease the problem. those need further correction. those are two small ones that i would be for. >> chair recognizes the gentlelady. >> thank you, mr. chairman. 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 banker in my district with ten very specific examples on how the new atr/qm rules have had a

negative impact on west virginia consumers. >> i almost said yes. >> mr. wilson, we're kind of singing from the same hymn book here in terms of the value of community bankers. i live in a rural state which is served by community banks. i think it's important to distinguish that by a community bank, which is similar to fdic's description, reports that community banks loan 48% of small business loans are issued by u.s. banks, 15% of residential mortgage lend, 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. when you say that you have gotten out of the mortgage

busine business, is the reason for that -- even if you can hold them on portfolio, are the rules too con stickive? is it that you are 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. so we originate those for our customers. and we keep them in the bank. 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 the customers you have been serving would be in the low to moderate -- $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, na 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. i will confess that we do not have any problems in our real estate mortgage. the ones that we under write and

keep. but they just didn't fit, for some reason. they may have been small businessowners that had schedule c tax returns instead of 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 affect do you think that will have in rural america? obviously, your business model is relationship banking. the bigger and larger institutions as they grow move away from that model for obvious reasons. how would you express that concern? >> in our particular instance, we have no branchs. we are in san diego. we have a board of directors that lives in that area. we have a president of the bank. we have senior vice presidents. in. branching environment if we were to sell to a mega-bank, would

you have tellers and maybe shun someone to open a new account. all of those positions would be eliminated. >> mr. -- there's still many rules and regulations to be written concerning dodd-frank. what kind of impact does that have on moving forward? >> the regulatory burden of dodd-frank has been significant. i think just a week or two ago it was reported that jp morgan was laying off thousands of people but hiring thousands of compliance staff. something like 7,000. compliance staff, you know, that's to meet the regulatory burdens of dodd-frank. in terms of community banks, there's a lot of evidence -- there's a study that came out that i cited in testimony in march that showed that this

study has -- >> i think i've run out of time here. thank you. >> time has expired. the chair recognizes miss maloney. >> 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 bailouts. because the fdic would use money borrowed from treasury to facilitate a wind down if you need eed it. it was the democrats on the committee that wanted to avoid the need for the fdic to borrow from treasury by creating an upfront resolution fund paid through assessment on financial institutions rather than taxpayers. but i also remember that it was the other side of the aisle who demanded that the upfront

resolution fund be removed because they claimed it was, you guessed it a bailout fund. i would like to you 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 that the federal reserve had to extend funds to any financial institution which happened with the bailouts with aig. 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. >> i would like to say preliminary to respond to a comment on something before, to the extent that we were

responsible for jp morgan chase beefing up its compliance staff, i am not embarrassed. frankly, if they had done that earlier, they would have saved themselves i don't know how many -- in the teens of billions of dollars for non-compliance. i admire jamie dieamond. they were not overcomplying before. the gentle woman from new york is right. we did have a fund -- there's been a difference between the two parties on whether or not we should assess large financial institutions, not community banks. $50 billion and more. in fact, when we were in conference on this bill in 2010 and our position was with the senate that when the cbo said it was going to cost $20 billion over a ten-year period that we should get that from the large financial institutions, those of $50 billion and over. that would have included everybody whether they were -- the republicans objected in the senate. there weren't that many

republicans voting for it. the senate republicans who were going to vote for the bill objected, senators brown, snow and collins and made us take that out because it wouldn't have given the senate 60 votes they need it and put it on the taxpayers. we have this history where the republicans objected to an assessment on the large financial institutions and do it for the taxpayers. similar here, the federal reserve could not do aig under this law. it is true people say, they could set up a broadly applicable facility. but under this law -- i think mr. sherman had a role in this -- they have to guarantee that it's a solvent institution with a very high percentage of probability. we have specifically prevented the fed from doing what they did with aig. the argument as i understand it is even though the law says -- the other difference is no money can -- we do all recognize --

going back to ronald reagan, that some institutions are so large that you can't just 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 that can't happen until they have been put into receivership. then any money that is spent beyond what was available from the owners has to come back from an assessment. the secretary of treasury is mandated, not authorized, mandated to recover it. the argument is -- i've heard this from people. in a political cry session, a financial crisis there would be political pressure on the secretary of the pressurery to use public money to keep an institution in business. i don't know in what universe people have been living if they think -- i think there would be political pressure not to do

anything at all. i cannot think of any of these past efforts that would now be legal under our bill. >> thank you. the chair now recognizes the gentleman from new jersey, mr. garrett, chairman of the capital market subcommittee. >> i thank the chairman for a timely hearing. so i guess it can only be frormr chairman frank of put reference to all of that in one breath. it reminded me of groucho marx was from the moment i picked up the book i was con vulsed with laughter. maybe i will go to the congressman. was it your intention to they designate -- when they do designate a non-bank fee that

would be regulated that way into perpetuity? >> no. >> i didn't think it was. >> is there a problem with the way that the fed is handling that right now? i look and see in your testimony -- >> may i -- there was a premise to which i did not agree. on the -- i am very skeptical of designated non-banking insty institutions that way. you assume that i agree they should do that i've been skeptical of doing that. >> great. appreciate that. >> i send a comment to that effect. >> i appreciate that. in your testimony, you pointed out that fsoc makes it nearly impossible to know what steps they can take to avoid the december igs nation as a siffi. that makes no sense -- for them to not be -- i agree with you.

then can you just jump off of what the congressman stated and i guess you would agree that they should not make these designations as well and that they are inadequately telling us how they will not be into perpetuity. >> i completely agree. i thought there was some intention that the designation should beannually. since they don't explain what makes it that and what they would do to become undesignated, the prose is broken. >> we have agreement on that point. i did catch your one comment, congressman, that said that -- you mentioned some areas that needed to be changed in dodd-frank. i think you said there are other areas that also need further correction. the senate recently aunanimously passed one which is the collins fix to ensure the fed can appropriately, my words not

theirs, regulate non-bank siffis. i assume you agree with that change? >> i'm not familiar with the bill. i don't have to read them all these days. >> okay. >> can i say, this whole conversation the three of us have had starts in the standpoint that being designated that way is an unpleasant thing and institutions should be empowered to resist it which under cuts the point that it's a benefit and income that category is something that helps you. >> so we only have limited time. do you want to go to that point? >> the problem with that republicaning is if you have a sis systemically important firm and you will get the bailout, then you have a benefit by not having any of the regulations because you will be bailed out in the end. you would fight. would you fight even so that -- if you are important, you are important in the end.

the government has to bail you out. your best bet is to diffuse any regulation. that the would fight like crazy even if the -- even if the too big to fail is important. >> some day in the future when a mega-bank does go down, part of the cost of that whole process, the resolution process will be borne by whom? >> not just siffis, any institution $50 billion or more. >> now we designated these non--bank siffis, including potentially for asset managers. the asset managers will now be one that could be -- would be baring some of the brunt of the bailout. asset managers do not have a lot of capital. 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 pay for

the reckless conduct, is that corre correct? >> they would get the money from somewhere. fees would go up. it would rekoop somewhere. >> was that your intention? let me restate the question. is that your intention that retired widows would be the ones who would bear the brunt if they were part of the resolution? >> it was a serious question, you wouldn't ask it with no time left. i will ask for somebody else to ask me that so i can answer it. >> it's a very serious question and a very serious problem. >> the chair now recognizes the gentle lady from new york miss velazquez. >> chairman frank, 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 out there, do you think that main street is buying this rhetoric that it's not in line with the reality? >> i think main street is not, as you know, as chair of the small business committee while we were writing the bill and a member of this committee, you had a significant input. we tried very hard to deal with that. by the way, the argument the weapons gave at the time, there was a bill we worked on, the treasury asked us to do to encourage lending to -- from community banks to small businesses. the republicans opposed it and they said the problem is not that the banks won't lend, it's that small businesses don't want to borrow because the economy is so bad. they argued that the problem was on the borrow end not the lender end. if i could briefly just use your

time to respond to the last-minute question or last-second 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. in fact, asset managers are not exempt from contributing at all but by formula they would contribute a smaller share of what they have. i don't think they should be included. that doesn't determine they don't contribute. but there's a formula that would minimize their contribution. i would say and i was proud to represent fidelity and other institutions. if they had to make a contribution, they would not have to go after widows. there were ways that they could do that out of the very considerable profits they made. to go back on community banks, we also increased the deposit limit to $250,000.

in our bill in the house, we indefinitely extended transaction account guarantees. again, many small banks said, we want to do business with small businesses but they need to keep more than $250,000 for their transactions. we said yes, unfortunately it was later terminated in the new congress. i do agree that -- i think frankly it's the lawyers' fault. i've talked to people. i did not recall many provisions in the bill other than the mortgage one -- i understand that. that affected smaller banks. one of the things i found was some lawyers were persuading community banks that they had to go to great efforts to show they were compliant with the compensation pieces. that's why i agreed with the governor that we should make it clear that if you don't do those things, you are exempt from them. i think in some cases people have over law r lawyered to try to prove that. we tried very hard to be

respectful of the community banks. i was police e pleased when the they thought it was okay. >> you mentioned that uncertainty facing the financial sector due to delayed in rule making. would you agree that the federal regulators should expedite dodd-frank implementation to bring certainty to the industry? >> i'm absolute sly in fafousol certainty. if there can be a date certain at which this ends and we have a period where we know what the rules are and can operate that would be a very good thing. >> thank you. thank you, mr. chairman. >> chair now recognizes the gentleman from texas mr. neugebauer. >> thank you. in your testimony, you said that four years after the passage of dodd-frank that there's no

evidence that it's ended too big to fail and dodd-frank has probably reinforced expectations that larger institutions benefit from government safety that are not available to smaller institutions. can you quickly tell me what advantages that you see that those institutions have over smaller institutions like mr. wilson? >> i think that the perception that the government is so closely watching them and they are subject to much tighter regulation and supervision gives investors the impression that they will be protected by the government, that the federal reserve who is involved in their operations is responsible for not letting them fail. and i think there's this system set up where the intruive regulation has replaced the market discipline that you usually see in banking markets. so the cost of funding for these institutions is much less than the cost of funding.

it's more than -- on average 25 basis points. so there say definite cost of funding advantage to being a large bank. >> mr. frank mentioned that he felt like the larger financial institutions actually didn't benefit from dodd-frank. i wanted to quote some things that some people that run some of these financial institutions, lloyd blankline said that goldman sakz would be one of the biggest beneficiaries of this reform. jamie diamond pointed out that while margins may come down, the market share may increase due to a bigger moat. several said dodd-frank -- wells fargo said i don't think it

solved the issue. the question is we have gone through all these gymnastics of doing this. in fact, the bigger financial institutions have gotten bigger and we have seen -- >> first -- >> i didn't ask you a question. the question is, the bigger financial institutions have gotten larger. we have seep consolidation in the smaller institutions. we have seen community banks consolidate. if we continue without making changes to dodd-frank, do you think that's the direction we go, the larger financial institutions get larger at the expense in many cases of the smallerler institutions? >> yes, i think very definitely that the changes in dodd-frank will change the -- will increase the consolidation in the industry and tend to make assets and deposits be concentrated in the largest institutions. dodd-frank had a big impact on

sub chapter s banks which most small banks are. it doesn't allow you to pay dividends if you get below a capital threshold. this is the means by which you get money out of a sub chapter s. so they can't pay owners dividends. it stopped the preferred -- not preferred shares. it eliminated trups, which was a major source of funding for small banks. the large deposits, if you have a large corporate or municipal, you go to the largest banks where you think things will be protected in a title 2 resolution. i think there's a lot that tilts the whole system over the long-run towards the larger banks. >> mr. wilson, sometimes when you are competing for deposits in your marketplace, particularly if it's a large deposit, do you find it difficult to compete with some

of the larger financial institutions that can, on say your 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. >> would your cost -- you said you had 17 employees. with your costs and add compliance costs, is it putting 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, i will yield back. >> chairman recognizes 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. some of us had to fight very hard to raise that. the original approach was that the immediate numbemedium never gotten the bailout. the problem is twofold and it continues. the existence of entities too big to fail. second, the credit rating agencies. as to the existence of entities that are too big to fail, we're told that the current law prohibits using taxpayer money to bail them out. i was here in 2008. law prohibited using taxpayer money to bail them out. we passed a new law. one would suspect, in fact the

markets are convinced, that is exactly what will happen again. is that why we hear that these giant institutions enjoy a 22 basis points benefit. i have submitted to the record in previous hearings, that it's closer to 80 basis points of benefit. the sweet spot is to be a siffi but not classified that way. if the markets believe that you are so big that you will 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. mr. chairman, 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 a bill that would require additional capital to be held by those that are enjoying this subsi subsidy. and then there's my bill to say too big to fail is too big to exist. since the purpose of this hearing is to focus on solving problems that haven't been solved, the biggest problem is 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. i would 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. that is, as you already know, the regulators are crafting -- regulators 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. carfang, do you have a different -- >> risk retention is very important. that's how capital gets consolidated appropriately. >> mr. chairman, i was addressing you while you weren't here. >> i didn't hear you. >> what? >> then i didn't hear you. >> and that's why i will use my last half a minute to ask you a question. that is, since the republican report says we have a huge problem, the too big to fail institutions like to be bailed out, since your report indicates there are only two legislative proposals to deal with that, is there any chance that 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 we will mark up too big to fail before this congress is over. the time of the gentlemen has expired. the chair recognizes the gentleman from oklahoma, mr. lucas, chairman of the agriculture committee. >> thank you. i would like to move to the subject of title 7 and the derivatives. mr. deas, your testimony is more than a little familiar to you. as chairman of the ag committee, my committee and i have held 17 oversight hearings on the derivatives market and the implementation of dodd-frank over the last four years. your testimony asking for greater oversight of the implementation process and concern that end users are being treated like large wall street banks is something that this committee and the ag 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. the consumer protection and end

use relief act which pazzed the house last month with a large bipartisan majority. you are corrected in deas, end users did not create the financial kroo sis of 2008 and should not be regulate like they did. end users are the job creators and should put resources into research to grow businesses. they should not be required to part with valuable resources. the house has passed the business risk mitigation and price stabilization act with large bipartisan majorities, 141 votes last year. unfortunately the senate, that other body, has not acted on this bill. i included the prohibition on charging the end user. can you quantify the cost that fnc would incur and possible job losses in this protection is not enacted to law and fnc has to

post losses. >> thank you for that question. this is also a member of the business round table which is itself a member along with fmc with the coalition of end users. we surveyed other non-financial members of the business round table and found that on average for those other non-business members, it would be $269 million that would need to be set aside for meeting these margin accounts. that was only assuming a 3% initial margin without allowing for any variation margin. sir, that would be a direct subtraction of funds that we would otherwise use to invest in capital equipment through expansion of business, in inventory to support higher sales, in research and development to innovate new

pro products and we hope to grow our employment. >> seems that that would be an important thing to help the economy. if i could note for just a moment on this 4th anniversary of dodd-frank, like a number of members in this room having been a part of the legislative action in the committee and across the floor and the conference committee, time tends to modify our memories about how things are done. as i remember it, the derivative section of what would be the dodd-frank act started as a very bipartisan piece of legislation. support from both sides of the aisle. as i remember, when we got to this committee, there was input from the minority, this side of the aisle presently but at that time the political minority. as i remember, the bill went across the bill with a number of supportive votes from all sides room. when we got to conference, the decision was made to set the housework product aside and take up senator dodd's product.

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 tradition -- strong tradition of bipartisansh bipartisanship, that we began dodd-frank, whatever the end result was, i think in a fashion that was appropriate for what we were trying to accomplish. but by the end, i don't remember the minority having that much input. maybe you remember things differently. with that, i yield to the chairman and yield back to his conclusion. >> i think the gentleman's memory is quite vivid, notwithstanding the fact i recall being there for about 24 hours. yes, the gentleman's memory is correct. yield back -- >> a bill only reflects how it's put together. >> gentleman yields back the balance of his time. chair recognizes mr. meeks,

ranking member of the financial institution subcommittee. >> thank you. appreciate the gentleman's last line the questioning. listen to the testimony of the witnesses thus far, i want to see whether or not there's anything that we can agree upon. i will ask, i guess, mr. wilson first, do you agree that it was some bad behavior by financial institutions that created the problem that we had with reference to the financial crisis? >> there was no bad behavior on my part. >> not your bank. i said some financial instituti institutions. >> those guys did something -- financial institutions and non-financial institutions did something that got us in that mess. >> somebody did something. >> yes, sir. >> and things went bad, is that corre correct? >> yes, sir. >> i will ask the same question to mr. carfang. >> sure. there were a number of contributors and large financial

institutions -- >> somebody did something wrong? it wasn't on their own? we didn't have anybody covering it. a lot of people did something wrong to cause the crash, is that correct in. >> absolutely. >> mr. deas? >> yes, there were financial institutions who engaged in risky activities. those risks blew up in 2008. >> there were lots of guilty regulations. regulation was sub par. the regulators missed warning signs. there were consumers all over the country that took out loans trying to profit by low rates and flippi inping houses. they were taken advantage of. but it was not just financial institutions that caused the problem. blame is widespread. >> let me go back. from what i'm hearing and i've heard from a lot of my colleagues especially on the other side of the aisle is what they want to do is get rid of

dodd-frank. if i listen to what they are saying, they are saying, the cause of the problem 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 are trying to get rid of dodd-frank. so the next question is, is there anything in dodd-frank that you agree with, mr. wilson? >> yes, sir. >> mr. carfang? >> sure. >> mr. deas? >> yes, sir. >> mr. kupiac? >> i think the problems that arise from that are admirable. i don't think dodd-frank does it at all. >> i go to mr. frank. mr. frank, would you tell us the problems and why -- how you

derive that the fact dodd-frank came into existence and what it did do to help save the economy and put us where we are today? >> there were two areas that the chairman mentioned that there has been regulation including increased regulation. there were other things. there were two innovations. 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. there were two. one was the financial derivative business. i agree with mr. deas on the end users. there was risky speculative active i that became evident in 2008 basically from people using that as an end to themselves. it wasn't connected to helping the productive economy. secondly, and most troubling, was securing loans. people thought they found a way to get rit of risk.

you don't get rid of risk. you shuffle it off. in those two areas, these new financial derivatives -- congress in 2000 enacted legislation that says to the cfctc, stay away from derivatives. we did have, we thought in the homeowners equity protection act a mandate to regulate sub prime. they said they wouldn't do it. many of my conservative colleagues said we should stay away from regulating sub prime, that that was a good thing. the problem was people were making loans and the incentive became to make a quantity not quality. too big to fail -- if we get too big to fail, then things have failed. we don't want institutions to fail. by stopping the 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 had bought securities from these bad loans with no idea of how much they owed, we wouldn't have that kind of a problem. >> time of the gentleman has expired. luetkemeyer. >> thank you. appreciate the opportunity for all of the good folks to be here today and listen to their concerns. it's interesting as somebody involved in a community banking industry and been on both sides of the table and then see the regulatory regulato regulatory on slout, it's mind bogglining to see what has happened. bankers talk about the amount of regulation coming out of washington.

you talked about fear and uncertainty. i hear that every time i talk to a bankers group. got done with one a minute ago, another group of them were here. it's this uncertainty that causes them to not be wanting i to got out and invest. the business people have this same fear of -- and uncertainty to the standpoint of not being able to or want to risk their business by expanding. i have had a banker tell me before that -- i asked, how are things going? last week i had three people come in who i had approved the loans for the businesses over the past two weeks and all three said -- pushed themselves away and said, no, we're going to wait. we're concerned about the economy. we're concerned about the regulatory environment coming out here. obviously, the president' healthcare law say big problem. it comes down to dodd-frank and the accessibility of funds and the cost of the funds and the

uncertainty it causes within our economy. mr. wilson, you talked about basically i think -- my view is that community banks were not the problem, yet they have been roped in as part of the solution. as a result, you know you talk about less flexibility. less ability to serve the unique needs of the communities that you sit in. i would like for you to expound on that from the standpoint of what goes on with a community bank and how you fulfill the unique needs. >> we're in a market that's 85% hispanic. 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. we were able to uniquely taylor that loan to meet that customer's needs. and i might say during the lifetime of that loan, we were

very flexible if crisis happened in those families of working with those customers. >> one thing that i think that's happening -- as somebody who comes from a rural part of the country, i go back home every weekend and you see that there's another bank that's sold out to a competitor or a neighbor or a larger institution. you guys have alluded to it about the cost of compliance. it's not that it's a bad economy but at some point there's not a particular law or particular rule that caused it to happen but it's cumulative but it's the straw that breaks the camel's back. we can't continue to spread the costs out over our business. you see this consolidation going on. 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 regard to being designated that way. i have a bill to say, hey, look,

it's not the size, it's the size complexity interest connection and the risk that the bank is taking. that should be what determines it not necessarily the size where in all the rules and regulations kick in. i was curious, mr. carfang, you have a lot of expertise in this area. what do you think about the situation that we need to do something about the designation to protect some of the mid-size banks as well? >> one of the fears of the whole thing is that it brings you under the jurisdiction of fsoc. it's an organization that ee slinl creates double jeopardy for everyone in the sense that fsoc steps in when it believes another regulator has failed. therefore, creates another level of uncertainty, another bite at the apple if you will. that creates a lot of concerns on the part of financial institutions but to the customers, the business

borrowers, they are concerned whether their banks will be fully able to make loans when the businesses need them. >> it was interesting yesterday the article talks about two banks in particular. one of them as it hit the $50 billion mark, its stock went down 15%. another bank that's approaching the $50 billion mark. stock is down 7.4% for this not because of anything they have done. it's because of the size. that's an unintended consequence of this that can't be allowed to continue. >> the chair recognizes the gentleman from massachusetts,. >> do you miss us? >> no. >> i don't blame you. >> i'm not under oath. i could have said -- >> i think the gentleman in the panel and barny, you are seeing this, this is another show and

tell hearings with no purpose to it. for me, i'm actually kind of tired of them. i love you all. i would have left. this seems to be go nowhere. it's going nowhere. you 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 we 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. 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 i heard when i was in charleston, south carolina, with a small community bank. 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 community banks, especially holding loans, should

be exempt from qm. maybe that's a move in the right direction. let's see if we can build on that and maybe agree that this $50 billion arbitrary threshold 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 fsoc, if you turned it over and said 50 is out but the fsoc has to figure the complexity size, whatever else you want to care about. the fsoc could sit there and say, oh, yeah, we looked at these. $50 billion is where it stays. there is nothing that fixes the

problem if you kick it to the fsoc. >> 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 çf the 10 billion was the number that you would have to contribute if there was a bailout. >> i wasn't suggesting it was a sifi -- >> 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 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-steagall 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 -- a sifi. 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 push-outs.

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 complexity 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 push-out'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 divestiture 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. as the jury has come back, dodd-frank has not ended too big to fail. we had larger institutions who partook in the crisis. new 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. 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 sifi 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 sifi 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 don't have a choice. >> i didn't ask you about banks over 50, we know that. why is it -- >> believe it or not, the time belongs to the gentlelady 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. ff 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 dodd-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 reducing. and so they appear not only to be exempting end users from having to post margins but from exempting bank counter-parties to a derivative 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 sifi 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 sifi gives you an advantage, yet every institution over which there is discretion has vigorously resisted. and the fact that being a sifi 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 sifi, 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 fsoc, 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 lend 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 center 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. i 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 i%q@yb 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 miss your 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 ritz 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 banks 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 to make loans to those who have the capacity, the collateral, and the

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

waters. 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 á 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 doj 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 reminded 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 trouble, there's no way for savings to be translated into investment any longer if the bank fails. financial intermediation is the way the economy 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 financial remediation. it causes risk. we're not sure what those are. it's up to you. 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 stability board where they looked over and over and over again at securitization and credit risk transfers and same people that are regulating banks now. the same group of individual, the ones that haven't retired, looked at securitization of subprime mortgages, credit derivatives, and said, these are a great thing for the banking system. these are good financial intermediation. now we're coming back and saying, what we need to do is give those guys more power with no constraints and let them pick out the bad intermediation. i can't see how it's going to work out 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? greater burder institution and has it -- if so, has it been to the benefit of your employees or your customers? >> no, sir. we've always provided health care to our employees. the benefit of the health care act is since we're small, we provide insurance. we get a tax credit. >> right. >> this year i'm struggling because the irs is telling me one thing and my accountant is telling me another thing about buying on the exchanges and i've spent considerable time with that issue, and the financial institution regulations, yes, there's a lot of time and effort. it's want only complying with what has passed, but just 14,000 pages --

>> do you think the economy could be better without the regulatory burden. >> it would free me up to do other things. >> and make cash available for those who you think would be qualified to encourage an even stronger and thriving economy? >> yes, sir. >> i yield back. >> the time of the gentleman has expired. the chair recognizes the gentle lady from wisconsin, miss moore. >> thank you so much, mr. chairman, and i am so very glad to see you, chairman frank. just let me say that you have left the ranking member position in the hands of miss waters and she has taught us, set up meetings with us in the library of congress and we've had speakers, heads of agencies and journalists and she has not yelled at us either. i just -- i read every single word of your testimony. you know, this is such a boring subject to so many people that

may be watching and you certainly make it exciting and i read every single word, and i noticed that you didn't wax on and on about too big to fail and how big the banks are and there are more of them than there ever were before they merged and instead, the nugget and i want you to clarify this for me. the nugget that you have given me as a cautionary note, instead of being distracted by just the size of the banks that we ought to be looking more closely into what's happening in the d.c. court rulings where this cost benefit analysis is hampering this ftc and fcc to operate and the appropriations process starting the fcc regulating risk retention out of statutes and no skin in the game and we need to learn lessons from history or be doomed to repeat it. i would just like you to sort of elaborate on your testimony with

regard to that. >> chairman frank, i don't think your microphone is on. >> i was promising not to yell. >> you are certainly free to turn that off, chairman. if ali turn on today is the mike i feel it was a pretty good day. well, which do you want me to address? >> the cost benefit analysis and i sympathize very much for the uncertainty, but if you're in a situation where you think things are wrong and you want to correct them. there's an inevitable period of uncertainty and the only way to avoid uncertainty 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 there have been problems in

the financial area and they've gone well for the end users. i had one magic wand and i would merge the fcc and cftc. if you were starting a new country you'd have one, but they represent deeply rooted economic and social and cultural divisions and it would be very difficult to do that. >> sometimes people forget america is a complex country. one of the reasons we have a multiblissity of bank regulators is we have state-charted banks and nationally charted banks and there was a proposal by senator dodd to give all the regulation of the banks to the occ and the state-charted banks, mainly the community banks said no. we don't want to be in there with the big banks and we want to stay with the fed because we want a regulator that pays attention to us and isn't overly influenced and here the the problem is this and one of the best things that happened from

my standpoint with the regulation going forward, with senator reid getting the senate to say we're not going to allow judges to be filibustered because you have an imbalanced court in 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. they were given the the biggest grand of new authority and derivatives and they were wildly underfunded and that's why people regret that we didn't let them be in that situation. what many would like to do with throttle with cfpb and then you have -- and then you have the financial industry loading all these comments on the agency which you have to do and you have the court requiring a very specific analysis and then saying, oh, no, that's not good enough. we have an example. the cftc put out a rule in accordance with the bill's clear

language, regulating speculation that specifically said if you don't use oil except in your salad and car, please don't go up and buy a whole amount of it which could have an impact on the price. the court threw that out and said congress didn't mean it. we did. >> reclaiming my time. reclaiming my time. is this the sneaker risk thing that's happening to us? the which -- >> with your indulgence, you are here to question. >> it's an indirect attack for people who don't want to repeal it because it's too popular. >> time of the gentle lady has expired. the chair recognizes the gentleman from illinois. >> thank you, i would like to thank you for being here on this week of the grim anniversary of dodd frank especially in carfang, good to have you from chicago, illinois, my home area. good that you heyed it all of the way out here. dodd frank is doing real damage to our economy in installing the economic recovery we all want.

dodd frank spans 2300 pages and creates vast new bureaucracies, but despite this, it has not corrected the problems arising out of the financial crisis and this includes the problem of too big to fail instead of increasing risk. some on the other side of the aisle including the obama administration, if you view dodd frank like i do the ten commandments, errant and demanding our complete devotion. he would agree that dodd frank did not come down from on high nor was it written in stone. thankfully many on both sides of the aisle indicate that some parts of dodd frank can be fixed especially those in the mortgage industry. dodd frank has had a disproportionately negative impact upon the institutions. these smaller, financial institutions helped people access the american dream by extending credit necessary to own hopeses, start a business

and to preserve a family farm. they provide 48% of business homes and serve counties with otherwise limited options and they lend upon based upon local knowledge of a community and not just statistical equations and dodd frank too often forces them into regulatory straitjackets required by big banks, merge with competitors or shut down. the 14th district of illinois demand answers to this problem which is why i'm grateful to this panel here in mind. with that in mind, i want to address my first question to mr. wilson and ask how dodd frank is impacting your community bank's bottom line? i've heard from many financial institutions how high costs imposed by growing mountain of additional rules and regulations and compliance burdens are being faced by the industry. are you concerned that it could limit its offering of certain financial products to consumers generally and low income consumers specifically and what about the impact that these regulations as well as the

subsequent enforcement have on the affordability of credit for small businesses and consumers? >> congressman, our market is low to moderate income people. the community we serve is 65% withdrawal of us offering home mortgages is not good. there are products we've looked at and chosen that not to offer at this time until we figure out the risk. we're a little behind the curve on some of the new technologies. and the risks we try to face each day. >> i want to get back to a few more questions and i would like to remind this community where this started from and i want to go back to september 25, 2003, a committee of financial services hearing. chairman frank, you had said on the record, i do not want fannie

and freddie to be just another bank. >> if they were not going to do more than another bank it would be because -- i'm sorry. if they were not going to do more than another bank would be because they have so many advantages then we do not need them. so therefore, i do not think and i do not want the same kind of safety and soundness that we have at occ and ots. i want to roll the dice a little bit more on the situation toward subsidized housing. in the gsc act, they specified affordable housing goals of of purchases by the gscs. that goal was continuously raised to 42% and 50% and finally 56%. more than 70% of subprime and mortgages that led to the crisis were backed by freddie and fannie, fha and other taxpayer-backed programs. if you have to point to a root cause of the financial crisis, that is it. absolutely