[ applause ] up next, on s span 3, community banking regulations, then discussion on u.s. infrastructure challenges and the u.s. supply chain. later a hearing on freight rail. the political landscape has changed with the 114th congress. 43 new republicans and 15 new democrats and 12 new republicans and 1 new democrat, 108 women in congress including the first african-american woman in the house and first woman veteran in the senate. keep track using congressional chronicle on c-span.org.

the page has lots of useful information including voting results and statistics about each session of congress. new congress best access on cspan, cspan2 cspan radio and c-span.org. >> recently the federal reserve and consumer financial protection bureau removed some lending restrictions on small banks. next the senate banking committee looks at community banks and federal regulations. richard shelby of alabama chairs the hearing. next the senate banking

the hearing will come to order. this week the committee here on banking begins an examination of potential changes to the current regulatory structure. today we will focus on regulatory relief for smaller financial institutions. in the near future we will continue this examination by focusing on unnecessary statutory and regulatory impediments across the financial services spectrum. while there are some who continue to argue that current law is beyond reproach, there are many on both sides of the aisle that believe improvements can and should be made. today we will hear from regulators on some of the lessons they've learned and how best to overcome some of the challenges that they've encountered. and although we may not agree on many things i believe that we can all agree that community banks and credit unions play a vital role in our local economies.

629 counties in the united states are served only by one single, single community bank. 6 million u.s. residents defend on small financial institutions for their daily banking needs. these financial institutions use their knowledge of local communities to lend a small businesses which are the engine of job creation in america. a recent survey found that community banks provide 48% of small business loans issued by u.s. banks. 48%. that number is even higher in rural areas where small financial institutions account for 52%, yes 52% of small business and farm loans. these financial institutions are able to forge relationships with local consumers that enable them to develop products tailored to the specific needs of their communities. unfortunately we've heard that

innovation tailored for main street has been smothered by unnecessary regulations originally designed for wall street. some of the regulators before us today have testified in the past that small financial institutions did not, yes, did not cause the financial crisis. nevertheless added regulations have caused hundreds of banks and credit unions to simply stop offering certain products. they're instead forced to spend valuable resources on compliance. a conference of state bank supervisors found that compliance costs have increased for 94% of community banks. i believe it's time to reverse this trend. today we expect to hear recommendations from regulators on ways to provide regulatory relief for smaller financial institutions. past committee hearings on this issue have demonstrated bipartisan understanding that

something must be done here. discussion here will build upon these efforts by providing specific recommendations from both regulators and congress to implement. i believe that we're long overdue for regulatory relief for small financial institutions. and i look forward to the hearing today. i'll now recognize senator brown, our ranking member. >> thank you very much mr. chairman very much. i appreciate that you've invited both federal and state regulators to continue the conversation that why had last fall about regulatory relief for small banks and for credit un unions. they have made changes to benefit the smallest depository institutions and i thank you for those changes. to highlight a few in january the ncua reproposed its risk based capital rule to be responsive to concerns legitimate concerns raised by small credit unions. a few weeks ago cfpb announced

changes to its mortgage rules a win for small lenders particularly those that underrural areas and the rural areas, the fit proposed to eliminate quarterly consolidated reporting financial requirements for certain bank holding companies and savings and loan holding companies under a billion dollars. since our last hearing last fall congress has also acted. we passed the president signed into law bills that were discussed at the september hearing an supported by those who will be before this committee on thursday. these bills included a bill introduced by senators king and warner and tester that doubled the threshold for the small bank holding company policy statement, a bill supported by senators king, jack reed on this committee and senator warren sapper to allow insures for credit union members in a bipartisan bill or authorized by senator more ran and me to permitle institutions to offer prize link savings accounts.

all are law. also as a result of congressional action led by senator vitter the president's nominated a community banker to serve on the federal reserve board. there are also relief proposals i supported that did not cross the finish line last year. i'm pleased that senator morean will reintroduce that act. it had 7 asenate sponsors. this is ready for action. we should move on it. there's no question regulateers in congress have been responsive to the concerns of small institutions. we've acted where legitimate problems have been identified and members and stakeholders have come together to find compromise. i thank the witnesses today for helping in that process. i do not believe though, that ovary bill intended to provide regulatory relief to small institutions is a good idea. some proposals could threaten the safety and soundness of individual institutions.

others could remove important consumer protections that all customers deserve no matter the size of the institution -- of the lending -- of the bank. we must not forget that more than 400 banks with less than a billion dollars in assets failed as a result of the cite cyst. the cost of the deposit insurance fund exceeded $26 billion. lending, of course is inherently risky and we must make sure we don't encourage unsafe practices in our efforts to tailor regulations. we need to establish a process to evaluate the merits of the proposals being suggested today and those we will hear about on thursday. we'll not be successful this congress in providing regulatory relief if we -- if our proposals do not have broad bipartisan agreement and are attached to un unrelated must pass legislation. our prospects are even less likely if we try to pair

regulatory relief with attempts to roll back wall street reform. i'm open to solving real problem as affecting community institutions as evidenced by our actions over the last couple of years. we can find common ground if our goal is to provide meaningful relief to the smallest institutions while not compromising safety and soundness or consumer protections. today's witnesses can help us evaluate programs they've done significant research to better understand the characteristics of community banks and small credit unions. they also understand our panelists also understand why and how small institutions fail. this can help us target regulatory relief to the smallest institutions for example, in ohio 80%, 80% of the community banks in my state are under500 million in total assets. these are the types of institutions that feel the impact of burdensome regulations the most whether providing another report to their regulator or needing to hire another employee for compliance. last, mr. chairman, i look

forward to hearing more about the gripper review currently under way. the fed, the occ and fdic are required by law to review these -- to review regulations and identify those duplicative, outdated or unnecessary the state regulatory agents and cfpb participate in this exercise voluntarily in addition to the three that are required. this review supplements a significant analysis of impacts that the agencies also do while writing a rule. i appreciate that you've already held meetings in los angeles and dallas and planned ahead and hold meetings in boston chicago, washington and rural areas later in the year. i would encourage you to consider a meeting in ohio, as well. this review will be completed next year, any actions we take in congress should complement not complicate the process currently under way by the agencies. mr. chairman i thank you. >> all members opening statements will be made part of the record. i under stand senator tester has

another committee hearing. >> i do and i want to thank the chairman and rank members for holding this. in a rural state like montana credit unions and community banks are the lifeblood for capital of businesses and permanent -- personal families. and i would just like to say this state where personal relationships still matter and wall street did behave badly. some on wall street behaved badly a few years back and i think community banks and credit unions have felt the page of their behavior when they did nothing wrong. i would just ask that this committee and the regulators match the risk with the regulation. that's really where it needs to be and i think if we do that we'll have succeeded in making capital accessible to folks that live in rural america and across this country. >> thank you. our witnesses today are doreen eberley, she's the director of risk management supervision for the federal deposit insurance corporation, marianne hunt ser the deputy director of the division of banking supervision and regulation for the board of

governors of the federal reserve system. mr. tony bland is the senior deputy comptroller for midsize and community bank supervision for the office of the comptroller of the currency. larry fazio is the director of the office of examination and insurance at the national credit union administration and candace franks is the commissioner of the arkansas state bank department. she also serves as chairman of the conference of state bank supervisors. i would like to ask all you -- all your witnesses -- all the witnesses, written testimony be made part of the hearing record and if you could such up your oral testimony by five minutes, it will give us a chance to have a dialogue with you. we'll start with miss eberley. >> thank you. chairman shelby, ranking member brown and members of the committee, i appreciate the opportunity to testify on behalf of the fdic, on regulatory relief for community banks, as the primary federal regulator

the fdic has a particular interest in the opportunities they face. they provide traditional relationship based banking services to their communities. although owe hold only 14% of assets they account for 45% of all of the small loans to businesses and farms made by insured institutions. while more than 400 community banks failed during the recent financial crisis the vast father majority did not. institutions that stuck to their core expertise whether the crisis are now performing well. the highest failure rates were observed among noncommunity banks and those that departed from the traditional model and tried to go rapidly with risky assets often funded by volatile broker depot sits. we are keenly aware of the impact the regulatory requirements can have on smaller institutions which operate with fewer staff and other resources than larger ones. therefore, the fdic pays particular i attention to the impact regulations may have on

smaller institutions that serve areas that otherwise would not have access to banking services. the fdic and the other regulators are actively seeking input from the industry and public on ways to reduce regulatory burden through the economic growth and regulatory paperwork reduction act process which requires the federal financial regulate attorneys review their regulations at least once every ten years to identify any regulations skrout dated, unnecessary or burden burdensome. as part of this, the agencies are jointly requesting public comment on our regulations. we are also conducting rege nalg outreach meetings involves the public, industry and other interested parrotts. in response to what we've heard in the first round of comments the fdic already acted on relief suggestions where we could achieve rapid change. in november, we issued two financial institution letters responding to suggestions we received from bankers. the first financial institution letter released questions and answers about the deposit

insurance application process. commenters are told us a clarification of the fdic's existing policies would be helpful. the second addressed new procedure that's eliminate or reduce the need for applications by institutions wishing to conduct permissible activities through certain subsidiaries subject to some limited documentation standards. this will significantly reduce application filings in the years ahead. the fdic takes a risk based approach which recognizes community banks are different than large banks and should not be treated the same. every fdic examiner is trained as a community bank examiner through a four-year program. each of them gains a thorough understanding. they live and work in the same communities served by the banks they examine ensuring they're knowledgeable and experienced in local issues important though those banks. institutions with lower risk profiles such as most community

banks are subject to less supervisory attention than those with elevated risk profiles. for example well managed banks engaged in traditional noncomplex activities received periodic point and time safety and soundness and consumer protection examinations carry odd out over a few weeks. this contrast the very largest fdi. supervised institutions receive receivecontinuous supervision and ongoing examination carried out through targeted reviews during the course of an examination cycle. the fdic considers the size, complexity and risk profile of institutions during rulemaking and supervisory guidance development processes and ongoing basis through the feedback we receive from community bakers and stakeholders. where possible we scale policies according to these factors. as we strive to minimize the burden we look for changes that can be made without affecting safety and soundness and believe the current $500 million threshhold for the expanded

18-month examination period could be raised. in addition we would support congress' efforts to reduce the privacy notice reporting burden and also think it would be worthwhile to review longstand statutory regulatory thresholds to see if they should be changed. the fdic will continue to pursue reduction which achieves the fundamental goals of safety and soundness and consumer protection in ways appropriately tailored for community banks. we look forward to working with the committee in bauer suing these efforts. >> i appreciate the opportunity to testify on the important topic of community dangerbanks and reducing regulatory burden. having begun my career more than 30 years ago as a community bank examiner at the federal reserve bake of kansas city eventually becoming the officer in charge at the reserve bank i've seen firsthand how critical it is that we balance effective regulation and supervision to ensure safety and soundness of

community banks while also ensuring undue burden does not constrain the capacity of these institutions to lend to the communities they serve. i last testified before this committee in september of 2014 and at that time i testified that in the wake of the financial crisis the federal reserve has spent the past several years revising our community banks & credit unions refining training program and developing automated tools for examiners to focus their attention on areas of higher risk reducing some of the work at low risk while managed community banks. furthermore we developed programs to conduct more examination work offsite such as the loan review to reduce the time the examiners spend physically in the bank. we also have an initiative under way to use forward looking risk analytics to better identify

high risk areas within community and regional banks which would allow examiners to focus their examination final on the areas of highest risk and reduce burden on the low risk institutions. in january of this year the federal reserve responded to legislation passed by congress in december of 2014 related to the scope of the federal reserve small bank holding company policy statement. specifically the federal reserve board issued an interim final rule and a proposed rule to implement the public law 113-250. effective immediately the interim rule adopted by the board excludes small savings and loan holding companies with less than 5 million in consolidated assets which meets certain requirements from the board's consolidated regulatory capital requirements. thus putting them on par with similarly situated bank holding companies. the federal reserve board also issued a notice of proposed rulemaking that would raise the asset threshold from 500 million

to 1 billion for determining applicability of the small holding policy statement. and expanded its scope to include savings and lone holding companies. it facilitates the transfer of ownership for community banks by allowing holding companies operate with higher levels of debt and that's lower levels of consolidated capital than would otherwise be allowed. additionally the federal reserve board took immediate steps beyond what was required in the legislation to relieve regulatory reporting burden for bank holding companies and savings and loans that have less than a billion in total assets and also meet the requirements of the policy statement. the board has proposed to eliminate financial requirements in the report for those institutions and instead require semi annual parent only financial statements. the federal reserve immediately notified the affected institutions so they would not continue to invest in system changes to report regulatory capital data for only a short

period of time. the changes in the threshold for the small holding company policy statement and related reductions in reporting have significantly reduced consolidated capital requirements and reporting burden for more than 700 small institutions. more than 40% of the institutions that were required to file the 60-beige console the dade report will only file an eight-page report. a second key development since september is the beginning of the interagency review of regulations in accordance with the economic recovery paperwork reduction act or also known as the egripper process. we seek public comment and hold outreach meetings to get feedback from bankers and community groups about ways to reduce burden related to practices. to date the meetings held in los

angeles and dallas yielded some useful and specific suggestions for consideration and review. let me conclude by emphasizing we are committed to listens and considering ideas for reducing burden through the egripper process and want to ensure that our activityies are tailored appropriately and we strive to balance our safety and soundness objectives with the need to reduce unnecessary burden to ensure small institutions can continue to meet credit needs in their local communities. thank you for inviting me to share our views on these matters and look forward to answering any questions you may have. >> mr. bland. >> chairman shelby ranking member brown and members of the committee, thank you for the opportunity to appear before you today to discuss the challenges facing community banks and federal savings associations. and the actions the occ is taking to help these institutions address regulatory burdens. i have been a bank examiner for more than 30 years and seen the

vital role community banks play in meeting the credit needs of consumers and small business as cross the nation. at the occ we're committed to supervisory practices in a fair and reasonable way and fostering a climate that allows banks to grow and like. we tailor our supervision to each situation take into account the products and services it offers as well as its risk profile and management team. given the wide array of institutions we oversee, the occ understands that a one size fits all approach to regulation does not work. therefore, to the extent to allow laws we factor the differences and rules we write and guidance we issue. my written statement provides several examples of the commonsense adjustments we had made to ago eight community bank concerns. guiding our consideration of every proposal to reduce burden on community banks is the need to ensure that fundamental safety and soundness and

consumer protection safeguards are not compromised. within this framework to date we have developed three regulatory relief proposals that we hope congress will consider favorably. we are also undertaking several efforts to identify and mitigate other burdens through a regulatory review process. the first proposal we submitted to congress would exempt some 6,000 community banks from the volcker rule as the vast majority bank under $10 billion in asset do not engage in propriety trading that the statute sought to row anybody bit we don't believe they should commit resources to determine if any compliance obligations of the rule was apply. we do not believe this is justified by the nominal risk that these institutions could pose to the financial system. we also support changing current law to allow more well managed community banks to qualify for a longer 18 months examination cycle.

raising the threshold from 500 million to 700 million for banks that would qualify for this treatment would cover an additional 300 community banks. we also support providing flexibility for federal thrifts so that those thrifts that wish to expand their business model and offer broader range of services to our communities may do so without the burden and expense of a charter conversion. under our proposal federal thrifts could retain current structure without unnecessarily limiting the evolution of their business plan. as a supervisor of both national banks and federal thrifts we are well positioned to administer this new framework without requiring a costly and time consuming administrative process. i'm also hopeful the ongoing efforts to review current regulations to reduce or eliminate burden will bear fruit. i just returned from the second public egripa meeting where they heard ideas from a number of

interested stakeholders. the agents is currently evaluating the comments and from the public comment process. while this pro less will unfold under a period of time they will not wait till it's completed to implement changes or to submit legislative ideas identified through this process to congress. separately the occ is in the midst of a comprehensive multiphase review of our own regulations and those of the former ots to reduce duplication, promote fairness and supervision and create efficiencies for national banks and federal savings. we're receiving comments received on the first fade of our review focusing on corporate activities and applications. finally we are continually looking for enknow have a tiff ways to reduce burden. last month the occ published a paper that focused on possibilities for community banks to clap rate to management

regular regulatory requirements and we believe there are opportunities for community banks to work together to address the challenges of limited resources and acquiring the necessary expertise. in closings occ will continue to squarefully assess the potential affect that current and future policies and regulations may have community banks and we will be happy to work with the industry and the committee on additional ideas or proposed legislation tiff initiatives. again, thank you for the opportunity to appear today. i would be happy to respond to questions. >> thank you. mr. fazio. >> good morning chairman shelby and members of the committee. thank you for the invitation to discuss regulatory relief for credit unions. while we regulate 6,350 credit unions with $1.1 trillion in assets over three-quarters of these have less than $100 million in assets. because these credit unions have fewer resources available to respond to marketplace technological legislative and

regulatory changes we've aware of the need to examine our role. as a result, ncua scales the supervisory texass when it's sensible and within the agency's authority to do so. where regulation is needed to protect the safety and soundness of credit unions the savings of members, and the share insurance fund, this. cua uses a variety of targeting strategies. they include fully exempting small credit unions from rules using graduated requirements as size and complexity increase and incorporating practical compliance approaches into agency guidance. thus we work to balance maintaining standards with regulatory burden. since 1987, ncua has taken a rolling three-year role of our leglations and although not required by law we are voluntary

participating in the current egripa review. these reviews conduct analysis with an eye towards streamlining modernizing or even repealing regulations that are not necessary over the past three years. we have cut red tape. these actions include easing eight regulations including modernizing the definition of a small credit union to prudently exempt thousands of them from complex role, streamlining three processing and facilitating more than 1,000 low income designations and increasing blanket waivers and allowing more flexibility in credit union operations. next week the board will consider a proposal tounder the regulatory flexibility act. if approved, this change would

provide transparent consideration of regulatory relief for a greater number of credit unions and future rule makings. going forward, this. yua board chairman debbie matz considered plans for streamlining the lending role finalized regulatory relief on holding fixed assets and simplify the process for adding some types of associational groups to credit unions. ncua is revising examination process to provide relief through our small credit union examination program we spend less time on average in small well-managed credit unions. ncua has further working to reduce the time spent on site conducting exams and improve consistency in this process. concerning legislation, ncua has lawyer trust accounts and enable federally insured financial institutions to offer link savings account.

ncua would advise congress in writing rules to implement new laws such flegsability would allow us to scale rules based on size and complexity to effectively limit additional regulatory burdens on smaller institutions. ncua supports several targeted regulatory relief bills for credit unions. these bills include legislation to allow healthy and well-managed creditings to supplemental capital permit all federal credit unions to grow, raise the cap on member business lending to support small businesses and except 1 to 4 unit nonowner occupied residential loans from the member business lending cap. finally, parallel to the powers of the fdic occ and federal reserve, ncua asks for the authority to examine and enforce corrective actions where needed at third party vendors.

n kr ncua would close a growing gap in their authority to work directly with key infrastructure vin dores like those with a cybersecurity aspect. this would allow us to maintain necessary information to deal with any problems at the source. in closeing ncua provides committed to streamlining examinations. we also stand ready to work with congress on related legislative proposals. i look forward to your questions. >> mr. franks. >> good morning chairman shelby and distinguished members of the committee. my name is candace franks and i serve as bank commissioner of the arkansas state bank commission. i'm chairman of the conference of state bank supervisors. it is my pleasure to testify today on behalf of csbs. i would like to thank congress and this committee for your focus on community banks. in my 35 years as a state regulator i have seen firsthand the positive local impact of

community banks. these banks are critical to providing access to credit and urban as well as rural areas and they are important to building and maintaining consumer confidence in our financial system. one out of every five u.s. counties has no physical banking offices except those operated by community banks. in my home state of arkansas a very rural says, there are 96 towns that have only one physical banking location. for these small rural towns the community banking system is the banking system. community banks excel at relationship lending making them a vital source of credit for small businesses. in fact community banks play an outsized role in lending to small businesses. holding 46% of loans to small businesses and formarms. regulators must improve the way we conduct supervision to insure a balanced approach this. allows banks to contribute to the stability and resiliency of the economy and strengthens the

diversity that exists in the banking system. as state regulators have examined various resources for bank regulation we have found community banks cannot be defined by simple line drawing based on asset thresholds. while ss ties are relevant there are other factors like market area, funding sources and relationship lend rg3 characteristics i as a bank regulator understand and witness on a daily basis. we immediate a process that identifies the relevant factors and provides flexibility in how those are weighed and considered. this new definitional aproechl sets a foundation for other measures to tailor regulation and supervision to the community bank business modding. for example, providing that application decisions affecting community institutions do not set precedent for other types of institutions or confirming qm statuses on mortgages held in

portfolio. while much needs to be done to right size regulation i want to recognize significant steps already taken. the cfpb proposed changes would give more banks flexibility to make loans to their customers. csbs commends congress for passing a provision requiring at least one member of the federal reserve board have experience either as a supervisor of community banks or are community bank bank bankers. they are an integral part of the system. similarly we ask them to confirm the legal requirement that the fdic includes an individual with state regulatory experience. a seat at the table will not automatically result in a right sized regulatory framework. additionally we must truly understand the state of community banking and the issues they face. this is why csbs partnered with the federal reserve to attract new research on community banking. this research will help us

develop a system of supervision that provides for a strong enduring future for the dual banking system. work from the community bank research conference is held by csbs and the federal reserve has demonstrated there is real value in the relationship lending model used by community banks. one study presented at the 2013 conference found that proximity to a community bank enhances the chance for survival of start-up companies. our hope is this research will inform legislation tiff and regulatory proposals and appropriate supervisory practices and will move us closer to a right-sized regulatory framework. there are significant operational and strategic differences among our nation's banks. these differences reflect the admirable diversity of our financial system, our regulatory approach must also reflect this diversity. thank you for the opportunity to testify today and i look forward to your question. >> thank you. i'll direct my first question to

miss eberley. according to the fdic only two day november very banking charters, two have been approved since 2009. since 1990 we've lost more than 3,000 banks in including 85% of banks with assets under $100 million. equally concerning to a lot of suss that no new banks are being created because of barriers of entry. is the fdic concerned about the lack of new banks and what specific step is your agency taking to address the issue if you are and what legislative solutions might resolve some barriers to entry but keep the safety and soundness of the system intact which we all want to do? >> thank you. i think the issue is one of where we are in the economic cycle versus one of legislative

barriers or even regulatory barriers. as i mentioned in the egripa process we were asked to clarify the application process for deposit insurance and we've done that. our position hasn't changed. it remains the same. we had one application in 2014. that application remains in process. came towards the end of the year. but i think the numbers ofde denovos, it doesn't reflect the interest in community banking. if you look at the dollar amount of capital flowed in the community bank industry since 2008 it's $43 billion so indicates there is investor interest in supporting community banks and belief in the viability of the community bank model and i believe that, you know that's capital that at some point will shift into de n okay. vo bank.

>> do you see any legislative proposals or have any of your own? >> no. >> do you like what the regular laces call for now? >> right, so the regulations that govern applications for desos sit insurance and two piece, the charter as well which we do not grant so would come from the state authority or the office of the comptroller of the currency in the case of a national bank but the guiding principles for us are the statutory factors for deposit insurance and the fdi ago wean we think they're relevant today. >> i understand that the fdic, the federal reserve and the occ are currently undertaking a regulatory review under the economic growth and regulatory paperwork reduction act. this act requires among other things a review of all regulations prescribed by your agencies. but buried in a footnote in the related federal register notice you indicated you will not review certain rules. who decided to exclude

regulations from this review and based on what authority? you know, we're not -- you don't need to tell us why they dit. we just want to know who made the decision. was it plead at the very top? we'll start again with you, miss eberley and then go to the occ. >> i believe that so we work on this through the federal financial institution council with the benefit of our legal advisory group. the regulations excluded are regulations that are new. so recently enacted. and that's the basis as i understand it for excluding them. >> okay. miss hunter. do you have any comment. >> yes that is my understanding as well is the newer regulations require more time to get experience with exactly how they are operating and where the burden might be. so that was really the basis for that. >> mr. bland -- >> chairman shelby, i would just add while the footnote says

that, i've attended both the la, los angeles and the dallas one and in the spirit of just hearing from the bankers and other stakeholders we've been open to any and all proposals or thoughts this i've had and so part of the process is just be as open and hear as candid on regs that are of interest to them. >> who made that decision? was it the chairman of the federal reserve -- >> i am not aware. >> the comptroller of the currency, chairman of the fdic? somebody made the decision. we just want to know who. >> we can find out for you, chairman. >> will you furnish that for the record. >> we will find out who made that decision. >> okay. this leads me to the cost benefit analysis for regulatory review. i'm a believer in empirical analysis when it comes to regulations. if a regulation's cost outweighs its benefit i believe it should be thrown out. does anyone disagree, and, if so, why? in other words, if a

regulation's cost, you weigh that, outweighs its benefits should we keep it? mr. bland? if a regulation's cost outweigh its benefit should it be thrown out? >> well that chairman shelby the issue of cost benefit should be thrown out, you know also when you enact a legislation it needs time to see what the effectiveness is. >> ultimately if you had time to analyze it age if it -- if its cost to the banking system outweigh its benefits to the public you know, should we have it? in other words, it would be weighed in the balance and it would be -- should it be gone? >> chairman shelby in the strictest sense i understand your point but one of the things -- >> disagree? >> no, i was going to make this

point. there have safety and soundness. >> absolutely. >> so that has to be weighed in addition to that -- >> absolutely, that would be one of the costs, if the benefit or benefit to the public benefit versus cost. what about you, miss hunter? what's your thought? >> i would add to mr. bland's comment that the challenges, its easy to measure the costs because they fall to specific stiegs. it's much harder to measure the benefits because they really accrue to a broad population, just things like safety and soundness of the banking system or confidence in the payment system. so that's really the challenge in assessing cost and benefits. i do think that it is worth doing that analysis and i know when we propose rules we look first at what was the benefit that the statute was incontinuing to try to achieve. what was that goal? and then try to fashion rules that minimize the cost of achieving that goal as best we

can and, you know, obviously it takes time to understand exactly how it gets implemented in the industry. >> but that's part of the process, is it not, to weigh the cost versus the benefits, that's part of the -- job as a regulator, is it not. >> it is and it is part of the process we go through when we develop rules responding to statutory -- >> what about the fdic? >> i would add to what miss hunter said the challenges of quantity phiing the benefits of a safe and sound banking environment and lack of failures and lack of economic loss, that's the challenge and it's a difficult thing to quantify when you're going through the cost benefit analysis. >> i don't disagree with you but you would weigh the cost versus the benefits. if the benefits outweigh the costs, keep the regulation. if it doesn't, it ought to fall but that's a big debate we have going because we're talking about overregulating smaller

banks and so forth, the cost to them, versus the benefit to the public, i guess. okay. senator brown. >> thank you, mr. chairman. i thank you all for joining us. the four of you that were at our september 16th hearing the four federal regulators and miss franks, thanks for joining us on this one, miss hunter, question for you. over the weekend a major story broke and u.s. and european media outlets including "60 minutes" about a trove of hsbc account holder data that reveals the hsbc swiss banking arm collaborated in efforts by some of its account holders to engage in tax evasion. i understand european tax officials recovered huge amounts of back taxes from and imposed large pen 'tis on some of these account holders and understand our department of justice and irs received this information in

2010, five years ago, would they normally say that information immediately with the fed? >> well, in response to your question, i will first say i didn't personally see the piece that was on "60 minutes" but i can say that when we really can't comment on specific investigations. >> that's why i ask you. would you normally -- >> in the process -- in a general sense when there is an investigation yes we do share information when requested with the law enforcement authorities. >> share meaning you give to them. do they give -- do they normally give this information to you? >> it would depend on the case. there would be a dialogue about certainly if they are limited in their ability to share with us they would not do that. but we provide information upon request. we generally may be aware there's an investigation going on. >> okay. i want to ask something -- i take that to mean it's a good chance you have had -- that the

fed has had this information for quite some time. i gather investigations of some individual u.s. account holders identified by these leaks have been undertaken by irs. my question is this, hsbc as a recent history of major u.s. sanctions and money laundering violations. they now face these new charges of facilitating tax evasion, summarize, if you wilkes for the committee what the fed has done with respect to hsbc to pursue these tax evasion allegations, what conclusions you may have reached regarding their responsibility for their activities and what steps you're taking with other federal officials to pursue these matters? >> okay well, first of all, again, i can't really speak to the specific matter that is under investigation but i can tell you that with respect to hsbc, we have three -- we've entered into three normal enforcement actions consent cease and desist orders and those relate to bank secrecy and

aml compliance, there is one related to mortgage servicing activities and one related to compliance risk management in general. so we have been obviously working on issues with the firm related to compliance generally. i will say that in any situation where there's an investigation if we -- if we have evidence or we are provided with evidence ses especially those we would favor certainly moving forward and have further committed to taking any appropriate angst e sanctions or penalties that would have accrued from the outcome of that work. >> these are, as you know, very serious accusations. and, in some cases, more than accusations as we've found. and, this committee, a lot of us will be watching the fed's actions on this. >> we agree.

they are very serious accusations. >> question. for the four regulators. each of your agencies must come ply with the smooth requirements on writing rules. this is a follow up to general shelby's question. he's requiring you to publish rules for public comment review rules for impacts on small businesses, consider less burden some alternatives, reduce paperwork burden. you're also currently undertaking the review process to identify burdens and out dated regulations. the question is this. a couple of questions if you start separately and work your way down. do you think yoir agency adequately takes into acount the cost of your rules? what impact do additional analysis have to itch leapt new rules. might some of these proposals actually stop rule making in its

tracks or slow it down so that the burden is too great to move sforward. i'm going to separately begin with you, please. >> we certainly do try to carry out the cost benefit analysis under our policy on rule makings. we consider the cost, the benefits benefits and alternatives based on available data. we ask a rot of questions during the rule-making process to garner the impact and we're particularly interested in the feedback we get from community banks, about the cost of the regulation or the ways that it would impact the institution. and we make changes based to how long you were here. as to the sect about whether additional requirements would impact that process i think it would any time you add additional requirements, it makes the process of conducting the analysis more difficult and also would open it up to additional legal challenges.

and your final question was what kind of impact could that have on the process? >> i think it could certainly slow the process and e and certainly would make it more cumbersome and limit our flexibility. >> i'm not sure i have much more to add to that very complete response. i do agree that it would add complexity to the process. that's certainly adding extra steps, and those would tend to slow down development of rules. and that can be -- that can be problem le problematic in a sense in some cases, a lack of clarity by the time the law is passed and a rule is developed because they right-hand turn sure exactly how various requirements might be implemented. >> the lcc has a very robust ad factors into appropriateness of a rule. and we also have this process

consistent with the o&b guidance which has been asoeszed. and, to your last point, and the only things else to add, the proposed rules would be impeding developer slowdown to the implementation of rules. >> i would just echo the comments of my colleague and implement it does take into account our rule-making process and try to speak to that in the pre preambles to our roles. we find very useful the comments to receive during the rule-making process in responding to those. that's very helpful in fine tuning and kal bratcalibrating rules. we really tar get the rule and give alternatives to practical alternatives for frames to comply. >> thanks, joe.

>> thank you, mr. chairman. one new rule is for appraisals. at a 2014 conference that market values who respond in rural communities may not have an an objective comparison. while the fed did notepromulgate, you have to acknowledge them. what ideas did you have toe rectify the problem. >>. >> senator, you raise points in particularly those in rural areas on the difficulty in getting appraisers who know the community and are able to do the

work that's required has been a real challenge. and so this is actually one area where, through the gripper meetings that we've had in dallas and in los angeles, we've 5:00 schul le actuallily heard some sgszs more broadly. and the suggestion was to take a look at the ethreshold. right now the threshold was last set in 1994, i bloef. it is an inner agency rule.

>> anyone else care to comment on that, as well? if not, i do have another question. kansas fed president, once again, esther george, were considered well capitalized and that their risks understood, yet, before basal three. now, in spite of that, they must adopt finer rules with buffers. the risk weighted as set has 57 rows and 59 pages of instructions even though no additional caption was required. is that simply too much for most community banks. >> are they necessary? >> yeah, one of the lessons coming out of the crisis was

that the industry as a whole needed higher levels of capital and higher quality capital. that's what our inner agency capital rules were designed to do. i think it's fair to ask if we can make it more simple for community banks. i think that's sm that we're open to continuing to look at. >> there are several legislative proposals to consider as a qualified mortgage, all residential mortgage loans as long as the loan is included in the lender's portfolio. can you explain how this would benefit or impact consumers? >> they certainly feel it would be beneficial to consumers.

the local bank knows their customer and might have an inherent interest in ensuring that us banks can repay those loans when i make those loans in the first place. we think that would be a great benefit to consumers. >> one of the things i've heard similar, north of 90%, i find when i press my bankers to specifically enumerate where those costs come from and document i get not a large specificity. i guess would you, for all of you very briefly because i wanted a follow up would you

estimate -- could you give an estimate of how much compliance costs have gone up since dodd-frank for community banks? and is there an enumeration for top three as you hear these sessions in the country. just going down the line. >> we atechttempted an empirical study. as you noted they're not maintaining the claim of information that you could actually just do the math. we don't keep our books in a way that's going to allow you the data that's necessary. in fact they told us that gathering that da e data would in and of itself be burdensome. the comments that we're receiving, the general themes, have been mentioned previously. looking at the various thresholds and rules and regulations, some of which have been outstanding for decades and whether or not those thresholds are still reasonable based on changes in the industry. that's the number one theme tlout the process.

what i would add to that is sometimes it's a one-way change. sometimes they might introduce systems changes. so there's an accumulation of review policy. it's hard to quantify, but that's the kind of thing we're looking for. >> but do you think that -- the 90% number, do you think that's an accurate reflection?

>> i don't have that information. >> i have heard in my business with bank eres, it's manifested itself in additional resources you have to higher. particularly as it gets more complex. but, also, diverting their attention away from lending and interacting with their customer base, the impact on staff, though varies with the size of the institution and the activities they're involved in. but it is real based on what we heard from bankers. >> similar to what was said before, some of the changes that were looking at different thresholds, but, also the collaborative paper that we put up is the collaboration by sharing the work together that could help them manage their cause and require the experience that they need. the banking business is going through substantial change. when you overlay technology but also non-bank competition, different products and services and that realization of the change and to be able to off set that with sharing a resource,

building expertise, is critical. >> very briefly. >> i would just say it's a case of a lot of change going on right now. part is regulatory. it's a lot for institutions, especially smaller ones to deal with. it remains to be seen if we will reach a state of equilibrium that allows them to feel like that's something that they can manage going forward. we try to help where we can. a lot of the rules that are complained about right-hand turn within direct authority. there's not much we can do, but we do try where we can. it's creating a small initiative to help them with the planning in with con sulting. so we do what we can. >> yes, senator. my institutions generally tell me that the costs are incured through hiring atigszal staff and also implementing and

spending the manual time and efforts in trying to understand the new regulations and implement them and particularly, this difficult, mr rural areas. where you don't have a large group to choose new -- >> let me just add. i think there are certain things like have been mentioned in terms of forms. >> i guess the comment i'd like to make, mr. chairman, and i don't know how you'd grapple with this. my belief is enhanced standards for larger institutions. they have kind of seeped down into the examiners at the small banks. and i don't know how you grapple with that best practices

standard. we'll have to come back and revisit that. mr. chairman, thank you. it's my wish to follow up on some of your questions and senator brown's questions. i've used up my five mines but i want to thank everybody for being here. thanks for being here and speblding time with us. it's very very helpful.

>> it is a concern. it's one of the reasons we conducted a study to really look at wurn of the underlying reasons fr consolidation and see want we could learn from that. what we saw over the period that you talked about with the decline of institutions from 18,000 down to less than 7,000. 20% of the consolidation that occurred was from failures.

so to the extent that we could avoid financial failure, that will go a long way towards protecting institutions. the other 80%, we considered voluntary. the biggest wave for the voluntary consolidation occurred through other state initiatives in mid to late '90s. >> we'll see some de novo activity again. and i were looking at it that way.

>> i don't have a lot of time, so let me -- and i hate to cut you off, but i do have to get to my questions. j i'm going to follow up on the chairman's comments. raised 17 million dlarsz for investors, but had to spend nearly a million dollars just in application fees. and the attorney said that it was 8-16 inches of application pages in order to get it chartered. i guess the question is if you have to spen a million to open

up a bank, how many more participation prices are you going to face? >> institutions do have start-up costs -- >> you understand what i'm saying. we're talking about the cost of putting together 16 inches of paperwork, lawyers and accountants and everybody else that you have to put together cost them a million dollars. the question is how are you going to open a bank today if you have those kinds of costs. >> that sounds like a large figure. >> let me just go with senator warren's comments about costs and how they're not getting answers from small community banks in his state. i'll tell you, i'm getting answers from the small community banks. i think you tumped on it and that is personnel costs.