defeat iraq and syria or isis, is to understand we're putting -- at some level an artificial distinction with -- at the border between iraq and syria. we have to look at the entire organization. i agree iraq first, but we need to be thinking about how do we attack this entire organization and make certain that no longer controls territory. and the ambassador's exactly right. that's a military objective. but it means we have to be able to move into syria also. >> which is attacking a sovereign state may be a failed state but we're attacking that. that opens up a whole other can of worms. >> i would disagree with my colleagues in a sense that i think -- >> disagree? >> i disagree in a sense that i think there is a strategy again, preliminary evidence that it is working. this is what the military advisers to the president are recommending as a way to defeat the enemy. so this combination of limited u.s. force with air strikes paired with the coalition partners on the ground has killed 7,000 isis fighters out

of an organization that is -- >> how many have grown out of that though. every time you kill one, you get 10 or 20 more to join the cause. so are we winning? >> and it has helped the iraqi forces, the partners and kurds iraqi security forces retake key strategic areas. in five months, i think there is limbed and preliminary but significant evidence that this combination of limited u.s. force and partners is working. >> i appreciate your time. i'm out of time. thank you, mr. chairman. >> i thank the member from florida. well we appreciate the time of all of our witnesses here today. this was a start of a very important conversation so i think as we deal with this, deal with this growing threat from isis and as we deal with the president's request we thank you again. we're going to be submitting some additional questions to our panel. appreciate your response and we stand adjourned.

a reminder that if you missed any of today's hearing you can watch at anytime in our video library. just go to c-span.org. >> and on our facebook page, we have been asking viewers about their thoughts on the president's request for war authorization against isis. scott says good decision isis is a bigger threat to the world than al qaeda was.

if we had maintained a stabilizing force in the region, instead of pulling out, we could have avoided this war, but now we need to engage them. and shawn posts, stay out of it completely. we have never made a situation better in the middle east. and we're broke. you can weigh in at facebook.com/c-span. and we'll be back live on capitol hill later this afternoon. national counterterrorism center director nicholas rasmussen testifies. he'll be discussing security threats facing the u.s. at home and abroad. and the steps that the department is taking to address intelligence oversight. watch that live at 2:30 eastern here on c-span3. the senate today is debating the nomination of ashton carter to be the next defense secretary. his nomination was approved unanimously on tuesday by the senate armed services committee. and the full senate will vote on his nomination today at 2:00 p.m. eastern time.

watch that live on our companion network, c-span2. here are some of our featured programs for this presidents' day weekend on the c-span networks. on c-span2's book tv, saturday morning at 9:00, live coverage of the savannah book festival with nonfiction authors and books on topics like the disappearance of michael rockefeller, the british company of elephants during world war ii and four women spies during the civil war. and sunday at 9:00 p.m. eastern on after words, former senior adviser for president obama david axelrod on his 40 years in politics. and on american history tv on c-span3, saturday morning beginning at 8:30, the 100th anniversary of the release of the film "the birth of a nation" starting with an interview of author are dick lair the showing of the entire 1915 film followed by a live call-in program with civil war historian harry jones and author dick lair. and sunday at 8:00, on presidency, george washington portraits, focusing on how

artists captured the spirit of the first president and what we can learn about him through their paintings. find our complete schedule at c-span.org and let us know what you think about the programs you're watching. call us at 202-626-3400. e-mail us at comments@c-span.org or send us a tweet at c-span #comments. like us on facebook, follow us on twitter. the senate banking committee held a hearing on tuesday to examine the impact of regulations on community banks and other small financial institutions including their ability to grow and provide the credit needs of their communities. the committee heard from federal and state regulators including the federal reserve, the fdic, and the office of comptroller of the currency. senator richard shelby of alabama chairs this hearing of the senate banking, housing and urban affairs committee.

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 survey by the federal reserve in the 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. i appreciate that you've invited both federal and state regulators to continue the conversation that we had last fall about regulatory relief for small banks and for credit 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 and 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 to allow insures for credit union members in a bipartisan bill or authorized by senator

moran and me to permitle institutions to offer prize link savings accounts. all those are now 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 moran and ginned by senator hidecamp will reintroduce that act. it had 75 senate sponsors. this is ready for action. we should move on it. there's no question that regulators 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 every 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 crisis. 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

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 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 under 500 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 understand 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 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 pain 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, maryann hunter is the deputy director of the division of banking supervision and regulation for the board of governors of the federal reserve system. mr. toney 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 sum 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 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 outdated, unnecessary or burdensome. as part of this, the agencies are jointly requesting public comment on our regulations. we are also conducting regional outreach meetings involves the public, industry and other interested parties. 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 procedures that 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 to supervision 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 rigorous four-year program. as a result, each of them gains a thorough understanding. these examiners live and work in the same communities served bit banks they examine, ensuring they're knowledgeable and

experienced in local issues important to 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 carried out over a few weeks. in contrast, the largest fdic supervised institutions received continuous 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 bankers and other stake holders. where possible we scale policies according to these factors. as we strive to minimize the

regulatory burden on banks, we look for changes that can be made without affecting safety and soundness and believe the current $500 million threshold 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 longstanding 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 pursuing these efforts. >> chairman shelby, ranking member brown and other members of the committee i appreciate the opportunity to testify on the important topic of community banks and our efforts to reduce regulatory burden on these institutions. 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

of supervision 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 bank 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 well 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 time 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 500 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 loan holding companies. the policy statement facilities 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-page consolidated 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 egrpra 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 listening and considering ideas for reducing burden through the egripper process and want to ensure that our activities 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 across 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 thrive. 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 accommodate 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 prohibit, we don't believe they should commit resources to determine if any compliance obligations of the rule was applied. 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 process 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 phase of our review focusing on corporate activities and applications. finally we are continually looking for innovative ways to reduce burden. last month the occ published a

paper that focused on possibilities for community banks to collaborate to manage 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 carefully 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 legislative 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 ranking member brown 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 expectations 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, ncua 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 prudential standards without minimizing regulatory burden. since 1987, ncua has taken a rolling three-year role of our

rules even regulations. and although not required by law, we are voluntarily participating in the current egrpra 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 under 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. ncua board chairman debbie mattis announced plans to consider 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 appreciates the efforts for

lawyer trust accounts and enable federally insured financial institutions to offer link savings account. ncua would advise congress in to provide regulators with flexibility in writing rules to implement new laws such flexibility 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 exempt 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. ncua's draft legislation would close a growing gap in their authority to work directly with key infrastructure vend vend vendors like those with a cybersecurity aspect. this would allow us to maintain necessary information to deal with any problems at the source. in closing ncua provides committed to streamlining examinations. we also stand ready to work with congress on related legislative proposals. i look forward to your questions. >> ms. franks. >> good morning, chairman shelby ranking member brown and distinguished members of the committee. my name is candace franks and i serve as bank commissioner of the arkansas state bank department. 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 state, 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 farms. 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 lending characteristics i as a bank regulator understand and witness on a daily basis. we need a process that identifies the relevant factors and provides flexibility in how those are weighed and considered. this new definitional approach sets a foundation for other measures to tailor regulation and supervision to the community bank business modeling. 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 bipartisan provision requiring at least one member of the federal reserve board have experience as a supervisor of community banks or a community banker. they are an integral part of the financial 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 legislative 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 no vote 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 us is 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 policy 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 of de novos, 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 shift into de novo institutions. >> do you see any legislative proposals or have any of your own? >> no. >> like what the regulations call for now. >> right, so the regulations that govern applications for deposit insurance and two pieces, 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 act and 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 did it. we just want to know who made the decision. was it made 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 they'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 and if it costs 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 specifics. 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 intending 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 quantifying 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 penalties on some of these account holders. i understand our department of justice and irs received this information in 2010, five years ago. would they normally share 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 mishes" but i can say we really can't comment on specific investigations. >> that's why i asked, would you norm 'get that type of information? >> in a general sense, yes. we do share information when requested with the law enforcement authorities. >> share meaning you give to them. do they normally give this kind of information to you? quickly. >> it would depend on the case. there would be a dialogue about -- certainly if they are limited in their ability though 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 else. i take that to mean it's a good chance 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. shbc has a majorp recent history of sanctions, they found face these news charges of facilitating tax evasion. summarize, if you will, for the committee who the fed has done with respect to hsbc to pursue these allegations, what conclusions you may have reached, and what steps you're taking with other federal officials to pursue these matters. >> okay. well, first ofally, again i can't really speak to the specific matter that's under investigation, but i can tell you with respect to hsbc, we

have three -- we've entered into three formal enforcement actions. there's one related to mortgage service seg 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 in any situation where there's an investigation, if we have evidence, or we are provided with evidence that there is a violation of law or a breach of safety and soundness based on activities, especially those that might involve tax evasion, we take that very seriously. we would favor certainly moves forward and firmly committed to taking any appropriate sapgss or penalties that would accrues from the outcome of that work. >> these are, as you know very serious accusations, and in some cases more than accusations as

we found and this commit aye, a lot of us will be watches the fed's actions so this, so we will be in touch. >> we agree, they are very serious accusation. >> is it each of your agencies must comply with a slew of requirements when writing rules. this is a big of a follow-on to chairman shelby's question, the administrative procedures act the paperwork reduction act, these require you to publish rules for public comments rerue rules for impacts on small businesses, consider less burdensome alternatives, reduce paperwork burden, you're also currently under taking a grippa review process to identify burdensome and outdated regulations. a couple questions -- do you think your agency adequately takes into account the costs and benefits of the rules you where i? what impact would additional analysis requirements have on

your ability to implement new rules? might some of these proposals actually stop rule making in its tracks or slow it down so the burden is too great to move forward? >> well we certainly do try to carry out the cost/benefit analysis under our policy on rule makings we ser the costs, benefits and alternatives based on available data. we ask a lot of questions during the rule-making process to garner the impact on institutions and we're particularly interested in the feedback from community banks about the costs of the regulations or the ways it could impact the institutions. as to your second question, which was about whether additional requirements would if impact that process i think it would. anytime you add additional requirements, it makes the product of consulting the

analysis more different, and also would open it up to additional legal challenges. i think it could certainly slow the process and certainly would make it more cumbersome and limit or flexibility. >> thank you. ms. hunter? >> i'm not sure i have much more to at to that very complete response. i do agree it would add complexity to the process, certainly adding extra steps, and those would tend to slow down development of rules. that could be problematic in the sense in some occasions the lack of clarity between the time a law has passed and a rule has developed can impose burdens on banks as well because they aren't sure exactly how various requirements might be implemented. >> the lcc has a very robust economic analysis impact that looks at the quantitative and

qualitative factors, and to the appropriateness of a rule. we also have this process consistent with the omb guidance, and to your last point, and the only thing else to add is proposed rules would be impeding could slow down the implementation of rules. >> and last? >> i would just echo the comments of my colleagues and indicate that we do take account of the costs an benefits kell with quantify if our rulemaking process and try to speak to that. we also take very -- and find useful the comments we receive dural the rulemaking process, and that's helpful in fine-fining and calibrating the rules so we -- we really target the rule and keep it as efficient as possible and

provide practical alternatives. >> one issue that represents a particular regulatory burden the kansas fed presidentesters george observed that market values and small you are rural communities may not have an objective comparison. however, new appraisal rules did not provide requisite flexibility for small businesses and other small community markets. while the fed did not promiseulgate the rules, it has examined them. what recommendations would you have to rectify the problem? >> well senator, you raise an excellent point, one that we have certainly heard in our outreach and discussions with community banks, particularly

those in rural areas. the difficulty in getting appraisers who know the community and are able to do the work that's required has been a real challenge. so this is actually one area where, through the meetings that we've had in dallas and los angeles, we've actually heard some comments about suggestions that might help alleviate, but also more burden more broadly for community banks. the suggestion was to take a look at the thresholds for when these appraisals are actually required. right now the threshold was last set in 1994 i believe. it is an interagent rule, but it was set in '94, and 250,000 and there's a higher threshold for some business loans. so we certainly i think in hearing that in the meetings, you came back and speaking for the federal reserve we certainly think it bears a good look at just what that threshold

should be, how many deals was it capturing in '94 versus what the right level might be today, and if we would raise that threshold, it should achieve the burden reduction, and particularly alleviate the problem in rural is it areas. >> i do have another question. that would be for, in this case mis miseberley. there were risks understood before basel 3. and capital buffers. the risk-weighted asset schedule of the call report has 57 rows and 89 pages of instructions even though no additional capital was required for the majority of the community banks. are 57 rows and 87 pages of

instructions simply too much for 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 that's what you're interagency capital rules were designed to do. i think that's something we are open to continuing to look at. >> one more question for ms. franks. there are several legislative proposals to consider as qualified mortgage. >> they believe that would certainly benefit consumers to have we feel like that would be

beneficial for a consumer, because the bank -- local bank knows their customer and i have an inherent interest in ensuring those banks can make those loans. >> thank you. fluorwarner? >> thank you, mr. chairman. we all air common -- they play a role of the relationship particularly for lending for small businesses. i've heard similar numbers that compliance costs have gone up. you know, north of 90%. specifically ename rate where those costs come from guess

would you for all of you very briefly, would you still -- could the give an estimate of how many compliance costs have gone up since dodd/frank for commune banks? and is there an enumeration of the top three things you are hearing as you for these sessions? we attempted an empirical study, and the difficulty is institutions, as you noted are not maintaining the kind of -- so they donnell in fact they told us that gathering that data in and of itself would be burdensome, but the comments that we're receiving the general themes have been mentioned previously looking at the various thresholds 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 for the process. >> i would add to that as well, the things we hear most the lack of specificity as an issue, it's really the time, and it's an accumulation of small changes. so at least what i hear from the banks, during the process, sometimes it's a one-time change, it's getting used to a new way of doing things, maybe introduce systems changes they may not have wanted to do at exactly that point of time. then going forward, it's five minutes to review a policy. ten minutes with the board. it's hard to quantify but that's what we're looking for, to try -- >> but you think the 90% number that's thrown around do you think that's an accurate reflection? in terms of increased compliance

cost. >> i don't have the information to be able to evaluate that. >> senator warner. it is a very complex issue, but i have heard in my business with bankers, it manifests itself in -- particularly as it gets more complex, folks with a certain specialty, 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 institutions and the activities they are involved in, but it is real based on what we hear from bankers, but similarly to what was said before, some of the changes are looking at different thresholds, but also the collaborative paper we put out is in recognition with the chal edges that institutions have, and that can help them manage their cost, but also acquire the experience they need. the banking system is going through substantial change, when you overlay technology,

different products and services so that realization of the changes, and to be able to offset that with sharing of resources, building of expertise is critical. >> very briefly, because i have one other question. >> i think it's a case of there's a lot of change going on now, part is regulatory part is marketplace, and it's a lot for the institution to deal with deal with. we try to help where we can. a lot of the rules that they complain about are not within the direct authority, so there's not much we can do, but we do try where we can to help them to help them with their planning, and with consulting. we do what we can.

my institutions generally tell me the costs senior accruesed through hiring staff. new tryic to understand the new regulations and implement them, and particularly it's difficult in more rural areas, more rural banks, where you don't have a large group to choose -- >> let me add, and i think there are certain things as senator rounds mentioned, the more we can guess some specificity around kind of pressing our community banks i guess the comment i would like to make -- and i don't know how you grapple with this, xleerly with 400 banks failing we still have to deal with safety and soundness, but my belief is enhanced predunkal standards for the larger institutions, even though we try to bifurcate them for

smaller, they have kind of seeped down into the examiners in the smaller banks. i don't know how you grapple with that best practices standards. >> senator heller? >> mr. chairman, thank you. it's my wish to follow up on some of your questions senator warner's questions and senator rounds' question i want to thank everybody for being here. thank for spending time with us. bouncing back between a couple committees here, so i want to make sure i ask the right committees the right questions. having said that and i think the theme here is if the number of financial institutions in this country has shrunk to the lower level since the great depression, i know some of the statistics have already been discussed, but we once had 18,000 banks, and today we have less than 7,000. in my home state of nevada

there's about a dozen community banks left. that's less than half of what there were five years ago. the last bank closure occurred june of 2013. there are only 19 credit unions left in the state, serving nearly 340,000 members. 31% of nevadaens are everyone banked or underbanked which is the highest in the country. for the fdic, is this a concern or a statistic? >> it is a concern. it is one of the reasons we conducted a study in consolidation to look at the underlying reasons for consultation and see what we could learn from that. what we saw over the period that you talk about with the decline of institutions from 18,000 down to less than 7,000 is that about 20% of the consolidation that occurred over that period was

from failures that were really isolated into two significant crises primarily. so to the extent that we can avoid financial crises in the fuss through strong supervision and good regulations that will go a long way towards protecting institutions. the other 80% of consolidation we considered voluntary. it was a mix of institutions that were merging with unrelated companies, and institutions that were consulting with related companies. the biggest single wave of that activity that really accounted for a substantial part of the voluntary consolidation occurred after the relaxations on interstate branching through state in addition tissues in the mid to late '90s. that was the single biggest period. that can only happen once. we don't expect to see large waves like that again. what is missing in the equation is denovos. we expect as the commission

continues to improve we'll see some of that activity again and the other point i might -- >> senator i don't have a lot of time and i hate to cut you off, but you do have to get to my questions. this was brought up again i want to follow up on the chairman's comments about them application process. i don't know if the community bank of pennsylvania has been brought up in this hearing. it's the first new federally approved bank since 2010. i'm in the process of applying the pennsylvania bank raised $17 million from investors, but had to spend nearly a million just in application fees. they want the -- the attorneys said it was 8 to 16 inches of application pages in order to get it chartered. i guess the question is quickly, if you have to spend a

million to open up a bank in america today, how many more banks do you anticipate will pay that price? >> we don't charge any application fees for application for deposit insurance. there's no fee associated with that. institutions do have start-up costs. >> you understand what i'm saying, the cost of putting together 16 inches many paperwork, lawyers, accountants and everybody else costs them a million. is this what we can expect in the future from the fdic? the question is are you are you going to open a bank today if you have those costs? >> that sounds like a large figure based on my experience. >> let me go to senator warner's comments about costs, and how they're not getting answers from small community banks. i tell you i'm getting answers from the small community banks, and i think you touched on it and that is personnel costs.

small banks in nevada are being audited by the fed, no exceptions, clean books but then being required -- required to hire another compliance officer. >> where are we going to come up with the funds to pay another compliance officer even though we have no exceptions? i just want to ask one quick question on agrippa. will you consider the dodd/frank regulations during evaluation. >> given that the egrpra we do

not feel it's appropriate to look at those rules at the time. isn't it true we don't have another egrpra study in another ten years, if with you don't include doddself frank. >> we look as an ongoing basis whether the rules are appropriate in terms of still relevant, and we will make changes without waiting for the next process. >> all of you, thank you very much. mr. chairman thank you. >> senator hyde camp. >> this is not a partisan issue, not a lot of disagreement about. we're deep by concerned about the status of community banks in this country, deeply concerned about what we hear back home in terms of over-regulation, compliance burden extra

paperwork, what needs to happen. i look at this in kind of two different ways. first you've got the obligation to make sure your rules make sense, to make sure when you enact these rules, you're sensitive to some of the issues like appraisals some of the issues like extra compliance and burden. those banks did not create the problem, yet they feel like they have the lion's share of burden. so what was too small you know too big to succeed or too big to fail has now become too small to succeed. so it has then allowed new entrants into the market that are competing without the burden of regulation, but also has a really not just look at shutting down banks or closing down banks, but removing lines of credit, especially in the mortgage area. so i want to kind of get to two

points. it would be information tiff to what reactions you've had to what you've already heard about the need for accommodation an retreat on invite regulation on the other hand mr. lamb, you want to the extend the law allows. i think that's the other challenge we have here trying to figure out where to put the burden on you to solve this problem, and where we need to be a partner all you've been going through the egrpra process all you met with the community banker, what are you hearing about dodd/frank that would be impossible to fix without legislative action? >> the primary focus hasn't been on dodd/frank and the egrpra process. >> i would imagine they don't hesitate to tell you about it? >> in a kinda sorta way, but the

themes you touched on are the important ones in terms of the impact relevant to the institution. i think part of this discussion we had earlier i think was an important one. where it used to be traditional services in a defined market, it's really being stretched in terms of that definition when you overlay the competition, banks are really challenged by what is the right business model, and made sure that the rules and regs and our policies and practices mirror what those institutions are involved in. >> but i think our point is as they're trying to meet those challenges, whether it's technology and competing with online banking. so i think one of the things that would be extraordinarily helpful for me is to take a look at what you've already done and

then taking a look at where you are sympathetic to the concerns that community bank or smaller institutions have and what we need to do to pick those concerns. the viability is dependent on its diversity. but were abled to do 200 mortgages, that's relationship banks, and none of us want to precise over -- so i just -- just would appreciate any information that you could get to me about what accommodations you've already made, and then what needs to happen in your judgment beyond that to

accommodate the concerns that you're hearing. how do you evaluate costs? it's not good enough to say we don't know. we have to get to the point where we do know so we can evaluate the risk/benefits of what we are doing in this arena. nor vitter? >> thank you. i want to start by thanking the chair, and certainly echos his comments. there is great opportunity on the bipartisan basis to move forward with some regulatory relief.

as one piece of evidence that senator brown and i have a bill, and the discussion on it is dominated on the section which requires higher capital standards. there also has a important separate section offering some significant regulatory relief for community banks. i think that's one example of bipartisan work in that direction. i hope this committee will produce that sort of movement. let me ask all of our guests in general, what do you think or what have you measured as the increase in compliance costs burden in the last few years on community banks specifically? >> as i mentioned, we did try to do an empirical study in 2012.

the data is just not there to complete the study. i can share some anecdotal information that would suggest that some of dodd/frank's provisions that were designed to eliminate too big to fail may in fact be lowering the playing field. one of the things that we have seen is loan growth in community banks compared to the industry. so last year we started putting out our quarterly banking profile with a separate section and just their financial information. that show the they grew year over year, and quarter over quarter at a greater pace than the industry at about 2:1? >> what about my question, which was compliance costs? >> i mentioned we had attempted to do an empirical study -- >> does anyone else have any general perceptions or studies regarding compliance costs of community banks in the last few years? >> i would only add that the

federal everybody co-sponsored a research conference with the supervisorsed. there have been some papers presented at those conferences getting at this very issue. not having the details in front of me on what each study said or did, i had wouldn't want to quote them directly, but i do rail one paper looked at the smallist institutions, and found having to hire one more compliance staff member made the difference between profit act and nonprofitability. so those kind of studies are helpful, in that we take that information, when we think about the impact of new requirements, and as we're implementing them trying to take the least burdensome path. >> senator vitter, i don't have any assessments like that. >> anybody else have any anything -- all right. >> i would just echo what ms. hunter said as far as the community bank research

conference. we have had some papers presented that do address some of those issues particularly on small banks we would be glad to get that information to you soon. >> i would commend all of you. it's reply darn important. compliance costs have mush roomed. that impacts every financial institution, but a disproportionately impacts smaller ones for the reason ms. hunter suggest. in you increase the costs 100%, the city is in a much better position to deal with that man a small community bank that can literally put them under or cause them to have to sell out. so i commend that to you, it's awfully important and certainly my perception talking to community banks every week is that the burden is enormous for the most part they are dealing with things -- solutions for

things they had -- problems they had nothing to do with, yet the burden is far bigger proportionally than it is on larger institutions. another theme i hear automatic time from smaller banks is real concern that dodd/frank and other recent regulations is pushing toward a one size fits all, very standardized model for products they really think that's taking away their whole reason for existence, in essence, their whole niche in the market. in that context, the qualified mortgage issue comes up a lot. do you hear that from community banks? and what's your reaction? >> we've hear a lot about the concern to replay and primarily related to the definitions of

rural and small bank, and i would just not that cfpd -- recently we shared those concerns, and cfpd has really pet forth a notice of rulemaking to respond to the concerns they have heard and offer some expanded designations. >> thank you. senator markly. >> thank you, mr. chair. one is over -- vufrt uncoordinated, too many staff coming in overwhelming the local institution, the cost of repairs for that. you mentioned, ms. eberley. the 2012 study. in that stud,, was there an

effort to step to the mind-set of a community bank and look at it from their point of view in terms of how many regulators are coming how often in what kinds of numbers, and whether there's a way to coordinate that whole set of activities in order to diminish the -- the burden on community banks while achieving the core purposes of the regulatory visits? >> at the same time that we completed 9 data study, we embarked on an outreach initiative that started with a symposium of community banks that we held in washington followed by outreach session hosted by our chairman. we specifically asked institution, you know, what were the things that created burden for them. they talked about new regulations. they talked about communication and they talked about the examination process in ways that we could make it better.

we took actions back in 2012 and 2013 on the feedback that we received from institutions, and the feedback that we continued to receive. in particular we streamlined or pre-exam process and the information we asked institutions before we go in before we even show up so that we go in with informed examiners ready to hit the ground running. we agreement -- >> again, you've gotten to the core of the type of feedback that is so important. i'm not sure based on the --

that it can't be further improved on, but i gather you're continuing to hold the regional roundtables to try to get to the heart of this, and i appreciate that. another piece of the commentary is rules that were designed really for big banks designed in market-making banks that are engaged in wealth manage and investments in wealth management funds, banks that have trading going on in the derivative markets, these rules become part of an examination process that just is a burden and misappropriately applied. is that a problem? and is it getting addressed? >> i would say at first that all of our examiners are trained as community bank examiners, so they are aware of the rules that apply. we have a number of controls in

play to prevent any kind of trickle down if that's the concern, rolls that are meant for the largest banks aren't being applied. first it's the good education of our staff. second, everybody report of examination goes through at least one level of review who again is trained in all of our rules and regulations. you know third we audit our regional office adhoorns, to ensure we are being consistent across the country. we stress xhun command indication at all levels, that they bring them up early in the examination process. >> thank you. in short you're saying no that really isn't an issue, and for the things you're doing, and i'm sure that will lead to further discussion of that. finally the feedback, did not i

believe this was referred to by senator warner, even when formal requirements don't exist, the regulators in the examinations are often saying, well, you must do x, and it's like, well why is that? well, it's a best practice, and so you really don't legally have to do it but we expect you to do it. that trickle best practices from large institutions down creating challenges and problems that may be again inappropriately suited to small community banks, is that an area you feel like you've adequately addressed? >> i can jump in here. this is something we have to guard against the net effect, as you say, could be back in terms of the institutions. one of the things we do is make sure it's a matter requires our attention, which is an identified sure, versus the best practice or recommendation. most recently we updated our

guide yanks to be clear about what our examiners indicate, versus those things that are nice to-dos. that's one of the things that we have to focus on but one of keys that is really at this is explaining the why to bankers. why are we asking them to do this? and what will be the tansible benefit. >> thank you my time is up. >> i will claim my time at this point. i would like to submit for the record a letter i received from comptroller perry that contained a number of suggested reforms that i appreciate very much. hearing no objection i will submit that to the record. secondly, i want to make a brief editorial comment if i could. i just want to underscore how frequently we had sometimes several hundred new bank charters issued in a given year

across this country. not at all unusual to have 100, 200 new charters in a year. to go for six years with only two new charters, i have to say i find it wildly implausible to think that's a reflection of the business cycle. in my view it's clearly a combination of zero interest rate environment and massive regulation that makes it impossible for people to see how they can have a surviving community bank. i say this as a person who helped launch a community bank in 2005. i was shocked by the amount of regulation that that bank was subject to then, and that was before dodd/frank. it's clearly gotten much much worse. you can watch this hearing in its entirety at any time at cspan.org. we're going to leave it now to take you live to capitol hill where national counter terrorism center director nicholas rasmussen will be testifying better the select

committee, talking about security threats facing the u.s. at home and abroad and the steps the department is taking to address intelligence overyigt. richard bure is on your screen. he chairs the committee. el event should be getting going in a few moments. live coverage on c-span3. good afternoon. we're going to get the hearing started. i want to welcome director nick

rasmussen from the national counter terrorism center. nick, we've invited you here today in an open session. i think there were some of the news outlets, vice chair, that said this would never happen with me being chairman that everything would be closed. i want to point out that we are having an open session. the commit aye remains concerned about the challenges facing the intelligence community and the evolving nature of the threat. this is the first of what i hope will be a number of open hearings that should give the intelligence community an opportunity to better inform the

public of its current efforts and challenges. as mr. rasmussen and i have talked about here's what we do. here's sort of how we do it, as much as we can tell, but more importantly, here's why the american people should understand why this is important to them. it's about their defense. given the nature of the material, i want to remind everyone to use extreme caution to protect intelligence sources and methods. while this is an excellent venue to engage nick rasmussen, i reserve the right to immediately suspend any questions or comments that may be sensitive in nature or whose -- the congress is currently debating several matters that impact our counter-terrorism efforts, including an aumf on the conflict in syria. as we take up these issues, i want to make sure the members

and the public understand the serious and credible threat that many of these groups present to the security of the united states and to our allyiesallies. i hope you will discuss the challenges that are are having on your ability to detect and thwart terrorist attacks. nick, i'm afraid your job is getting harder at a time when we can least afford it i've spent more than ten years on the committee as has the vice charm and watched closely the evolvement. al qaeda in 2001 was estimated to have less than 1,000 members. the group was relatively geographically contained.

and plots against our interests were infrequent by today's standards. today we face groups like the islamic state in iraq and the le vaunt, we faint terrorist safe havens spanning north africa, the middle east and south asia, and are confronted by a host of different plots almost daily. we have evacuated our embassies in yemen and libya, the threats are becoming more creative threatening our citizen and allies with non-metallic ieds and massive truck bombs. in addition they're mastering the internet and social media to disseminate propaganda. and to recruit.

one of the biggest lessons we have learned is we cannot give a sang wear to plan attacks. arguably isil now has control of the largest territory ever meld by a terrorist group. in safe haven provides isil and other extremists with the time and space they need to train -- it's also provided them with the access to weapons and the network that can be used to support external operations. we know about the threat we face from al qaeda prior to 9/11, but we fail to act. i just hope we don't make the same mistake again. nick, i once again thank you. i welcome you here, and now turn it over to the distinguished vice chairman.

>> thank you, and welcome. i've been particularly on threats yesterday, and i think your agency is doing a very good job. i think you're outwardly bound, and just the way we think it ought to be, so i want to thank you for that good work. today provides us an opportunity for the committee, as the chairman has said, to discuss in unclassified terms the terrorist threats to the united states and to the rest of the world. this is really particularly important, that the american public understand these threats because they provide the necessary context for a number of policy decisions that the united states government is facing and that we have to help make. these threats affect whether we authorize the use of force against isil the need for our

continued military deployments to counter terrorism efforts, and the need to reauthorize intelligence tools necessary to keep our country safe. i believe that the terrorist threat facing the united states is as diverse and serious as at any time in our history. i have never seen more serious threats. these come from both inside our country and outside. more so than any other terrorist organizations we've seen in the past, isil is seeking to radicalize followers around the world and inspire attacks in our homeland homeland. they are extraordinarily visible. if you look at aqap just as much a danger to us, but much more invisible. the uniforms of isil the equipment, they're taking over the city the children that have been beheaded the christians

who have been sacrifice edd the iraqi army that having frog-walked, and then shot down in cold blood all of this has been on television. americans have come to know the threat that isil is. the guidance from isil to potential terrorists is clear. it wants westerners to come to syria and to iraq to fight. isil instructs them how to carry out attacks at home, and that's what we're up against. there are more than 100 americans who have either traveled to syria or attempted to travel there. and who will return home. at least 3,400 of them are from western europe. and that includes visa waiver countries, where they're a plane ticket away from the united states. what we don't know is how many

people are inside the united states following isil and who are becoming inspired to carry out their own attacks. separately al qaeda remains focused on conducting attacks against or homeland while aq in the ungoverned areas of pakistan may be's weak as it has been in many years al qaeda in the arabian peninsula, or aqap still poses a clear threat. the group is enjoying a safe haven in yemen, with the huiti -- the group has already attempted to sense nonmetallic and essentially undetectible bombs into our country on four occasions, beginning with

christmas day 2009 bomb. aq has published step-by-step directions for building that bomb in the latest "inspire" magazine. our efforts to confront aqap are significantly diminished with the removal of the president in yemen. the huitis may have no love for aqap but over time the yemeni had become a partner that we no longer have. closing or embassy in sanaa was the right choice, but it gives them new freedom to roam and kill. elsewhere this is a power vacuum in libya, maybe even civil war. much of northwest africa groups are using that territory for a safe haven. i could go on and on but let me just conclude with one remark

that i hope director rasmussen with address. on june 1, three provision of the foreign intelligence surveillance act, which we cause fisa, will expire. if these authorities sxhir the intelligence community will lose key tools to identify terrorist groups and to protect the homeland. this includes nsa's metadata program as wet as the authority for domestic fbi investigations but also other important authorities. i looked forward to your testimony, director, and again i thank you for the excellent work you are doing. it's my intern once the

testimony has been received, we will go to five-minute questions based on the order of attendance. hopefully that's been shared with everybody, and we will at this time turned to the director for as much time as your testimony might take nick. >> thank you, mr. chairman madam vice chairman members of the committee. i have submitted for the record a much longer statement that is kind of gone around the world and discussed in some depth the threat picture as we see it. thank you, first, for inviting me to discuss the terror threat that united states is facing and nt ntnctc's attempt to counter that threat. it's dynamic as the why array of actors driving this environment. those actors of located across africa asia, the middle east, and increasingly reach into the west, even into the united states. the emergence of iraq and syria as extremist battlefields and

isil's related expansion and reach has brought about changes in that terrorism landscape. the emergence of new groups since 2011 has also altered the threat pictures as most of the groups are focused on achieves -- we're also experiencing a new level of specialization and fragmentation within that larger terrorism landscape. we believe we might be enter into an era in which the leadership groups matters than it did previously. we may be entering a time in which group affiliation and identity is more fluid and strippist narratives are more focused and as paris showed us this may also be a time when personal connections by individual terrorists may be more relevant to their plotting. even in this dynamic and increasingly complex threat environment, i still believe it's possible to differentiate to some degree the threat we are

facing in the u.s. and the west from the threat we are seeing in the regions where many adversaries are located. as we look at that global terrorism picture, we are trying to be careful to not paint that picture with a single broad bush. in the united states and the west, i traditionally mean western up the threat of cat terrific attack has been significantly reduced as we and our partners have applied pressure to some of the most dangerous groups that we face. now clearly sustaining that counterterrorism pressure and the key elements of that pressure in the key places around the world is an essential condition to preventing the reemergence of some of the more complex threats that would aim at having cat trophic -- but in this current environment, our assessment is we face a much greater more frequent recurring -- measured in terms of frequency in numbers, it is

attack from those sources that are increasingly the most noteworthy feature of the terrorism landscape. since may of last year 10 of 11 attacks in the west were in fact conducted by these individual extremists. two here in the united states and nine others occurring in europe canada and australia. now, the majority of these 11 attacks look more like what we would expect from random acts of violence rather than the large-scale destruction we saw in terrorist plotting immediately after 9/11. in going forward we believe individuals and smaller networks will try to capitalize on the moment mum. it's also important to know. hype in no way seeking to

minimize the impact that such attacks can occur. furthermore, or increasing more level attacks in the west should not in any way subject we're no longer concerned with the -- and even some individuals to target western aviation which would certain constitute a large scale and potential catastrophic attack. mitigating that threat to aviation remains at the top of our priority list. it also remains true that we still face modern and small-scale threats from groups that are more -- and some of the traditional al qaeda affiliates and allies. although the group -- the number of groups posing that truly transnational threat is somewhat smaller in our efforts to place pressure on them has met with some success it's important to remember these groups are persistent and they're patient with their desires and plans to strike the homeland. in contrast to the threat we face here at home and western capitals, our allies and

partners in africa are facing in some ways a much different threat. in countries continuing to work during the effects of the arab uprising, in places like egypt iraq. other terrorist groups are very active in countries undergoing insurgency places like afghanistan, somalia egypt, iraq syria and again yemen. in all of these countries terrorist groups are trying to display weak government or maid significant gains. in other countries terrorists are contributed to population displacement. this is happening in places like iraq, syria, nigeria and afghanistan. some of these groups are also responsible for stoking sectarian tension and contributing to the prolive wrags of sunni on shia violence. amid all of this political instability, terrorists are

carrying out ever-more violent attacks much more frequently and obvious on a much greaters scale than we have seen recently conducted in the west. hundreds of attacks that have unfortunately caused thousands of deaths. just last month as the world focused its attention on paris and the attacks there attacks on local populations like boko haram and nigeria that were taking place on a significantly larger scale. now despite the fact that i've tried in some small way to differentiate between the threaten viernment in the west and the threaten viernment we see in the middle east and south asia there is one phenomenon which draws those two separate threat pictures tightly together and that phenomenon is the continued flow of foreign fighters to syria and particularly those fighters that come from western countries. while the majority of the roughly 20,000 foreign fighters have in fact come from the middle east and from north africa more than 3,400 have we

assess, come from western countries. at nctc we are working to advance a broad effort across our center to track foreign fighters working very closely with the rest of intelligence community and with our partners around the world. nctc compiles information on known and suspected terrorists who travel to syria and we house the data in the datamart environment known as tide. that effort has created a valuable forum for identifying and tracking information on unknown or suspected terrorists for key stake holders and that includes the law enforcement community, and the counterterrorism community and it also this tide effort has directly helped to resolve inconclusive identity information and enhanced tide records with more information and most importantly upgrade watchless status for known or suspected terrorists. nctc officers are also working to fully identify foreign fighters who potentially have access or connections to individuals in the homeland see they, too, can be watch listed.

to do all of this my officers are using nctc's unique access of i.c. and law enforcement information wider than anywhere else in the i.c. this access includes our own data holdings, but as well as our embedded officers from ten other intelligence organizations. now to prevent individuals from traveling to syria in the first place my officers are also working to diminish the appeal of terrorism in partnership with doj, the department of justice and the department of homeland security and the fbi. we have helped develop tools to counter violent extremism and raise awareness among law enforcement and community leaders around the country. we try to taylor these tools particularly in the updated isil context and we've received a significant amount of feedback from communities with whom we have worked and there is a demand signal from those across the country. the nature of today's threat as we discussed in the be givening and was evident in the chairman and vice chairman's statement. it is challenging our ability to

identify and disrupt terrorist plots and this is coming at a time when we are unfortunately losing capability. today the terrorist-related communications of our adversaries are increasingly intermingled with communications that are not relevant to our terrorism work and they are not separate and easily identified streams of information. signals intelligence are increasingly important in denied areas around the world where they face challenges of getting information from sources. it's difficult to operate in places like syria and libya and increasingly now in yemen and the possibility that they'll be infiltrated. due to the snowden leaks and other disclosures terrorists have a greater understanding of how we seek to have surveillance with the tactics and the scope and scale of the efforts. they've altered the way they communicate and this has lead to a decrease. the terrorists who have adopted

greater security measures such as using various new types of encryption. terrorists who have dropped or changed email addresses and terrorists who have stopped communicating in ways they have before in part because they understand how we collect. leaks have also been a wedge between government and providers and technology companies. some companies that were formerly recognizing that protecting the nation was a valuable and important public service now feel compelled to question or oppose our efforts. these challenges that i just described in the collection environment and they go to the question you raise mr. chairman, all of this places information sharing. this information sharing gives us the best chance to identify potential lone actors and loose networks of the sort that are carrying out the most frequent attacks. while the sheer number of foreign fighters that i talked about earlier threatens to overwhelm the law enforcement and intelligence capabilities of key partners around the world the problem has actually spurred information sharing to a level

that we've rarely seen, if ever and that's a positive development. so i would argue that this is one tiny bit of good news embedded with a threat picture and the foreign fighter that is of increasing concern as i hope i've made clear. i'll stop there for now, mr. chairman and madam vice chairman and i look forward to your questions and the rest of the committee. thank you. >> director, thank you very much. i'll restate, we'll go to five-minute questions based upon the order of attendance and that's verifying warner coates, collins, langford and rich. >> mr. director i'm going to go right to the issue the vice chair raised with you and that's the three fisa provisions that are set to expire on the first of june. if we allow those to expire what would be the nctc's

ability. >> it's important to reretain these capabilities that the ability to have insight into what our adversaries are doing, the connections they may have both internationally and potentially into the homeland is an essential part of the business of identifying individual terrorists and building out the picture of the networks in which the terrorists operate and so fundament alley, reauthorization is something that we're counting on in the intelligence community as an important part of our work. >> director earlier this week the administration announced the creation of a cyber threat intelligence integration center where they refer to it as ctec. the national center will reportedly be modeled after nctc and the national counter proliferation center which has struggled under the odni management. i'm hesitant to authorize the

creation of a new center until some of these lingering management challenges can be resolved not least of which is nctc's inability to fully hire. can you assure the committee that nctc will be able to fill the majority of your open vacancies by the end of the year? i believe i can, mr. chairman. i am happy to report that i would tell you over the last five, six months we've taken significant strides forward in addressing that concern and problem. not only improving our ability to hire analysts and officers from outside of government to bring new blood into our center but also increasing the level and inflow of detainees and officers detailed into nctc which as you know mr. chairman, that's part of the lifeblood and having that contribution of officers from fbi, from the

defense department, dia and every member of the community and we're making i think, tremendous progress. if we had this discussion a year ago i would give you a much more cautious response because we can get where we needed to be but just in the last few month it is i've had productive engagements with fbi and cia to the levels we need them to be and i'm pretty confident i can give you the assurance that you're looking for mr. chairman. >> in many ways the threat to terrorism is not declining. the number of claims you are facing is shocking and your ability to the collect intelligence on those threats is waning. is the principal adviser to the president on counterterrorism, are you concerned about the trend and the impact it's having on our security? . in my statement i certainly talked about the wider array and the more diverse array of threats and terrorist actors

that we're seeing around the globe and clearly that puts increasing pressure on our capacity to respond and to react in all of those different places to develop effective strategies in all of those different places. as we've talked about in closed sessions, as well it's not always possible for the united states to transform the environment in some of these areas where the terrorism threat is growing and so we have to develop an approach that allows us to mitigate and disrupt the terrorist threat networks that are most particularly aiming at u.s. interests and while also looking to see if there are ways in which we can over time develop stronger partnerships with countries in particular regions so that we don't own the burden ourselves of doing the mitigating and disrupting but unfortunately, while you were doing that long-term work to establish the more sustainable counterterrorism framework with our partners, you have to deal with, as you said mr. chairman every day a constant inflow of new terrorism-related threats and you're trying to keep up with every one of those most

recent threats while trying to build a more sustainable network of ct partnerships around the world. so doing that long-term work while we're also managing the day to day is increasingly a challenge, i will admit. >> thank you, mr. director. vice chairman? >> thanks, mr. chairman. mr. rassman last year when we had our worldwide threat meeting and this was different than that and it was put out there as a group that could really be effective in launching an attack against the united states and as i'm reading your written remarks particularly on page 8 you talk about two highly capable two ikim offshoots and the battalion and wahid jihad in west africa merging to form the violent