give this kind of information to you? >> it would -- >> quickly? >> it would depend on the case. there would be a dialog about certainly, if they are limited in their ability to do that they would not do it. but we provide information on request, we generally may be aware that there's an investigation going on. >> i want to ask you something. i take that to mean there's a good chance that you have had this, that the fed has had this information for quite some time. i gather investigations of some individual u.s. account holders identified by these leaks have been undertaken by irs. my question is this. hsbc has a history of major u.s. sanctions and money laundering violations. they now have these new charges of facilitating tax evasion. summarize, if you will for the committee what the fed has done with respect to hsbc to pursue these tax evasion allegations, what conclusions you may have reached regarding hsbc's responsibility for these

activities and what steps you're taking with other federal officials to pursue these matters. >> okay. well, first of all, again, i can't really speak to the specific matter that is under investigation, but i can tell you with regard to hsbc we have three, we've entered into three formal enforcement actions, consent, cease and desist orders, and those related to compliance. activities and one related to compliance risk management in general. so we have been, obviously, working on issues with the firm related to compliance generally. i will say that in any situation, wlr there's an investigation, if we have evidence or we are provided with evidence that there is a violation of law or breach of safety and soundness based on activities and especially those that might involve tax evasion, take that very seriously, we would favor certainly moving

forward and firmly committed to talking any appropriate sanctions or penalties that would accrue from the outcome of that work. >> is there as you know very serious accusations and in some cases more than accusations as we found. and this committee, a lot of us will be watching the feds' actions on this. so we will be in touch about that. >> we agree they're very serious accusations. >> a question for the four regulators. each of your agencies must comply with a slough of requirements when writing rules. this is a bit of a followup to chairman shelby's question. the acts require you to publish rules for public comment, review rules for impacts on small businesses consider less burdensome alternatives reduce paperwork burden. you're also currently undertaking the agrippa process.

question is this. a couple question and if you'd just start and work your way down. do you think your agency adequately takes into account the cost and benefits of the rules you write, 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? ms. everly begin with you, please. >> okay. well, we certainly do try to carry out the cost benefit analysis. up our policy on rule makings, we consider the cost the 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 technically interested in the feedback we get from community banks about the costs of the regulation or the ways that it would impact the institution. and we make changes based on the information that we hear.

as to your second question which was about whether additional requirements would impact that process, i think it would, anytime you add additional requirements, it makes the process of conducting the analysis more difficult and also would open it up to additional legal challenges. and your final question was what kind of impact could that have on the process. i think it could certainly slow the process. and certainly would make it more cumbersome and limit our flexibility. >> thank you, ms. hunter. >> i'm not sure i have much more to add to that very complete response. i do agree that it would add complexity to the process. it's certainly adding extra steps, and those would tend to slow down development of rules. and that can be that can be problematic in the sense in some occasions, the lack of clarity between the time a law is passed and the rule is

developed can yes, ma'am pose burrs on banks as well, because they aren't sure exactly how various requirements might be implemented. >> mr. bland? >> the fcc has a very robust policy. we're also consistent with the guidance which has been assessed. and to your last point and the only thing else to add is it would be, proposed rules would be impeding could slow down or halt the facing of rules. >> i would just echo the comments of my colleagues and that we do take in account all the benefits and try to speak to that in the preambles to our rules. we also take very seriously the comments. we find very useful the comments

we receive during the rule-making process and respond to those in our preambles to our final rules, and that's very helpful to us in calibrating the rules so that we pick up, we really target the rule and keep it as efficient as possible and gunfire alternatives to, practical alternatives for individuals to comply. >> i have just a few questions. first, if i could, and i'd like to address this to ms. hunter. one issue that represents a particular regulatory burden on small banks involves new rules for appraisals. kansas fed president esther george observed at a 2014 conference that market values in smaller rural communities may not have an objective comparison. however, new appraisal rules did not provide requisite flexibility for individuals in rurals and other small community markets. while the fed did not promulgate the rules, it has to examine

them. how are you addressing the small banks' concerns about appraisals in rural communities and what would you have to rectify the problem? >> well, senator you raise an ex-atlanta point and one we have certainly heard in our outreach and discussions with community banks, and 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 agrippa meetings we've had in dallas we've heard comments about suggestions that might help alleviate the issues in rural area but also broaden in community banks. and the issue is to take a look at the threshold for when these appraisals are required and for what kinds of deals. the threshold was last set in 1994, i believe. it is an interagency rule.

and it's a 250,000. and there's a higher threshold for some business loans. in speaking for the federal reserve, we certainly think it merits 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 could achieve the burden reduction, and technically alleviate the problem in rural areas. >> anyone else care to comment on that as well? if not die haveo have another question, and that would be for ms. ebberly. community banks were considered well capitalized and that their risks understood before basil three, yet in spite of that, they must adopt finer rules. the risk weighted asset 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 most community banks? are they necessary? >> you know, one of the lessons coming out of the crisis was that the industry as a whole needed higher levels of capital and higher-quality capital, and that's what our rules were designed to do. i think it's fair to ask if we can make it more simple for community banks, and i think that that's something we're open to continuing to look at. >> okay. one more question for ms. franks. there are several legislative proposals to consider as a qualified mortgage all residential mortgage loans made as long as the loan is included

in the lender's portfolio. can you explain how this would benefit or impact consumers? >> the state bank supervisors believe that that would certainly benefit consumers to have qm loans held in portfolio qualify. we feel like that that would be beneficial to a consumer, because the bank, local bank knows their customer and they have an inherent interest in ensuring that those banks can repay those loans when they make those loans in the first place. so we think that that would be a great benefit to our consumers. >> thank you. thank you mr. chairman. >> senator warner? >> thank you, mr. chairman. i think we all share common beliefs here that community banks are critically important. they play an outsized role in loaning for small business. one of the things the chairman mentioned in his opening

comments, you know costs have gone up north of 90%. i find, though when i press my community bankers to specifically enumerate where those costs come from and document, i get not a lot of specificity. i guess, would you forever, for all of you very briefly i have one other follow up. would you estimate could you give an estimate of how much compliance costs have gob up since dodd frank for community banks? and is there kind of an enum racial of top three things that you hear as you go around the country? >> we attempted an empirical study in 2012. and the difficulty in doing that is institutions are not maintaining the kind of information that you could actually just do the math. so they don't keep their books in a way that would allow you to gather the data that's necessary. and in fact, they told us that gathering that data in itself

would be burdensome. so there is that issue. but on the agrippa front, the general themes have been mentioned previously. looking at the various thresholds and rules and regulations, some of them have been outstanding for decades and whether or not those thresh holes are still reasonable based on changes in the industry that's the number one theme through the agrippa process. >> and i would add to that as well, the things we hear most are the lack of specificity is an issue. it's really the time, and it's accumulation of small changes. it's getting used to a new way of doing things that might introduce systems changes that they might not have wanted to do at exactly that point in time. so there's an accumulation of investment of time and going forward it's five minutes to review a policy, ten minutes with the board.

so it's hard to quantify, but that's the kind of thing we're looking for in the agrippa process. >> you think the 90% number that's thrown around, do you think that's an accurate reflection? >> 90%? >> in terms of increased compliance cost. >> i don't have the information to -- >> could it be furnished? >> senator warner ift is a very complex issue but i have heard in my visits with bankers, it's manifested in additional people you have to hire, you have to hire folks with a certain amount of specialty. the impact varies with the side of the institution and the activities they're involved in but it is real, based on what we hear from bankers, but similar to what was said before some of the changes are looking at different threshold, but also our collaborative paper that we

put out is in recognition of challenges that institutions have. but by sharing and working together it can help with the cost and acquire the experience they need. the banking business is going through substantial change. not only in technology but non-bank competition, different products and services. and so that realization of the change and to be able to offset that with sharing of resources, billing expertise is critical. >> very briefly, because i have one other question. >> i would just echo that. i think it's a case of there's just a lot of change going on now. marketplaces, technology it's a lot fort institutions especially smaller ones, to deal with. it remains to be seen if we will reach a state of equal ib rum if that's something they can establish going forward. we try to help where we k a lot of rules that they complain about aren't within the direct authority. we do try to help where we can

to help them in complying have practical approaches initiatives to help them with their planning so we do what we can. >> yes senator my institutions generally tell me that the costs are incurred through hiring additional staff and also in implementing and spending the manual time and efforts in trying to understand new regulations and implement them. in techparticularly, it's difficult in more rural areas and more rural banks where you don't have a large group to choose new -- >> let he just addme just add, i think there are some things in terms of forms. i think the more we can get some specificity, so we around pressing our community banks for what the changes are. i'd like to make this comment, mr. chairman, i don't know how

you grapple with this. clearly with 400 banks failing we still have to deal with safety and soundness. but my belief is that enhanced standards for the larger institution, even though we try to bifurcate them have kind of seeped down into the examiners of the smaller banks, and i don't know how you grapple with that best practices standard. but we'll have to come back and revisit that. >> mr. chairman thank you. and it's my wish to follow up on some of your questions. senator warner's questions and senator brown's questions is, as i use up my five minutes, but i want to thank everybody for being here. thanks for taking tikeeing time and being with us. i just want to make sure i right the right committees the right questions. having said that i think the theme here is that the number of

financial institutions in this country has sh rungs to its lowest level since the great depression. we once in this country 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 unbanked or underbanked, which is the highest in the country, so i guess for the fdic, is this a concern? or a statistic? >> it is a concern. and it's one of the reasons we conducted a study on consolidation in the banking

industry to look at what are the underlying reasons for consolidation and see what we could learn from that. what we saw over the period that you talked about with the decline of institutions from 18,000 down to less than 7,000 is that about 20% of the consolidation that occurred over that period was from failures that were really isolated into two significant crises, primarily. and to the extent that we can a void financial crises in the future, that la go a long ways towards protecting institutions. the other 80% of consolidation we considered voluntary and it was a mix of institutions that were merging with institutions that were consolidating 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 initiatives in the mid to late '90s. so that was the single biggest period. that can only happen one. so we don't expect to see large waves like that again. what's missing from the equation is de novos. we do expect as the economy continues to improve we'll see some de novo activity again. and by looking at it that way -- the other point i might make -- >> i don't have a lot of time, and i hate to cut you off, but i do have to get to my questions. and this was brought up, again, i want to follow up on the chairman's comments about this application process. i don't know if the community bank of pennsylvania's 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 $1 million just

in application fees. and they said the attorney 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 $1 million to open up a bank in america today, how many more banks do you anticipate are going to pay that price? >> we don't charge any application fees for applications for deposit insurance. there's no fee associated with that. institutions do have start-up costs as they go through -- >> you understand what i'm saying. we're talking about the cost of putting together 16 inches of paperwork, lawyers and accountants and everything else, cost them $1 million. is this what we can expect in the future from the fdic? as costs? are you going to open a bank today if you have that kind of costs? >> that sounds like a large figure based on my experience. >> let he just go to senator

warner's comments about costs. and how they're not getting answers from small community banks in his state. i tell you, i'm getting answers from the small community banks, and mr. brandland, i think you touched on it and that is personnel costs. we have small banks in nevada that are being audited. clean books, but then them being required to hire another compliance officer. where are we going to come up with another $120,000 to $150,000 to pay for another compliance officer even though we have no exceptions. that's part of the problem with what's going on. >> do i have a minute? i just want to ask one quick question on agrippa. will you consider dodd-franks regulations during the agrippa process? >> i'll take a stab.

>> okay. >> given that the agrippa process is looking at rules, established rules that are, you know outdated, overly burdensome and unnecessary most of the dodd-frank rules haven't been implemented yet or taken effect. and so it is not we feel appropriate to look at those rules at this time. >> but isn't it true, though, we won't have another egrippa study for another ten years? do we not include dodd-frank? >> i would say at the occ as part of our ongoing process, we look on a regular basis whether rules are appropriate in terms of still relevant and we will make changes if we need to without making for the next agrippa process. >> thank you very much for being here. senator thank you. >> thank you, mr. chairman. i think you're giving a theme here. that this is not a partisan

issue. this is not something that there is a lot of disagreement on this committee about. we're deeply concerned about the status of community banks in this country. deeply concerned about the what we hear back home in terms of overregulation, compliance burden extra paperwork. what needs to happen, and i look at this in kind of two different ways. first, you've got the obligation to make sure that your rules make sense, to make sure that you're doing the look back when you're enacting these rules, are' actual lay sensitive to some of the issues like appraisals, some of the issues like extra compliance and burden. this is these banks did not create the problem. but yet, they feel like they have the lion's share of the burden, because they don't have the economies of scale. so what was too small, 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 really made 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 i want to kind of get to two points. it would be very informative to know what reactions you have had to what you've already heard in the dodd-frank arena, what reactions you've had to what you've already heard about the need for accommodation and retreat on some of the regulation. on the other hand, mr. bland, you said to the extent the law allows. and i think that's the other challenge we have here is trying to figure out where we're going to put the burden on you to solve this problem, and where we need to be a partner. and so i'm curious, as you've been going through the agrippa process, as you've met with the community bankers in your meetings, what are you hearing about dodd-frank that would be impossible for you to fix without legislative action?

>> our primary focus hasn't been on dodd-frank and the agrippa process. >> right. i would imagine they don't hestitate to tell you about it though. >> in a kind of sort of way. but i think there's those things that you touched on are the important ones in terms of the impact relative to the institution. and i think part of this discussion we've had earlier about what is a community bank, i think, is an important one. because 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. but banks are really challenged by what is the right business model, in making sure that the rules and regs and our policies and practices mirror what those -- >> but i think our challenge is as they're trying to meet those challenges, whether it's tomorrow competing with online

banking, competing with folks who don't have these regulations, as they're challenged challenged, we don't want to add unnecessary burden on that challenge. so i think one of the things that would be extraordinarily helpful to me as you go back and look is to take a look at what you've already done in response to concerns that have been raised, and not looking at agrippa but looking at dodd-frank and taking a look at where you are sympathetic to the concerns that community banks or smaller institutions have and what we need to do to fix those concerns, because the viability of financial institutions going forward is dependant on its diversity, and i could tell you stories about community bankers who didn't use qm but were able to do 200 mortgages on an indian reservation that they wouldn't have gotten otherwise. that is relationship banking, and none of us here want to preside over a federal policy

that eliminates the need for relationship banks. so 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. and, you know, we all have a role to play. i think that you guys have heard and are starting to react, but this idea, and i think the chairman talked about cost benefit, and so did mark. how do you evaluate cost? it's not good enough to say i don't know. we have got to get to the point where we do know so that we can evaluate the risk benefits of what we're doing in this arena especially as it relates to small institutions. >> senator? >> thank you. i want to start by thanking the

chair for calling this hearing, and certainly echoing his introductory comes. i think there is great opportunity on a bipartisan basis to move forward with some regulatory relief for smaller institutions. and as one piece of evidence of that senator brown and i have a bill. it's the discussion of it is dominated on the section which requires higher capital standards for megabanks but it also has a very important separate section, offering some significant regulatory relief for community banks, and 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 cost

burden in the last few years on community banks specifically? >> as i mentioned, we did try to do an empirical study in 2012, and the data is just not there to complete the study. i can share some anane anecdotal information that the too big to fail may be leveling the playing field. one of the things we've seen is loan growth in community banks compared to the industry. so last year we started putting out our quarterly profile with a separate section dedicated to community banks. it shows that community bank loans grew year-over-year, quarter over quarter. and it was about two to one.

>> what about my question, which was compliance costs? >> i mentioned we had attempted to do an empirical study. >> does anyone else have any general projections or studies regarding compliance costs of community badgesnks in the last few years? >> i would only add that the federal reserve co-sponsors a conference. there have been some papers presented at those conferences getting at this very issue. not having the details in front of me on exactly what each study did or said i wouldn't want to quote them directly but i do for example one paper looked at the very smallest ibs tuesdays and found that having to hire one more staff member made the difference between profitability and non-profitability. so those kinds of studies are helpful in that we take that information, and when we think about the impact of new requirements, and as we're implementing them, try to take

the least burdensome path to achieving the result that was intended to the law. >> senator vitter, we don't have any assessments like that. >> anybody else have any? >> 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. and we will be glad to get that information to you. >> okay. i'd really commend this issue to all of you. it's pretty darn important. compliance costs have mushroomed. that impacts every financial institution. but it disproportionally impacts smaller ones for the reasons ms. hunter suggested. i mean, you know, if you increase compliance cost 100% city is in a much able to deal with that than a rural community which would cause them to sell

out. a trend which is accelerating. so i really 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're dealing with things, solutions for things they had problems they have nothing to do with. and yet the burden on them is far bigger proportionally than it is on larger institutions. another theme i hear all the time from smaller banks is real concern that dodd-frank and other recent regulation is pushing toward a one-size-fits-all, very standardized model for products and they really think that is taking away their whole reason for existence, their whole niche in the market. and in that context, the

qualified mortgage issue comes up a lot. you hear that from community banks. and what's your reaction? >> we've heard a lot from community banks about the concerns with the ability to repay and qm rules. primarily relating to the definitions of rural and small bank. i would note that we've shared those concerns with cfpb as we've heard them. and cfpb has recently put forth a notice of proposed rule making to respond to the concerns they've heard from community banks in offering some expanded designations. >> thank you. senator markly? >> thank you mr. chair. the feedback that i get from my community banks around cost, the general topic we're discussing, one is overlapping audits, visits from different regulatory bodies. too many staff coming in,

overwhelming the local institution, the cost of preparing for that. you mentioned, ms. ebberly the 2012 study. have, in that study, the community banking study, was there an effort to step into the mind set of a community bax andnk 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 set of activities in order to diminish the burden on community banks while achieving the core purposes of the regulatory visits? >> at the same time that we completed the data study we embarked on an outreach initiative that started with a symposium of community banks that we held in washington followed by outreach sessions around the country.

each of our regional offices hosted by our chairman. and we specifically asked institutions, 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 and 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 continue to receive. in particular, we streamlined our preexam screening process and what we ask institutions for before we go in, to make the examination process smoother when we get there. so we try to do as much off-site work as possible before we show up, so we go in with informed examiners. we didn't get specific feedback during that process that i recall about coordination with other regulators, but we do work on that at a local level. with our state counterparts, through our field supervisors, as they go through examination

planning. we have cooperative examination agreements that define who will examine the institution when. >> i don't want to cut you off. you've gotten to the core of the type of feedback that is so important. i am not sure that it can't be further improved on, but i gather you're continuing to hole the regional round tables to try to get to the heart of this, and i appreciate that. another piece of the commentary is that rules that were designed really for big banks engaged in market making banks that are engaged in wealth management and investments in wealth management funds, banks that have trading going on in the derivative markets, that 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?

the primary regulator of small community banks? >> i would say at first that all of our examiners are trained as community bank examiners. so they're aware of rules that apply to community banks. we have a number of controls in place to prevent any kind of trickle down if that's the concern. first is just the good education of our staff. we've got a very professional staff. second, every reported examination goes through at least one level of review by a case manager in our regional office who again is trained in all of our rules and regulations and what applies to which institutions. you know, third, we audit our regional office adherence to policy on a regular basis to maintain that we're being consistent across the country. and we stress communication at all levels that if institutions have any concerns that they bring emthem up early in the examination process so we can

resolve them. >> thank you. in short, you're saying that really isn't an issue for the things you're doing, and i'm sure that will lead to further discussion of that, and finally, the feedback is and this was referred to, i believe by senator warner, that even when formal requirements don't exist, the regular lartss are often saying well you must do x, well, why is that? well it's a best practice, so you really don't legally have to do it but we expect you to do it. and that trickle of best practices from large institutions down kree agent challenges and problems that may be, again, inappropriately suited to small community banks. is that an area you feel like you've adequately addressed? >> and senator i can jump in here. absolutely. this whole notion of best practices is something we have to guard against. the intentions are good but the

net effect can be bad in terms of the institutions. so one of the things we do is make sure we emphasize a matter requiring attention which is an identified issue that the banks need to address versus the best practice or recommendation. most recently we updated our guidance to be very clear about what our examiners communicate. these things that have to be done because they're impacting the bank versus those things that are nice to-dos. those are things that we really have to focus on. but one of the keys that is really at this is explaining the why to bank ares. why are we asking them to do this, and what la be the tangible benefit of acting on what our recommendation is. >> are thank you. and i will claim my time at this point, and i'd like to submit for the record a letter that i received from comptroller curry that contained a number of suggested reforms that appreciate very much. hearing no objection, i'll

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 find it wildly implausible to think that's the reflection of a business cycle. in my view, it's very clearly a combination of a zero interest rate, and massive regulation that make it is impossible for people to see hugh they can have a surviving community bank. i say this as a person who helped create a the community bank in 2005. i was shocked atxthe regulation that bank was subject to then, and that was before dodd-frank.

it's gotten much, much worse and it's imfobl believe that this is not due to a halt in capital. having said that, the occ has in my mind quite constructively suggested several significant reforms. and i'd like to pursue a discussion about that, especially with mr. bland, because this is exactly the conversation i think we should have. what are the specific things we can do that will help the existing community banks and more community banks serve the credit needs of their community. so, mr. bland as you know and as you mentioned in your testimony, one of the proposals you have suggested is to exempt community banks with assets of less than $10 billion from the rule. and i want to discuss that. let me first start by is it your sense is it generally true that banks of $10 billion and less engage in virtually none or

de minimis amount of the activities meant to be precluded by the rule? >> that's correct. our assessment around this area has shown that a lot of the activities that most community banks engage in isn't, isn't under the purpose of the proposed rule. and therefore to require the compliance effort, to make that determination, seems costly, compared to the actual activities that they have. and so that's where our view is on that. and then even if institutions were involved in activities that would follow the rule, the extent of those activities aren't significant relative to the larger institutions. so the realization of looking at institutions around $10 billion and under mark didn't seem to be the intent of the legislation. so that is pretty much the bedrock of our proposal. >> and the reality is that these

small banks have to spend a fair a time and energy and resources simply proving that they don't do what they've never done. >> that's correct. >> is that fatherir? >> and our thinking is we can use the supervisory process to assess the risks that we need to address. >> i'd like to address ms. hunter are you open to a reform such as been proposed? >> i know in speeches support has been voiced for the proposal and for exactly the reasons that mr. bland identified. community banks do have some activities that are covered by the rule but the risks are not nearly as great as for the largest institutions that can be managed in a supervisory process. >> thank you, ms. ebberly? >> we would estimate that very few of the banks if any that we supervise are engaged in activities covered by volcker

but we have not taken a position. >> i would encourage you to consider this. the last point i would make, mr. brand, would you agree that there's nothing magical about the $10 billion figure? there's nothing intrib sick about one incremental dollar above that that suddenly gives rise to the activities? >> i would agree with that. >> second thick i want to touch on is that you also suggested that banks with $750 million in assets be examined every six months rather than 12 months. the size isn't the only thing that determines whether they get a little bit of relief? >> the primary driver is well managed, and the ability of these banks in terms of the risk, but their proven performance. we want to devote our attention to less-well-managed

institutions but to lessen the burden on those banks that are performing well and managing themselves properly. >> i think that's very constructive approach. again, ms. everly and ms. hunter, have you considered this, and are you open to this type of reform as well? >> we indicated our support in our opening statement? >> yes, and i think this is also a suggestion that bears looking at. one point i would make is we also hear proposals on cutting back on call report reporting and that combined with extending of frequency or somehow reducing the less on-site presence there's a trade-off there. we could use the information to monitor risks which would allow us to feel comfortable extending exam frequency for certain institutions. >> thank you. my time has expired. senator warren? >> our community baxs playnks play

a critical role. these small institutions clearly do not pose the same kinds of risks as the biggest banks. and our regulation and supervision of these institutions should reflect that. the good news is that dodd-frank does reflect that basic principle. it exempts community banks and credit unions from many of its rules. and for the others it almost always gives regulators the discretion to tailor their approach based on the size and business model of the institution. so when members of congress start talking about rolling back regulations in the name of community banks, i want to be sure that it's really about helping community banks and not about helping their much-larger competitors. no, i want to start with this. ms. hunter, in your testimony you note that the fed defines community banks organizations as those with under $10 billion in assets, is that right? >> yes, that's true.

>> good and mr. bland, i understand that the occ's definition of community banks looks at additional factors, but under the occ's definition what percentage of community banks have under $10 billion in assets? >> senator warren we have about 85% of our banks are less than $10 billion. >> okay. and about what percent are under $1 billion in assets? >> that's a good test for me. we have 1400 banks under $1 billion. >> it's going to be in the higher 80s. so nearly all of the banks that you're supervising are going to be under $1 billion, much less under $10 billion. and ms. ebberly, i know that the fdic defines community banks by examining a few different factors in addition to size. but i have the same question for you. under fdic definition, what percentage of community banks

are under about $10 billion? >> using our definition, 94% of the banks under $10 billion meet our definition. a couple over $10 billion meet it. >> so the banks you've got a few that are under $10 billion that do not meet the definition. >> that's correct. >> but your community banks the ones that do meet the definition are nearly all concentrated under $100 billion. you said all but a few. how many under a billion? >> that's 0990% of institutions. >> it sounds like the consensus is that out of the several thousand community banks out there, nearly every single one has under $10 billion in assets and most are under $1 billion in assets. there are a lot of bills out there being promoted as helping community banks, but i want to look just a@áát bit closer at who they will actually help, and here's an example. under current law, banks with less than $10 billion in assets

are completely exempted from the examination and reporting requirements of the consumer financial protection bureau. a bill introduced in the last congress would have raised that exempting threshold from $10 billion to $50 billion. by raising that exempt threshold, would that benefit any of the banks? no? i'll take that as a no. in fact, given that the banks between $10 billion and $50 billion in assets directly compete with the community banks in many communities, wouldn't a bill that raises the consumer financial protection bureau threshold to $50 billion actually hurt community banks by helping their competitors? anyone? in other words, it just adds

more competition against what we define as community banks. so i just think that six years ago, we need to focus on the fact that section years ago we suffered through the worse financial crisis in generation one that caused millions of families to losz their homes, jobs retirement savings and forced the biggest banks to bail out. we put in rules to try to rein in the biggest institution. it is important that our community banks and credit unions thrive. but rolling back important protections to help the bigger banks just puts community banks at a bigger disadvantage. the big banks are going to keep using the small banks as cover for their special roll backs. that's what three did before the crisis, and that's what they've been doing after the crisis. we shouldn't fall for that trick. thank you, mr. chairman.

>> mr. chairman, good morning. >> thank you all. i have a profile view this year. thank you all for being back. i was speculating with my staff about the number of times we've had hearings in this room. many of you have participated before. we're guessing three or four times a year we've examined the issue of the regulation of community banks. my question is, initially, is what's changed? i've been a member of this committee now beginning my fifth year, my position at the end of the table doesn't demonstrate that, but i've been here for five years. have we, on a, what have we eliminated? what have we improved in the issue of community banks, and somewhat in response to the senator from massachusetts. i'm not technically interestparticularly interested in the banks. i'm interested in the people they lind money to. while we talk about billion

dollar deposit banks what i'm worried about are those less than $100 million. check development could mean whether there's a grocery store in many communities i represent. and that translates in today's hearing in my world, is if there's not a community bank that cares about the community that's willing to take a risk because it matters to that community that there's a grocery store, and taking that risk they believe they're going to get a return on their investment if they are wrong, it doesn't create a systemic problem for the country's financial circumstances. what are we doing to take care of those folks who are willing to have relationship banking because they're so connected to their community? my question about the hearings is, has anything changed in the five years that we've had 20 hearings on this topic? have we had any progress, or are my bankers just folk whose like

to complain and come to my town hall meetings and tell me stories that really they shouldn't worry about? i asked this question in a previous hearing. like what have you ever heard in one of these hearings that you've taken back, and there's been a consequence to what you heard at a hearing and said, let's solve this problem? >> i'll go ahead and start off especially since i've spent a considerable amount of time in your state earlier in my career. some things have changed and some haven't. one thing that has changed, certainly, we've been through a very significant economic cycle that always changes the environment with which examiners in particular are looking at banks and assessing the risks that they have. so that will change from year to year. the intensity of activity or discussions. one thing i think to the earlier discussion some of the more recent regulatory changes, there have been some new requirements for community

banks, but by fash the vast majority are falling on the larger institutions. that's hard to absorb when they are struggling to absorb additional compliance activities or adapt to new rules. one thing i would say is that the response that we've had, and we come to these hearings and we do take it very seriously. i know at the federal reserve and i'm confident my counterparts would say the same thing. we look very carefully at our procedures and the messages we give to our examiners. we review across districts to see, are we being consistent? are we responding to concerns that we hear from bankers. and sometimes we will find, yeah. we're asking for things that are beyond what we had initially envisioned or might be necessary and we'll invest more in training to deal with that through changing our supervisory process. >> how much of the problems that a banker or bank faces comes from decisions made by the local

office, the local examiner? is that an issue in which the applications are applied in a different manner? in a particular region? or community? versus what decisions you make and what guidelines you put in place for those exams? >> so with the way our process works is we delegate supervision and responsibility to the reserve banks which means for, well there's a kpams. we have more involvement from washington is when i would think the industry would kwant us to have greater consistency. decisions around issues about if we're restricting capital distributions orren some other kind of important fact for that might come up from the soup risery process. we will try to bring those issues to washington. >> i remember the last time we had this conversation, you

played the kansas card with me. it always works. it's difficult to chastise anybody who's spent time in our state. just a couple observations. i don't know if there's a question here, but my point in this part of the conversation is, i want these hearings to make a difference. and in part we need to know what it is legislatively by law needs to be changed, but i hope that this is not just something that has become a routine in hearing us espouse the challenge we face. one of those challenges, and it's going to change again. i don't know whether for the good or the bad, on august 1, with regard to real estate mortgages. i've had at least a dozen community bankers tell me they no longer make real estate loans to people who want to buy a home in a town of 2,000 people. what an amazing development. and the only reason they say they don't do it is the nature of the regulations, the uncertainty of whether they're complying and the consequences if they're not. and to live in a community of

2,000 or 3,000 people and have your hometown bank say i'm sorry, i can't make you a loan because i'm fearful i might not cross the t and dot the i. that's a pretty damning thing in my mind for the future of rural america. and senator tester and i will package, we're drafting a small lending, credit union, bank piece of legislation. and i'm hoping in this new congress it has an opportunity to be heard and this committee and action taken and be considered on the senate floor, and i look forward to working with you to see that we get the right framework in place. thank you, mr. chairman. >> senator brown? >> thank you for one more question, mr. chairman. and on the second round, and i want to first say i agree with senators warren and senator moran on the whole idea of what we should do to help the smallest banks as i said earlier in my state, ohio, state

of almost 12 million people, 80% of the community banks are very small, under $500 million in total assets. so we know who we're aiming at here. this is a question for the four of you. sorry again to leave you out ms. franks. the hearing last fall i asked you to describe and define community banks and small credit unions. your answer were helpful as we thought about regulatory relief. and generally identified the smallest institutions serving local areas with the very simple business model. one banker told me that banking should be boring and he's been very successful at growing a small bank into a several billion dollar community bank. as we consider proposals to provide regulatory relief to these smaller institution i'm reminded of an exchange i had with then chairman bernanke. he indicated we should do whatever we need to do to make sure our financial system is safe. i want to ensure that any steps

taken by you all or by us to provide regulatory relief first and foremost keep the system safe. i know your comments play in to that. i know you believe that's very important. so this question's for the entire panel. i'll start this time with you and work to my left. is there a particular size of institution that you believe would benefit the most from regulatory relief? what should we know about the causes and failures of small institutions as we consider these rela tory relief proposals? what analysis are you doing on congress's regulatory relief proposals to ensure that the relief is targeted to those institutions that need it most and that those proposals don't threaten safety and soundness or don't strip away consumer protections regardless of the size of the banks. if you would take that sort of mix of four questions and just give us thoughts as specific as you can, each of you.

>> i'd start with the fact that under the regulatory flexibility act analysis we've historically defined small as 50 million or less. we increased that several fold in january of 2013 when the board raised that definition to $50 million. the board next week is going to take up that new definition and potentially raise it as high as 100 million. 80% of ours are 100 million or less in assets so that would provide special analysis that we would do in considering scaling expectations for safety and soundness and other regulatory provisions in the rules we make. so that's mainly how we think about a smaller entity in our context. what we try to do, as i end katsd, scale and target our regulations at the institutions that have the most risk and have the size and complexity to deal with it. we do take every opportunity to tailor our processes and to understand the cost and benefits

as it relates to credit unions when we need to do safety and soundness-based regulations to support that. and so we've done a lot of things to try to help along those areas, big part of it we've heard about today, the exam process itself. and we've made significant strides in recent years to tailor our exam process. we have an office that's dedicated to supporting small claims. we provide a lot of trainering and consulting partnership opportunities. so we're doing a lot of that. we be mindful of any legislation going forward that would preserve the ability for us to continue to flexibility. >> that would be our thought process in terms of future legislation. >> senator brown when you look

at the community banks the occ supervises, 80% of our banks are under $100 billion. technology is change. but we have to be careful of prescribing limits that prescribe what is a bank can do under those limits.