[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

REGULATORY REFORM: EXAMINING HOW NEW
REGULATIONS ARE IMPACTING FINANCIAL
INSTITUTIONS, SMALL BUSINESSES, AND
CONSUMERS IN ILLINOIS

=======================================================================

FIELD HEARING

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

__________

DECEMBER 5, 2011

__________

Printed for the use of the Committee on Financial Services

Serial No. 112-89

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HOUSE COMMITTEE ON FINANCIAL SERVICES

SPENCER BACHUS, Alabama, Chairman

JEB HENSARLING, Texas, Vice BARNEY FRANK, Massachusetts,
Chairman Ranking Member
PETER T. KING, New York MAXINE WATERS, California
EDWARD R. ROYCE, California CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois BRAD SHERMAN, California
GARY G. MILLER, California GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina CAROLYN McCARTHY, New York
JOHN CAMPBELL, California JOE BACA, California
MICHELE BACHMANN, Minnesota STEPHEN F. LYNCH, Massachusetts
THADDEUS G. McCOTTER, Michigan BRAD MILLER, North Carolina
KEVIN McCARTHY, California DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico AL GREEN, Texas
BILL POSEY, Florida EMANUEL CLEAVER, Missouri
MICHAEL G. FITZPATRICK, GWEN MOORE, Wisconsin
Pennsylvania KEITH ELLISON, Minnesota
LYNN A. WESTMORELAND, Georgia ED PERLMUTTER, Colorado
BLAINE LUETKEMEYER, Missouri JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan ANDRE CARSON, Indiana
SEAN P. DUFFY, Wisconsin JAMES A. HIMES, Connecticut
NAN A. S. HAYWORTH, New York GARY C. PETERS, Michigan
JAMES B. RENACCI, Ohio JOHN C. CARNEY, Jr., Delaware
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO ``QUICO'' CANSECO, Texas
STEVE STIVERS, Ohio
STEPHEN LEE FINCHER, Tennessee

Larry C. Lavender, Chief of Staff

C O N T E N T S

----------
Page
Hearing held on:
December 5, 2011............................................. 1
Appendix:
December 5, 2011............................................. 43

WITNESSES
Monday, December 5, 2011

Bates, William, Jr., Executive Vice President and General
Counsel, Seaway Bank and Trust Company, on behalf of the
National Bankers Association................................... 9
Ohlendorf, Gregory M., President and Chief Executive Officer,
First Community Bank and Trust, on behalf of the Independent
Community Bankers of America (ICBA)............................ 6
Palmer, Bob, Policy Director, Housing Action Illinois............ 20
Rand, Dory, President, Woodstock Institute....................... 18
Renn, James J., President and Chief Executive Officer, Lisle
Savings Bank, on behalf of the Illinois League of Financial
Institutions................................................... 12
Roolf, James M., Chairman, Illinois Bankers Association (IBA).... 10
Schmitt, John, President and Chief Executive Officer, Naperville
Area Chamber of Commerce....................................... 14

APPENDIX

Prepared statements:
Bates, William, Jr........................................... 44
Ohlendorf, Gregory M......................................... 51
Palmer, Bob.................................................. 58
Rand, Dory................................................... 61
Renn, James J................................................ 63
Roolf, James M............................................... 67
Schmitt, John................................................ 74

Additional Material Submitted for the Record

Biggert, Hon. Judy:
Written statement of Peter Haleas, Chairman, Bridgeview Bank
Group, Bridgeview, Illinois, on behalf of the Illinois
Bankers Association........................................ 83
Written statement of Michael G. Steelman, Chairman and CEO,
Farmers and Merchants State Bank of Bushnell, Illinois..... 88

REGULATORY REFORM: EXAMINING HOW
NEW REGULATIONS ARE IMPACTING
FINANCIAL INSTITUTIONS, SMALL
BUSINESSES, AND CONSUMERS
IN ILLINOIS

----------

Monday, December 5, 2011

U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 9 a.m., in
Chicago, Illinois, Hon. Spencer Bachus [chairman of the
committee] presiding.
Members present: Representatives Bachus, Manzullo, Biggert,
Dold, and Schweikert.
Also present: Representatives Kinzinger and Walsh.
Chairman Bachus. This hearing will come to order.
The Financial Services Committee is meeting in Chicago this
morning to take testimony concerning the bank regulations and
their effect on financial institutions.
I would like to thank Mrs. Biggert, the chairman of the
Subcommittee on Insurance, Housing and Community Opportunity,
for organizing this hearing. She has been a tireless advocate
of financial literacy, a dedicated public servant who I think
looks after the people of Illinois very well, and she always
seems to have the health of our Nation's financial system
foremost on her mind, particularly those in the banking
community.
Mrs. Biggert, would you like to say anything at this time?
Mrs. Biggert. I have an opening statement.
Chairman Bachus. I will let Mrs. Biggert give her opening
statement, and you don't need me to give one.
Mrs. Biggert. I'm sure they would rather hear from you, Mr.
Chairman, but I'll be glad to do that. I'm sure you'll have
some more.
Chairman Bachus. I don't want to depress them. I know the
banks are having tremendous problems with the volume of
regulations. As you know, Dodd-Frank was the biggest change in
our regulatory law since the 1933 and 1934 Acts, and, in fact,
Dodd-Frank has more rules and more pages than all of those Acts
put together, of all the Acts during the Hoover and Roosevelt
Administrations.
To compare it with Sarbanes-Oxley, Sarbanes-Oxley is about
330 pages and 16 rules; Dodd-Frank is over 400 rules. And
Sarbanes-Oxley took 3 years before the Congress, and over 60
hearings. Dodd-Frank was put together in about 4 months. A
third of it was written in the last 3 days, so to say it was a
rush job would be kind.
The regulators are about 28 percent through with Dodd-
Frank, and already the regulations would fill two bankers'
boxes, and that's even with small print.
And I know the costs of compliance, the costs to comply
with Dodd-Frank continue to go up with every new regulation or
every recalculation, and it could take as much as with
compliance, the cost it could cause the cost of compliance to
go up another 50 percent from where it was prior to its
passage. I don't need to tell these bankers that.
We're going to take testimony on what we need to do, what
needs to be done to address the problems.
Mrs. Biggert. Thank you, Mr. Chairman. I knew that we could
get an opening statement out of you. Thank you. And I want to
thank you for holding this hearing, and I want to especially
thank you for choosing this wonderful City of Chicago for such
an important hearing.
Illinois is home to some of the finest financial
institutions in the country, and I know that these institutions
stand ready, willing, and able to provide the crucial funding
that our communities and small businesses so desperately need.
As I meet with small business leaders in my district, I
constantly hear that they are ready to help our economy get
going again but are unable to access the capital they need to
grow in their businesses. And at the same time, I hear from our
community bankers that they are ready to extend credit to these
small businesses, and have the capital to do so, but they are
being stymied by overzealous and inconsistent regulators.
Lenders large and small are paralyzed by hundreds of
unattainable and inconsistent financial regulations, chiefly
those included in the far-reaching Dodd-Frank Act. And
unfortunately, our jobs created by access to capital have
become a casualty as bankers are left scrambling to figure out
how to play by the new rules.
We cannot expect even the most healthy and well-capitalized
institutions to make loans if they are unable to determine when
regulators might ban certain products, or randomly require them
to post additional capital or arbitrarily change the treatment
of a performing loan. Too many bankers are already
disproportionately affected by new regulations due to their
limited resources, and now is absolutely the wrong time to
invoke and impose new burdensome compliance clauses on
institutions that could better use their resources to provide
services and extend credit to their customers.
If we stand any chance for a broad-based economic recovery,
we must get the government out of the way and allow our
financial institutions to resume responsible lending.
I thank the witnesses for being here today. It's great to
see the friendly faces of a hometown crowd, and I again thank
the chairman for holding this hearing.
Chairman Bachus. Thank you.
I am now going to recognize Mr. Manzullo. Don Manzullo is a
senior member of the committee from Illinois. There are a lot
of good friends here.
Mr. Manzullo. I'm here ready to receive definitive impact
statements. We have people from QSA, Rosemont, Springfield,
Chatham, and all kinds of places. It's good to have you here.
Welcome to Illinois, Mr. Chairman.
Chairman Bachus. Thank you.
Our next two members--there were 81 freshmen, and 61 of
those freshmen requested the Financial Services Committee. We
only had seven slots, and these two gentlemen to my right: Bob
Dold who is your Illinois Congressman, in the Chicago area, the
beautiful City; and Dave Schweikert from Scottsdale, Arizona.
Dave was treasurer of Maricopa County in a prior life, and he
has a financial background.
Bob?
Mr. Dold. Mr. Chairman, thank you so much for holding this
hearing. It is certainly great to be here in Chicago talking to
those who provide access to capital for small businesses.
Coming from the private sector, certainly we understand
that it is the lifeblood of small businesses to have access to
capital, and I have had the opportunity to spend some time with
many of you here who are testifying before the committee today,
and I certainly understand some of the issues and the burdens
that you face.
And this, I believe, is a particularly important hearing
because the function of a healthy credit market is absolutely
essential for job creation. The number one issue we face today,
I think, in the country is, how do we create sufficient jobs
and put our economy back on track, which is critical for
economic growth and prosperity.
Certainty, our credit markets and financial institutions
must be regulated, but those regulations must be sensible, they
must be balanced, and they must account for meaningful
differences amongst our broad and diverse array of financial
institutions.
I don't believe we can have a one-size-fits-all type of
regulation that comes down for all the financial institutions
that we have in front of us today.
Unfortunately, in that respect, our regulatory environment
doesn't currently meet these reasonable standards. Instead, our
current regulatory environment is needlessly hurting the
functionality and health of our credit markets, and by
extension, hurting our job creators' business growth and
ultimately economic prosperity.
The regulatory burden is particularly acute for our small
financial institutions which indisputably had little, if
anything, to do with the financial crisis. And that's because
they must necessarily devote a large percentage of their
resources to the enormous cost of reviewing and analyzing and
complying with an avalanche of regulatory burdens.
I don't know about many of you; I did have an opportunity
to talk with a smaller financial institution just the other day
that said, ``We are hiring,'' which was positive. We like to
hear people are hiring, but they were hiring all in compliance,
taking a lot of heads on in compliance.
So they're trying to cross the ``T''s and dot the ``I''s
and comply with the rules and regulations that Washington is
putting in place, but not a single one of them was adding to--
bringing on people who were going to help the bank, who were
going to help lend additional resources out to small businesses
that are out there.
So I believe small businesses or small financial
institutions are essential to financing our small businesses
which are responsible for most of the job growth. Two-thirds of
all entry-level jobs are created by small businesses, so across
our country, we're going to rely on smaller financial
institutions that I believe have a much greater understanding
of who they're lending to in terms of, you see them in your
grocery store, you see them at church or synagogue or some
other place along those lines.
So with our current economic challenges, all of us in
Congress are obligated to create a legal regulatory environment
that strongly promotes job creation, business growth, and
economic prosperity. And a very important step in creating that
kind of regulatory environment is understanding clearly what
our small financial institutions are dealing with and helping
them get some relief from overly burdensome regulations.
Again, I want to emphasize that we do need regulations; we
just want them to be smart regulations.
I just came from a meeting with somebody who gets regulated
pretty heavily, and he actually used the dresser analogy. Every
single one of us has a dresser at home. We buy clothes.
Eventually, when we can't close the dresser drawer, we have to
figure out what clothes we want to get rid of and which ones we
want to keep in our drawer.
The same thing is true with regulations, I would say. If
they're good regulations, we need to keep them. Just more and
more of them, we need to have a different approach.
So I certainly appreciate each and every one of you taking
the time to be with us today. We certainly look forward to your
testimony.
Mr. Chairman, thank you so much for coming to Chicago to
hold an important hearing. It's important that we hear from
some of our local financial institutions. Thank you so much for
your time.
Chairman Bachus. Thank you, Bob.
At this time, I recognize Dave Schweikert, a member of our
committee, and one of our new freshman.
Mr. Schweikert. Thank you, Mr. Chairman.
Actually, for Illinois, you should be very proud. You have
a lot of oomph on the Financial Services Committee when
Chairwoman Biggert and the constituents come to a field hearing
here.
It will be also be noted that you're going to have a little
sales tax spike, because my wife and I came in on Saturday and
hopefully left a nice contribution to the City of Chicago.
Mr. Dold. We appreciate that.
Mr. Schweikert. There's great value to this type of get-
together hearing. What we're hunting for is often some of the
sort of detail that we don't get in D.C., where often it is
somewhat scripted.
We're also looking for what are the unintended consequences
that have put you in juxtapositions from previous regulations
to new authorships to also certain concerns as rules are being
promulgated, what do you think sneaks up on your business model
and therefore ultimately hurts your community and our country.
So as you share your testimony with us, please let us know
your anticipation of what is damaging, but also, if you also
have an insight into mistakes in the designs of the regulations
that are creating any undue consequences that we haven't heard
in all of this, we'll do our best.
Thank you, Mr. Chairman.
Chairman Bachus. Thank you.
We're also joined by two other members of the Illinois
delegation, and I will ask now for the consent of the committee
that without objection, we will allow them to participate in
the hearing.
Not hearing any objection, the two Members from Illinois
are Joe Walsh and Adam Kinzinger.
I used to call ``Aaron Schock'' ``Adam Schock'', and then
Adam Kinzinger showed up. At least I think by now, I have
started calling Aaron ``Aaron'' and Adam ``Adam.''
But we welcome both of you, and this is the normal custom
that when we are in a State, Members whose jurisdiction touches
on banking also participate in the hearing, and their opinions
do affect certain aspects of that, and so we invite an opening
statement from you gentlemen.
Mr. Kinzinger. Mr. Chairman, I'll keep it very brief.
I'm Adam Kinzinger from North Central Illinois, and I
currently sit on the Energy and Commerce Committee, and I'm a
freshman. And I want to say thank you for coming to Chicago. As
we mentioned, Representative Schweikert, thank you for coming
all the way from Arizona to listen.
And I think this is what's very important is just the idea
that, look, we can go to Washington, D.C., and we can talk
about laws and we can talk about bills and all that kind of
stuff, but you really don't know how it impacts people until
you hear from people so I just want to say thank you for coming
out.
I have been spending the last number of months listening to
folks in the financial industry like Mr. Roolf from Joliet as
well as Kevin Olson from Grundy Bank who I see here and many
others, and I look forward to hearing what you have to say or
what you have to say today.
And the big key is we want to understand that there is a
role for the government in the economy, but what is that role,
and we definitely don't want to have too much of a role.
So again, we look forward to your testimony. And I want to
say thank you, Mr. Chairman.
Chairman Bachus. Thank you.
At this time, we will hear from our witnesses.
Oh, I'm sorry. Joe?
Mr. Walsh. No, no, Mr. Chairman, that's fine. I'll be even
briefer.
Chairman Bachus. I'm sorry.
Mr. Walsh. That's okay.
Thank you and thank you for coming into Chicago.
I chair a subcommittee--the Small Business Committee's
Economic Growth, Tax, and Capital Access Subcommittee--and we
held a hearing earlier this year on this very topic, so this is
a rife topic.
It's good to see some of the familiar faces. We are choking
right now underneath regulation so I am quite interested to
hear from our witnesses.
Thanks, Mr. Chairman.
Chairman Bachus. Thank you.
Our witnesses are Mr. Greg Ohlendorf, president and chief
executive officer from First Community Bank and Trust,
testifying on behalf of the Independent Community Bankers of
America. We are considering legislation now that the ICBA and
American Bankers proposed. We're beginning to have hearings on
those and expect to move something. We appreciate your
organization.
Mr. William Bates, executive vice president and general
counsel of Seaway Bank and Trust on behalf of the National
Bankers Association. It is good to see you, Mr. Bates.
Mr. Jim Roolf, chairman of the Illinois Banking
Association--I have mixed emotions about sitting in here with
him. When I was at Alabama and he was at Notre Dame, they beat
us twice. It was a long time ago, and he has his Notre Dame tie
on so he can egg me on. Two Sugar Bowl victories, but anyway,
Jim, it is great to see you again.
And Mr. Jim Renn, president and chief executive officer of
the Lisle Savings Bank, is that ``Lisle?''
Mr. Renn. ``Lisle,'' that's correct.
Chairman Bachus. He is testifying on behalf of the Illinois
League of Financial Institutions.
Mr. John Schmitt, president and chief executive officer of
the Naperville Area Chamber of Commerce. Ms. Dory Rand,
president of the Woodstock Institute. And Mr. Bob Palmer,
policy Director of Housing Action Illinois.
And we'll just go from left to right and take your
testimony. Normally, the statements are 5 minutes. Did they
tell you all that? But if you go over a minute or two, we're
usually not going to be--at a field hearing, since we're not
even in Washington, we're not going to be that strict.
We'll start with you, Mr. Ohlendorf.
And we welcome each and every one of you to testify about
regulatory reform, and examining how new regulations are
impacting financial institutions, small businesses, and
consumers in Illinois.
One thing about small businesses--Joe mentioned that he
chairs the subcommittee. In the last 2 months, our net job
growth has all come from small businesses. Small business, in
this recession, has created 70 percent of the jobs. So the
health of small businesses is important to not only small
businesses but large businesses, communities, families, and the
Nation's economy.
Mr. Ohlendorf?

STATEMENT OF GREGORY M. OHLENDORF, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, FIRST COMMUNITY BANK AND TRUST, ON BEHALF OF
THE INDEPENDENT COMMUNITY BANKERS OF AMERICA (ICBA)

Mr. Ohlendorf. Chairman Bachus and members of the
committee, I am Gregory Ohlendorf, president and CEO of First
Community Bank and Trust, a $150 million asset community bank
located in Beecher, Illinois, Congressman Kinzinger's district.
I am pleased to be here today to represent the nearly 5,000
members of the Independent Community Bankers of America, and I
thank you for coming to Chicago to hold this hearing. We
appreciate your interest in the impact that new regulations
have had on financial institutions, including community banks.
Community banks are the primary source of credit,
depository, and other financial services in thousands of rural
areas, small towns, and suburbs across the Nation. As such, we
play an essential role in the recovery of our national economy.
Regulatory and paperwork requirements impose a
disproportionate burden on community banks which do not have
the scale of larger banks to amortize the expense of
compliance.
I will focus my remarks today on the Dodd-Frank Act, the
predominant but not exclusive source of new bank regulation.
This Act was generational legislation and will permanently
alter the landscape for financial services. It's a mixed
outcome for community banks, providing both punitive and
helpful provisions. Every part of financial services, including
every single community bank, will feel the effects of this new
law.
The community bank business model is based on the strength
of our reputation in the small communities we serve and the
long-term customer relationships that we cultivate.
Community banks don't engage in abusive consumer practices
and did not cause the financial crisis, and we appreciate the
support our industry received to shield us from some of the
provisions designed to respond to this crisis.
Regulation calibrated to large-bank risks and business
models can suffocate smaller banks, curtail the possibility
that we need to offer customized products and services, which
is how we compete against the larger banks, and thereby harm
the communities that we serve.
We reject the notion that regulation must fall equally on
all banks. That is based on the false premise that a community
bank is just like a mega-bank but on a little smaller scale. We
differ not only in size but in our fundamental orientation
toward customers and communities.
ICBA has persistently advocated for tiered regulation of
the financial service industry.
Among some of the provisions of the Dodd-Frank Act, the new
Consumer Financial Protection Bureau (CFPB) perhaps carries the
most risk for community banks. We are already required to spend
significant resources complying with consumer protection rules.
Every hour I spend in compliance is an hour that could be spent
with a small business owner or a consumer. CFPB rules should
not contribute to this distraction. The CFPB should use its
authority to grant broad relief to community banks where
appropriate.
ICBA also strongly supports legislation passed by this
committee and the House, H.R. 1315, to reform the CFPB and make
it more balanced and accountable in its governance and its
rule-writing.
Another concern of Dodd-Frank is the new mortgage lending
requirements that run the very serious risk of accelerating
industry consolidation, which would create even more systemic
risk as well as higher costs and fewer choices for consumers,
particularly in small communities.
Statistically, the Risk Retention Requirement Section 941,
if broadly applied, will disadvantage community banks because
they lack access to the increased capital needed to offset risk
retention despite their conservative underwriting. Similarly,
enhanced escrow requirements for high-cost loans will create a
significant cost for community banks.
We recommend that community banks' loans held in portfolio
be exempt from this requirement. Lenders have every incentive
to protect the collateral of loans held in their own
portfolios.
In representing our members during consideration of Dodd-
Frank, ICBA focused on making the Act workable for community
banks. This meant seeking exemptions where appropriate. It also
meant seizing the opportunity to advocate for long-sought
community bank priorities that we believe will strengthen
community banks over the long term.
ICBA was a leading advocate for the deposit insurance
provisions of the Act, including the change in the assessment
base from domestic deposits to assets (minus tangible equity)
which will better align premiums with a depository's true risk
to the financial system, and will save community banks $4.5
billion over the next 3 years.
The Act also contains provisions that would help rein in
the too-big-to-fail banks and the Wall Street firms that
imperilled our economy, including the creation of the Financial
Stability Oversight Council (FSOC) for banks over $50 billion
and systemically risky nonbanks.
My community banker colleagues and I were galled and
profoundly angered when we read last week's Bloomberg Report on
the Federal Reserve's secret $7.77 trillion bailout. Borrowing
at a cost as low as one basis point, the largest, riskiest
firms turned a profit of some $13 billion. There must be no
repeating of these events.
In closing, I would like to note that the legislative ideas
highlighted in my written testimony are included in the
Communities First Act or CFA, H.R. 1697, which has 61 bill
sponsors: 40 Republicans; and 21 Democrats. CFA also has the
strong support of 37 State banking associations.
In addition to proposed changes to Dodd-Frank, CFA includes
other regulatory and tax relief provisions for community banks.
Thank you again for the opportunity to testify today.
Legislation of the breadth and ambition of Dodd-Frank will
generally need modification.
We look forward to working with this committee to improve
the law and to assure that it is implemented in a way that will
impose the least burden on community banks.
Thank you.
[The prepared statement of Mr. Ohlendorf can be found on
page 51 of the appendix.]
Chairman Bachus. Thank you for your testimony.
Mr. Bates?

STATEMENT OF WILLIAM BATES, JR., EXECUTIVE VICE PRESIDENT AND
GENERAL COUNSEL, SEAWAY BANK AND TRUST COMPANY, ON BEHALF OF
THE NATIONAL BANKERS ASSOCIATION

Mr. Bates. Good morning, Chairman Bachus, and members of
the committee.
My name is William Bates, Junior. I am the executive vice
president and general counsel of Seaway Bank and Trust Company
in Chicago, Illinois. We are a $621 million commercial bank
with 11 offices and 315 employees. We are a member of the
Illinois Bankers Association. We serve the Chicago area, and we
also have a branch in Milwaukee, Wisconsin.
Thank you for convening this important hearing in Illinois.
I appreciate the opportunity to present my views about the
current regulatory environment on behalf of the National
Bankers Association.
Our members include banks owned by African Americans,
Native Americans, Hispanic Americans, Asian Americans, and
women located in 21 States, including Illinois and the District
of Columbia.
Our member banks, with a few exceptions, serve distressed
communities plagued by many social and economic problems. Our
institutions are deeply committed to providing employment
opportunities, entrepreneurial capital, and economic
revitalization in neighborhoods which often have little or no
access to financial services, however, all of the costs,
complexities, and time associated with monitoring, managing,
and complying with the current regulatory landscape are
handicapping most banks' ability to do what they do best: Serve
customers, our local communities, and many local organizations
which rely on banks for help.
Each new rule puts an additional strain on our staffs, and
for many community banks, it is becoming a nearly
insurmountable burden.
When you add to this the more than two dozen proposals
established under Dodd-Frank for a whole new class of
regulation mostly to be issued by yet another regulator
combined with the uncertainty and legal risks, it is plain to
see how difficult it can be to achieve the right balance
between satisfying loan demands and regulatory demands.
At Seaway, we have seen a significant increase in costs in
order to meet regulatory compliance demands over the last
several years. We currently have three people who spend all of
their time on the Bank Secrecy Act, anti-money laundering, and
overall regulatory compliance, and at least three more
individuals who spend up to 25 percent of their time on
regulatory compliance, not to mention the individuals
throughout the bank who serve on our Compliance Committee.
The expenditures that our bank has incurred for regulatory
compliance take away from the resources that can be directly
applied to serving the bank's community. Each new regulation or
change in an existing one adds another layer of complexity and
cost of doing business.
Without quick and bold action to relieve some of the
regulatory burden, there will be a contraction of the banking
industry with banks disappearing from communities over the next
few years. Each bank that disappears from the community makes
that community poorer.
What can Congress do? We urge you and other Members of
Congress to make sure that our regulators are measuring the
cumulative effect of all of the rules, current and future, with
which traditional banks must comply.
It is critical that the perceived benefits of each rule be
weighed against this ultimate cost to a bank's customers,
including the cost that it adds to a particular product or
service as well as its impact on the availability of and access
to those products and services.
In addition, because bank regulators have expertise in
balancing the safety and soundness of banking operations with
the need to protect customers, we hope that our primary
regulators will have a more meaningful role in writing rules
for the Consumer Financial Protection Bureau.
Members of the National Bankers Association, along with the
entire banking industry, are working to do their best to
provide the necessary financial services and credit to the
thousands of consumers and small businesses who need it, and we
are working exhaustively with those businesses who are
struggling in our communities, however, we need Congress' help.
We want to work with you and our Members of Congress to restore
the economic viability of our local communities.
Again, thank you for the opportunity to hear our views
about the current regulatory compliance environment and its
impact on Illinois and our communities. Thank you.
[The prepared statement of Mr. Bates can be found on page
44 of the appendix.]
Chairman Bachus. Thank you.
We have heard about a lot of rules and that the benefits
are certainly outweighed by the cost to especially bank
customers, and we will continue to focus on that.
Also, you mentioned your ability to customize products for
your customers. That's obviously very important and something
that we also are concerned with, that these will restrict your
ability to meet their needs in a way that best suits them.
Now, we will hear from Mr. Jim Roolf, chairman of the
Illinois Bankers Association.

STATEMENT OF JAMES M. ROOLF, CHAIRMAN, ILLINOIS BANKERS
ASSOCIATION (IBA)

Mr. Roolf. Thank you, Chairman Bachus, members of the
committee, and other members of the Illinois delegation.
My name is Jim Roolf, and I am president of First Midwest
Bank, Joliet Banking Center, which is part of an $8.4 billion
banking organization headquartered in Itasca, Illinois.
It's my privilege to be here this morning as chairman of
the Illinois Bankers Association, an organization that
represents 325 banks and savings institutions of all sizes
across our State.
I would like to start by thanking you for holding this very
important and historic meeting in Illinois on the subject of
regulatory burden and for giving me the opportunity to present
the views of the IBA concerning the considerable challenges
that our members, banks of all sizes, are facing.
The banking industry is indispensable, and the health and
the strength of it and the economic strength of our communities
are closely interwoven.
Illinois is home to more banks and savings institutions
than any State in the Nation. There are 636 FDIC-insured banks
and thrifts--584 are headquartered in Illinois, and they
represent $341 billion in assets and $276 billion in deposits.
It's a well-known fact that when a bank establishes its
roots in a local community, that community thrives. In fact,
over 575 Illinois banks have been in business for more than 50
years, and the vast majority of them have been in operation for
more than 100 years. Hopefully, they will have the opportunity
to continue to stay in business.
As chairman of the IBA, I have traveled 2,000 miles in the
last few weeks to meet with bankers throughout Illinois, and
their message was strong and consistent about the negative
impact the overwhelming regulatory burden and escalating
compliance costs are having on their businesses and their
ability to serve their customers, causing them to question
their long-term viability.
Last year, the Illinois Bankers conducted a survey, and the
information gleaned from it was simply startling. More than 160
survey respondents said that in addition to compliance costs
and the requirement to retain more and more capital and
earnings in lieu of lending, they are likely to consider a
merger or a sale of their bank, and this will have a
significant negative impact on communities throughout our
State.
As prudential regulators and the Consumer Financial
Protection Bureau attempt to streamline existing rules and
develop new ones to implement Dodd-Frank, we urge you and all
Members of Congress to hold all regulators accountable to
determine those costs. Those costs of compliance are
significant.
We hope Congress will exercise prudent oversight over CFPB
as they start to implement the rules, and we urge you to make
sure that they replace layers of regulation as is intended and
not simply add new layers of regulation.
We also want to express our strong support for two bills
that are pending in Congress: H.R. 3461, which seeks to address
some of the examination environment and more precise and
understandable classification standards for commercial loans,
an expedited and independent appeals process, as well as an
independent ombudsman to ensure consistency in the examination
process.
Also, H.R. 1697 and Senate Bill 1600 would provide banks
with some needed regulatory and tax and other of many
compliance requirements that disproportionately burden
community banks.
In closing, Illinois and the rest of the country can simply
not afford to have fewer banks. Our communities depend on banks
every day. The banks and thrifts that are doing the business in
Illinois employ over 95,000 people and have significant local
impact. In other words, they are businesses, too.
Bankers are community leaders. Bankers provide leadership
to countless local and regional organizations and activities
that are essential to the vitality of the communities we serve.
And lastly, banks create jobs.
Directly or indirectly, we all know that small business
lending plays a vital role in the economic vitality and the
recovery by providing and supplying capital that fuels the
desperately-needed job creation and growth in communities
across this State and indeed the Nation.
Illinois bankers are committed to help restore our economy
through lending and job creation, and we know Congress is
committed to doing the same.
Thank you again for coming to Illinois and listening to us,
and we look forward to working with all of you to achieve our
mutual objectives. Thank you.
[The prepared statement of Mr. Roolf can be found on page
67 of the appendix.]
Chairman Bachus. Thank you, Mr. Roolf.
Congresswoman Biggert and I would like all the bankers to
know that Chairman Roolf has been to visit us in Washington, he
has visited with us here, and he requested that we hold a
hearing in Illinois and pointed out many of the things about
the Illinois banking community that you covered in your opening
statement and some things we didn't realize.
There are States where there was a housing bubble, or
circumstances in which underwriting standards were too lax, but
Illinois was, I think, probably one of the best examples of a
banking community that did things right and was the victim of
others' missteps, and much of Dodd-Frank is addressed to
problems or solutions to problems which your banks didn't have,
and so I think it gives some valuable insight.
We appreciate your efforts on behalf of Illinois banks. It
will make all of our banks throughout the country stronger if
we come here where you were doing things right before the
recession.
At this time, Mr. Renn is recognized.

STATEMENT OF JAMES J. RENN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, LISLE SAVINGS BANK, ON BEHALF OF THE ILLINOIS LEAGUE
OF FINANCIAL INSTITUTIONS

Mr. Renn. Chairman Bachus, members of the House Financial
Services Committee, and members of the Illinois delegation,
thank you for holding a field hearing this morning and allowing
me to testify today.
My name is James J. Renn, and I am the chief executive
officer of Lisle Savings Bank in Lisle, Illinois. We are a two-
office mutual savings bank with $544 million in assets with
capital just under $90 million. We were founded in 1917.
I am also the immediate past chair of the Illinois League
of Financial Institutions, which is a statewide trade
association that serves State savings and community banking
institutions.
The league was founded in 1880, and its purpose is to serve
the Illinois financial institutions' business and public
interests by fostering thrift in homeownership and by
sustaining and promoting the legislative, regulatory, and
business interests of its members.
I believe the focus and culture of our bank is very
representative of most of the Illinois League members, and it's
visually reinforced by viewing our Web site, lislebank.com. On
our home page, you see our motto: ``Every person counts.'' Our
welcome mat is out for all local residents regardless of their
income level or account balance.
There is also a CEO message for our customers to read
explaining the differences among investment banks, national or
regional institutions, and community banks like ours.
Among other statistics, it states the medium-size bank
employs 37 people, has $154 million in assets; 3,000 banks have
fewer than 30 employees.
Like other small community banks, we believe in developing
and maintaining long-term relationships with customers. One out
of every three banks has serviced a local community for more
than 100 years.
Personally, I have been with our bank for 40 out of its 94
years in business, and I have seen many changes over that
course of time. The most recent and dramatic changes, however,
have taken place in just the past few years.
We do have a plain vanilla business plan to gather local
deposits and portfolio single-family home loans in our market
area, yet each year, we feel unduly paralyzed by the time spent
on compliance and regulatory monitoring.
In today's environment, we believe the objective of
determining whether a bank is a threat to the FDIC insurance
fund has evolved into micromanaging a private business.
It's also disheartening knowing that banks such as ours
were not the cause of the housing crisis, yet we are saddled
with the perceived remedies.
We currently have 43 policies that require annual board
approval. While there may not be a legal mandate of a one-size-
fits-all approach to regulations and examinations, the policies
and procedures of the very largest banks eventually become the
best practices for the rest of us.
We are struggling with the dichotomy of executing a Home
Depot business plan while really trying to be a small town
hardware store.
For years, there was a calm, business-as-usual environment
at Lisle Savings Bank during safety and soundness compliance
and CRA exams, then loan delinquencies, and foreclosures in
real estate demanded our full attention.
In 2009, we were told our compliance management system was
lacking because we didn't have a full-time compliance officer.
So during the compliance exam, we proactively asked one of our
younger management trainees if he would be interested in
learning the ins and outs of compliance and assume that
responsibility on a full-time basis. He accepted the offer, as
he knew promoting from within had always been our preferred
practice.
After spending nearly $100,000 on both training and
independent compliance consulting services over a 12-month
period, we saw that the promote-from-within concept was not
going to work in this instance. The learning curve was too
steep, and our compliance officer gave notice of his
resignation, deciding the banking industry and serving in
compliance were not for him.
For the very first time, we were in the market to hire an
officer from another bank. After six interviews, we learned
that the cost of meeting the demands of the very experienced
compliance applicants would make our compliance officer the
sixth-highest-paid person at the bank.
I hope our pervasive concern with compliance and decision-
making under the auspices of what will the examiner say can
eventually become secondary to providing the best possible
customer service and pursuing growth strategies.
The increased regulatory burden and interpretations offered
during exams result in overwhelming input to our bank's
compliance team which really consists of the supervisors of
customer service departments.
Compliance expense, excluding salaries, auditing, and
training expenses was $80,000 in 2008, and grew steadily to
$140,000 in 2011. These costs are severely, severely
understated if we're to include the salary expense and allocate
overall employee time to regulatory duties. The cost of Dodd-
Frank is, as you know, really unknown.
Thank you again for the opportunity to testify here this
morning, and please know that your work on behalf of the Nation
is greatly appreciated.
[The prepared statement of Mr. Renn can be found on page 63
of the appendix.]
Chairman Bachus. Thank you.
Did you ever hire a compliance officer, or you just
couldn't find one?
Mr. Renn. Our bank is similar to many smaller institutions
in that people wear several hats, some certainly more than
others, and we had a compliance officer for 15 years but doing
IT, human resource work, but we had never had any compliance
issues, and all of a sudden, in 2009, the work that he had done
in the past apparently was not satisfactory.
Chairman Bachus. All right. We had some testimony about the
young man promoted within the bank, and we're hearing that more
and more, people having to go outside their counties and their
States to hire consultants.
Mr. Schmitt?

STATEMENT OF JOHN SCHMITT, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, NAPERVILLE AREA CHAMBER OF COMMERCE

Mr. Schmitt. Chairman Bachus, distinguished members of the
Financial Services Committee, and members of the Illinois
delegation, thank you for the opportunity to speak with you
today.
My name is John Schmitt, and I am the president and CEO of
the Naperville Area Chamber of Commerce, a regional chamber in
the Western Suburbs of Chicago.
Your time is valuable, and I know that you might ask
questions of the witnesses today, so I would like to read an
abbreviated statement that we have prepared.
The Naperville Area Chamber of Commerce is proud to have
approximately 1,400 members of every size and sector. On behalf
of all of our members, thank you for holding this field hearing
and studying how recent legislation and regulatory changes are
affecting the availability of credit for businesses.
Today, I am here to provide you with an update from the
business community and to explain the environment small
businesses are operating in, and the general themes we hear
from our members about the availability and accessibility of
credit.
Our Chamber firmly supports sound consumer protection
regulations. Our national economy and global economy are still
struggling to recover from the depths of one of the worst
meltdowns in the history of civilized society.
Small businesses are the majority of our membership, and
businesses in America have been hurt mightily during this
recession, so while today we are discussing what changes can be
made to improve the accessibility of credit, I think it is
important to remember just where we have come from.
The recession and its aftermath decimated the small
business community. Small businesses are reeling from soft
consumer demand, lowered home values, a difficult economic
climate, and difficulty maintaining and obtaining credit. The
culminant result of this is existing businesses have been
pushed to the brink, and many have had to close.
For reference, we recently completed a review and estimated
that since January of 2008, 300 businesses that were members of
the Chamber have closed and gone out of business.
New businesses are finding it difficult to get started.
While small business is inherently a risky enterprise during
the good times, the recession and the resulting softness of our
economic climate has been a toxic mix for too many
entrepreneurs.
While there is a need to save those too-big-to-fail
institutions for the safety and soundness of America and the
global economy and the financial system, today, it is the small
businesses, the smaller institutions, and the American people
who are paying the price to restore the financial system to
health.
I don't know if regulators understand the perils and the
risks of having tunnel vision on their quest to ensure that the
mistakes of the past aren't repeated and are having on the
business community.
The Chamber doesn't fault them for this. It is the job of
the regulatory community to regulate and prevent too much
leverage from threatening the financial system, but we hope
that they are hearing from you, our elected officials, on the
importance of enabling banks to lend to small businesses and
start-up firms.
Loans to small businesses didn't cause our economic
meltdown, but it seems that our natural reaction to the
financial collapse and the past abuses may be hampering our
ability to recover by making it too difficult for small
businesses to obtain credit.
Unfortunately, I'm afraid that we are just at the beginning
of a long and difficult struggle for small businesses to obtain
the credit they need to stay open and expand their operations,
hire additional workers, and invest in America's communities.
I say this because we repeatedly hear that business owners
are spending more and more of their time working on obtaining
credit rather than running their businesses and working on
actually growing the businesses.
One of the most puzzling and disheartening stories we
repeatedly hear at the Chamber is a bank turning away or
revoking credit from a long-standing and long-established
customer. Often with very little communication, small
businesses are told that their existing arrangements must be
reworked and will not be renewed or that a business must infuse
a significant amount of capital and get the loan renewed.
For a small business, this results in a frantic and
difficult chase to secure financing. This is a distraction from
running their business and weighs heavily on the decision to
hire additional workers.
At this point, I would ask permission to add in the
following anecdotes to the record. I would like to ask
permission in refraining from using business names or
organizations that are seeking a loan.
The Chamber isn't passing judgment on why their experiences
turned out as they did. I just want to provide you with some
examples of what we have heard and what is important to note
and what we have heard from several organizations that
responded to problems accessing credit. Generally, they're our
long-established organizations, and the vast majority of our
negative experiences come from businesses in the start-up phase
of their business.
On Main Street and in general, the business community has
seen a change in banking relationships. There is a new party in
the transition, and it is the banking regulator. Often,
businesses seeking loans are told about this mysterious party,
and often, bad news is delivered in the name of the regulator.
Our Chamber is pleased provide meeting space and other
assistance to the Fox Valley Score chapter. Every week, the
volunteers of Score meet with individuals seeking the American
dream, to start a business. Before the recession, generally,
the advice focused on a need to develop a business plan and to
submit it to the bank. Now, however, many of these
entrepreneurs struggle to find available credit for their
concept.
A Score counselor recently told me that they were advising
clients to seek access to private capital in lieu of
traditional courses of bringing their business plan to the
bank.
That is not to say that every person who thinks of starting
a business is taking this path, but I think it speaks volumes
to the challenges facing new businesses.
Another very successful retail start-up contacted us about
the testimony today. This business owner has a great retail
concept and has been doing very well since they opened their
business a year ago. As they have pursued a loan to expand,
they have been repeatedly denied. They have been told it is
because they don't have a three-year track record. This is why
they put hundreds of thousands of dollars of their savings into
the business they launched. They are growing increasingly
frustrated at the inability to obtain financing.
The retail businesses are risky enterprises, and if we want
to fill the shopping centers, strip malls, and downtowns of
America with the scores of workers we need, we need to have a
ready supply of credit available to entrepreneurs with an idea
and a concept.
Another example from our membership I would like to share
with you is a story of one of the Chamber's Small Business of
the Year winners and one of our Chamber board members. He has
been trying to expand. He has been trying to do exactly what
this country needs, purchase another business, invest in it,
take a new retail space, and hire additional workers.
After being told by his bank, where he had a long-standing
relationship, that financing would not be possible, this
entrepreneur has spent the past 10 months trying to find
someone else who would step forward to provide the financing.
He is awaiting the final approval from an SBA lender, however,
the inability to obtain financing has delayed the expansion and
investment in the business.
It is important to remember many small businesses, unlike
large corporations, often rely on all of the above means of
financing for their business. They use and risk their personal
credit, their cash, their home equity loans, their collateral,
their credit cards, anything and everything to get their
businesses through lean times.
Small businesses, entrepreneurs, and start-up companies'
most need of credit is to be available and cheap during the
lean times. Small businesses need banks to give them loans when
the small businesses need them, not when it works for the
bank's ratio or when they have a proven track record.
As I said before, a small business is an inherently risky
enterprise, but it brings with it the greatest reward possible
in the American dream.
We need a system that can evaluate and review concepts and
new ideas and find ways to quickly and promptly provide an
answer.
Our Chamber believes endless and lengthy delays in
obtaining credit are negatively impacting our economic
recovery.
We hope these examples today echo what you have heard, and
I want to visit with you and your constituents so it leads the
committee toward taking action making it easier for small
businesses to obtain and access credit.
Our economy relies on trial and error, success and failure.
We urge you to keep a close eye on the regulatory and banking
system to make sure that it is not stacked against funding the
American entrepreneur. Our Nation desperately needs this
talented group of people to bring us back to prosperity.
In conclusion, we hope that you continue your efforts to
understand why small businesses are finding it difficult to
obtain loans.
If at the end of the examination, you feel that the
regulatory community is taking an inappropriate or overly
conservative approach towards the availability of credit to
small businesses, we urge you to use your regulatory and
oversight authority towards making changes that will increase
the lending and availability of loans to the budding local
entrepreneurs and small businesses.
Thank you for the opportunity to speak to you today. I'll
be happy to respond to any questions that you might have.
[The prepared statement of Mr. Schmitt can be found on page
74 of the appendix.]
Chairman Bachus. I'm wondering whether the entrepreneurs
who started Apple or Google or Facebook would have gotten a
loan for those risky endeavors?
Mr. Schmitt. That's an interesting question.
Chairman Bachus. Thank you.
Mrs. Dory Rand, Woodstock Institute.

STATEMENT OF DORY RAND, PRESIDENT, WOODSTOCK INSTITUTE

Ms. Rand. Good morning. I'm Dory Rand, president of
Woodstock Institute.
Mr. Chairman, members of the committee, and other Members,
thank you for inviting me here to share my perspective with you
today on regulatory reform.
My perspective is based on working with lower-wealth people
and consumers at Woodstock Institute, and as an attorney at
nonprofits in Chicago for over 20 years. I also served on the
Federal Reserve Board's Consumer Advisory Council for the last
2 years, and I have served as a member of the Board of
Directors of the National Community Reinvestment Coalition.
Woodstock Institute's mission is to create a just financial
system in which everyone, including lower-wealth consumers and
communities of color, can create economic security and
community prosperity. We do this by doing research and policy
development on fair lending, wealth creation, and financial
reform issues at the local, State, and national levels. We work
closely with other groups that provide direct services such as
housing counseling, legal services, and other services to
consumers.
While I'm sometimes critical of particular financial
institution products and practices, I do have a history of
partnering with banks of all sizes and credit unions,
regulators, and other community members to develop services,
products, and programs that serve the needs of underserved
consumers and communities.
Representatives of banks and credit unions have served, and
do serve, on my Board of Directors, and many financial
institutions contribute to Woodstock Institute, including some
on the panel here.
Our research has documented the negative impacts of high-
cost, high-risk financial products and the deregulation we had
that led to this crisis. We know from this research that the
negative impacts--high debt, foreclosures, and neighborhood
blight--damaged credit scores, caused bankruptcies, and
affected broad segments of the community, but they are
disproportionately concentrated among lower-wealth consumers:
women; communities of color; service members; and older
persons.
The negative impacts of the risky mortgage products that
precipitated the foreclosure crisis, often sold through non-
depository institutions beyond the purview of the Federal
prudential regulators, extend far beyond those consumers who
directly obtained loans.
The negative impact affects innocent victims including
nearby homeowners, small businesses in communities that lost
equity, consumers, customers, access to credit, jobs, and local
tax revenue.
Moreover, our local governments have incurred additional
expenses for inspections, legal notices, code enforcement, and
protecting vacant and abandoned properties.
Woodstock Institute's reports about these negative impacts
on consumers and communities have been used to develop better
evidence-based policies to protect consumers and communities.
For example, our reports were used by the Illinois General
Assembly to adopt payday loan reforms, by banks and Federal
regulators to change tax refund anticipation loan policies, and
by the City of Chicago to pass an ordinance holding mortgage
servicers accountable for maintaining vacant properties.
We believe that the Dodd-Frank Wall Street Reform Consumer
Protection Act of 2010 contains important provisions and tools
that will address many of the problems that led to the current
foreclosure and economic crisis and will make our financial
system more effective, transparent, and fair for consumers,
small businesses, and financial institutions. One of the key
provisions requires additional oversight of financial
institutions that pose systemic risk to our economy so that we
do not again have to use taxpayer funds to bail out too-big-to-
fail institutions.
Another key provision of the Dodd-Frank Act is the creation
of the Consumer Financial Protection Bureau, the CFPB. Among
other things, the CFPB consolidates functions that were
formerly spread out among several Federal agencies and levels
the playing field so that similar financial products will be
governed by similar rules regardless of the type of financial
institution providing the product.
The CFPB also has authority to conduct research, field
consumer complaints, and develop new disclosure requirements so
that consumers can better understand financial products and
make wise decisions in a competitive marketplace.
The CFPB is already doing a good job of using its authority
to collect consumer complaints regarding credit cards, for
example, to collect public input and draft new forms for
disclosures regarding mortgage loans and to collect input on
streamlining rules and possibly eliminating rules, as
Representative Dold suggested may be needed.
The CFPB has also conducted extensive outreach to industry,
consumer advocates, and others requesting comments on how to
define ``larger market participants'' that will be subject to
its authority.
As you know, many CFPB functions cannot be fully
implemented until the Senate confirms a Director. These
functions include prohibiting unfair and deceptive acts,
writing rules related to model credit disclosure forms,
defining larger non-depository institutions, and examining and
enforcing laws against non-depository institutions such as
mortgage brokers, payday lenders, student loan providers, and
others.
We hope that the Senate will act quickly to confirm the
President's nominee so that this important work can move
forward.
We believe Illinois residents are among those hardest hit
by the foreclosure and economic crisis, and we need the Dodd-
Frank Act and the CFPB to lessen the risk of future financial
crises and to establish a safer and more accountable financial
system that works for everyone.
I ask that Members of Congress refrain from weakening this
law and agency and instead give them time to be fully
implemented, and I look forward to working with you on these
issues. Thank you.
[The prepared statement of Ms. Rand can be found on page 61
of the appendix.]
Chairman Bachus. Thank you.
Mr. Palmer?

STATEMENT OF BOB PALMER, POLICY DIRECTOR, HOUSING ACTION
ILLINOIS

Mr. Palmer. Mr. Chairman, and members of the committee,
thank you for inviting me to testify. My name is Bob Palmer,
and I'm a policy Director for Housing Action Illinois.
Housing Action Illinois is a statewide coalition formed to
protect and expand the availability of quality affordable
housing throughout the State.
One of our programs is to provide training and technical
assistance to HUD-certified housing counseling agencies such as
the DuPage Homeownership Center, the Interfaith Housing Center
for the Northern Suburbs, and the Rockford Area Housing
Coalition represented by some of the Members of Congress here
today. Unfortunately, this work is far from done.
Recent data released on the foreclosure crisis showed that
more than 46 percent of all single-family homes with a mortgage
in the Chicago area were underwater in this year's third
quarter, far more than the Nation as a whole.
Nationally, 28.6 percent of homes with mortgages were
underwater at the end of September, and 43.4 percent of all
homes sold in the Chicago area in the third quarter sold for a
loss compared to 34.4 percent nationally.
A new report from the Center for Responsible Lending, that
I go into some detail about in my written testimony, shows that
we're not even halfway through the foreclosure crisis. And this
report also shows that some of the troubling mortgage products
that Dory cited in her testimony are very much strongly linked
with higher foreclosure rates.
We know that the ephemeral question that there's still no
agreement on is whether the foreclosure crisis was a result of
too much or too little regulation.
Many people have tried to blame the Community Reinvestment
Act for the crisis, but a February 2009 Federal Reserve Board
study showed that 94 percent of the high-cost subprime loans
sold nationwide in 2006 were issued by lenders who were not
covered by the Community Reinvestment Act.
We believe that if the regulatory provisions in the Dodd-
Frank Act had been in place back in 2006, the housing market
and the overall economy would have been much healthier today.
Some of these provisions that have yet to be implemented
include: requiring lenders to ensure a borrower's ability to
repay; prohibiting unfair lending practices, such as incentives
for subprime loans, that encourage lenders to steer borrowers
into more costly loans; establishing penalties for
irresponsible lending; establishing consumer protection for
high-cost mortgages; requiring additional disclosures for
consumers on mortgages; and establishing the Office of Housing
Counseling within HUD.
One part of the Dodd-Frank law that the Consumer Financial
Protection Bureau has already begun to implement is Know Before
You Owe, an effort to combine two federally-required mortgage
disclosures into a single simpler form that makes the costs and
risks of the loan clear and allows consumers to comparison
shop. Once this is completed, this will benefit both consumers
and lenders.
In short, I think the Dodd-Frank Act will provide a more
level playing field between different types of lenders, remove
some of the problematic incentives in the mortgage market that
led to the foreclosure crisis in the first place, and give
consumers more tools to make informed decisions before taking
out a mortgage loan.
The experience of HUD-certified housing counseling agencies
in Illinois has been that the overwhelming majority of
predatory loans were made by bigger banks and previously
unregulated nonbank lenders. Moreover, it is the big banks that
are generally much harder for borrowers to work with in case of
default.
Before the housing bubble burst, the lack of regulation
gave the big banks and unregulated nonbank lenders unfair
competitive advantages against small and community-based
lenders which were generally much more responsible in their
lending.
The Dodd-Frank Act authorizes the Bureau to examine all
sizes of nonbank mortgage companies, payday lenders, and
private education lenders, however, the Bureau generally will
only be able to supervise larger participants in other markets
for consumer financial products and services, and the Bureau
must develop a rule, which they have yet to do, to define those
larger participants.
The Bureau will be able to examine companies which have
never been subject to Federal oversight to ensure that no one
is getting an unfair advantage by breaking the law. This will
ultimately create more fair competition and more transparent
markets for consumers.
We also hope that the Senate will quickly confirm the
President's nominee to lead the Consumer Financial Protection
Bureau so that this important work can move forward.
[The prepared statement of Mr. Palmer can be found on page
58 of the appendix.]
Chairman Bachus. Thank you, Mr. Palmer.
How many of you have worked with Mr. Palmer and Ms. Rand?
When talking about the Consumer Protection Financial Bureau,
how many of you--and you, Ms. Rand, have worked with them?
Ms. Rand. Yes, sir. I have been to meetings there, and I
have responded to their requests for published comments on a
number of issues.
Chairman Bachus. Mr. Palmer, have you worked with them?
Mr. Palmer. A couple of months ago, representatives from
the Bureau had a roundtable discussion here in Chicago for
housing counselors to find out what was happening, the latest
trends in the market, I believe on the same day that we were
making a presentation at the Mortgage Bankers meeting.
Chairman Bachus. Have any of the other witnesses been
working with CFPB?
Mr. Ohlendorf. I have been involved in four different
meetings with Professor Warren, who was heading up the agency
at that time and trying to get some input as to what we thought
was important.
One of our members who was in those meetings brought up
mortgage disclosures from his loan which was 35 years ago, and
it was four pieces of paper. When he bought the loan, when he
closed the mortgage on his house with the bank, it was a stack
that was several inches high, so we're trying to show that some
of these burdensome regulations that have come on, if there's a
way of streamlining those things and a way to make it more
meaningful to the consumer, I think it would be a positive
step.
Chairman Bachus. One thing that you mentioned was the
foreclosures and the new City law here in Chicago.
Actually, I had talked with the regulators--Fannie Mae,
Freddie Mac, and Mr. DeMarco with FHFA--and, of course, as you
know, Fannie and Freddie are 100 percent owned by the
taxpayers, and Mr. DeMarco believes that law is actually going
to cost the taxpayers a considerable amount of money because of
the loans that Fannie and Freddie made.
It's my understanding that this new law makes the
lienholder of the first mortgage responsible for maintaining
the property; is that correct?
Mr. Roolf. Yes, it is.
Ms. Rand. That's correct, sir.
Chairman Bachus. And these are abandoned properties?
Ms. Rand. What our research showed was that after the
filing of the foreclosure, the mortgage servicer just abandoned
the property, didn't proceed with the foreclosure process, but
the residents had already moved out, and so the properties were
causing blight in the neighborhood and cost to the city, and
the servicers weren't taking care of that property, they were
just walking away from it.
Chairman Bachus. Then, was it that they weren't able to
foreclose or they just refused to foreclose?
Ms. Rand. They chose not to proceed with the foreclosure
proceeding. We don't know why, but I can only speculate they
thought it was more profitable to them to do that than to
proceed with a foreclosure.
Chairman Bachus. I can't imagine how it would be more
profitable for them to not foreclose.
Ms. Rand. It was happening thousands of times in the City
and causing significant problems to lots of innocent neighbors.
Chairman Bachus. The interest is to see that the property
is foreclosed as soon as possible and put back on the market,
is that--
Ms. Rand. Yes, for those properties that are confirmed as
vacant and abandoned, we support a more rapid court foreclosure
process, but for houses that are occupied by residents, of
course, we want time to try and negotiate a loan modification
or a principal reduction or some other outcome.
Chairman Bachus. If it is occupied, that would mean there's
no--is there an obligation on the lienholder?
Mr. Roolf. Mr. Chairman, if I may, I think we need to make
a distinction between an owner of the property and a lienholder
of the property.
Chairman Bachus. Yes.
Mr. Roolf. First off, as a lienholder, we cannot go on that
property until the foreclosure is completed.
We have worked in the past--the bankers have worked in the
past to pass legislation in Springfield that would allow for a
superior lien to be placed by the community if they plowed the
snow and cut the grass and did other things to monitor and make
sure that property stayed intact, if you will.
I think that's a big distinction, because the foreclosure
process right now in Illinois averages about 504 days from
start to finish, and that's a very extensive time.
I can't speak for all the mortgage servicers who perhaps
looked at a property and suggested that it was simpler for them
to walk away. That's certainly not what I know bankers to do.
We have worked through this process.
Our biggest concern is that we're in a ``damned if we do,
damned if we don't'' situation. If we were going to do
something to modify property based on it being vacant before
it's foreclosed on and we actually take ownership, the
individual who abandoned the property could come back and
litigate against us.
So, I would look for a balance on that if we could arrive
at something, but my biggest concern is this ordinance will
cause the secondary market to look at Chicago and, say, raise
some questions, do I want to buy mortgages that are made in the
City of Chicago because of this additional situation that has
been precipitated by the ordinance, and that ordinance suggests
that we have to be thinking about a last resort on every credit
that we make.
It's difficult enough to assess the risk. It's also
difficult to suggest that the values of the properties and
people who are underwater which is very unfortunate, but that's
a market force, that isn't a banker force.
I built a home 11 years ago that cost me $240,000 to build.
Today, it's valued at $250,000 after hitting a high of maybe
$300,000. Do I like that? Absolutely not. Have I walked away
from my responsibility to continue to pay the mortgage that I
have? Absolutely not.
Chairman Bachus. I would think it would obviously impact
community banks that own the mortgages on these vacant
properties. It's a cost that I'm not sure how you would make up
unless you charge more for the actual mortgages or even vacated
that market.
Mr. Ohlendorf. Mr. Chairman, that is absolutely correct.
The cost of originating, you have to take in all of the risks
and expenses that we could theoretically incur.
I have talked to bankers who, because of talk of this
ordinance, have said that they're just not going to participate
in the market. Every time you withdraw participants from the
market, you obviously end up with less competition and the
opportunity for those that remain in the market for abusive
practices and other things of that nature.
If we have that loan in the marketplace, we have all the
risk in the world, and walking away and taking zero is not the
best alternative in most situations, at least in the small
community banking world.
Ms. Rand. Mr. Chairman, I would point out that this
ordinance passed the city council twice unanimously. Between
the first time it passed in July and the second time it passed
in October, there were a lot of discussions with the bankers
about some of these concerns and some of the definitions that
were negotiated, and then the ordinance did pass again
unanimously in October.
And I think you have to balance these concerns with the
impact on the neighbors and the communities in the city. This
was costing the city $36 million a year, so something had to
happen.
Chairman Bachus. Thank you.
Mrs. Biggert?
Mrs. Biggert. Thank you, Mr. Chairman. Again, thank you all
for being here.
My question would be for Mr. Bates.
Many bankers have told me that they have no recourse when
they have a dispute with their regulator, in other words, the
regulator is the judge, the jury, and the executioner for a
dispute or a disagreement in the bank examination.
Can you tell us more about the current appeals process when
the bank management wishes to appeal the examiner's findings it
feels are unfairly stringent?
Mr. Bates. The major appeal process--first of all, if there
is a dispute, our primary regulator, which is the FDIC,
attempts to resolve things in the field before they will even
issue an examination report, however, if you can't resolve
things with the field examiner, there are steps through the
FDIC to follow, and if the dispute remains, there is an
ombudsman process that a bank can avail itself of, however,
typically, because of the power that regulators hold, you do
feel as though they hold all the cards.
Mrs. Biggert. Is this ombudsman someone from the FDIC?
Mr. Bates. Yes, it's an FDIC or OCC employee, depending on
whom you're regulated by.
Mrs. Biggert. Would it be better to have an ombudsman who
was independent and wasn't really with either of those
agencies?
Mr. Bates. It would probably be better if they were
independent and separate from the agency, but currently, the
process is they do work for the agencies.
Mrs. Biggert. So many times, we have heard that the FDIC,
the Director didn't know what the field person was doing, in
other words, there was a time where the field person went in
and said that they needed to devalue a loan even though it was
performing, even though there had been no lack of payments. The
FDIC oversight stated that they would never do that, yet that
happened; is that correct?
Mr. Bates. Yes, there have been instances of that, I'm
sure.
Mrs. Biggert. Mr. Roolf, thank you for being here. You're
very close to my district, so welcome.
In conversations with other bankers, have you found that
the examination procedures are being applied appropriately?
Mr. Roolf. I think that's one of the biggest challenges,
Congresswoman, that it's thought that the examinations are
being basically performed based on the individuals and not
necessarily a consistent application of the regulations.
When you think of regulations and you think that there's
Reg A through Reg QQ, and then there are about 15 or 16 other
Acts that all banks are expected to follow, it may be difficult
for examiners to apply that uniformly. That might be a
challenge.
I have also heard that when there are those challenges and
disagreements, oftentimes, the banker doesn't even want to
engage the regulator to talk about those differences because of
consequences that might come as a result.
They may not be implicit, but somewhere in there, there
might be some retribution that comes as a result of that, and
that's the independence in having someone who could visit with
a bank and visit with a regulator independently to assess the
situation. I think it would be a great way to handle that
situation.
Mrs. Biggert. Thank you.
And Mr. Schmitt, thank you for being here from my district
also.
According to some, they say that the decline in loan
activity is attributable in part to the dearth of qualified
buyers, for example, a recent survey by the Federal Reserve and
the National Federation of Independent Businesses indicates
that the loan demand is generally weak.
How do these surveys compare to your experience and why do
they think the loan activity is down?
Mr. Schmitt. I think loan demand is lower today than it was
a few years ago because we have gone back to having certain
qualifications where we didn't have qualifications before.
Prior to being with the Chamber of Commerce, I was in real
estate for over 20 years, and when I started, we had ratios
that we had to adhere to, to be able to sell into the secondary
market. We had to ensure that the loan to value was greater
than 80 percent.
Over time, a lot of those things went away, and so there
were more people who came into the market who were able to
borrow, and it created some issues. And now, we have had to go
back to more or less like retro real estate, retro lending back
with the rules and regulations again, but we don't want to pile
too many on there.
Mrs. Biggert. I have one more question for Mr. Renn, from
Lisle.
We have heard from many bankers about the additional costs,
and you presented in your testimony how the costs had gone up
for compliance burdens. When do you get to the point where it's
too expensive for your bank to offer certain products or
services?
Mr. Renn. I wouldn't say it has to do with the cost of the
product. I think it's the--I had that analogy of a Home Depot
business plan for a small hardware store.
As I said, I have been there 40 years as well. We have many
employees who have been there a very long time, and I think the
point is that the formality and the structure of how the
business is run is just so much different than it was when--I
don't want to say when I started, because that does go back
some time, but it seems like it's more for the benefit of the
examiner when they come in. It's easier for them to look at the
minutes of different committees.
And all the formality of holding really strategic planning
sessions for different departments has gone into just
compliance and people on a committee because we really--and we
had one compliance officer, and compliance is throughout the
bank; there's no question about that.
So you're taking really in our case employees who are
customer service people in their respective departments, but
because compliance also touches part of their jobs, you have
these committee meetings that last long and with minutes, and
you're always proving up the daily activities of the bank.
An example that I can give--and this is maybe a little bit
away from compliance per se, but more with how the bank is run.
The examination process of banks, there's the CAMELS rating
which I presume some of you are familiar with. And 2 years ago,
we had our exam, and the ``L'' in CAMELS is liquidity, and we
have a two, which is okay. That's good, but I asked a very
common-sense question: ``What do you have to do to get a one?''
You're always asking for some guidance.
And there was a kind of a long pause, and they said,
``Actually, your balance sheet has the characteristics of a
one.''
So I said, ``So you're saying that really, how we have
managed the bank, we should have a higher rating than we do?''
And he didn't answer that directly, but he said, ``Your
problem is that you didn't have minutes of your Asset and
Liability Committee, and you didn't stress that's your
portfolio'' which is something else.
But what's interesting, when I started, there were only 12
employees; we have 65 now, and so that answer was like you
achieved the results, but you didn't prove how you got there,
so the results don't matter, but proving that you got there
counts.
The following year, we had an exam, and I asked that
question again, because we did the things that they had asked,
and so the response was, ``You're still a two.''
Mrs. Biggert. Thank you.
If I may, Mr. Chairman, I would ask to submit for the
record statements from Michael Steelman, chairman and CEO of
Farmers & Merchants State Bank of Bushnell, Illinois, and Peter
Haleas of Bridgeview Bank & Trust of Bridgeview, Illinois, and
the statements submitted by the Bolingbrook Area Chamber of
Commerce.
Chairman Bachus. And they're here in the audience?
Mrs. Biggert. Yes.
Chairman Bachus. Would each of you gentlemen stand up?
Thank you.
Mr. Manzullo?
Mr. Manzullo. Thank you. I appreciate your coming here.
Mr. Ohlendorf, what did your bank do to bring about this
crisis in finance and home mortgage?
Mr. Ohlendorf. Honestly, very little. Unfortunately, we
were just kind of participating like a community bank for 95
years has participated, and something happened, and I'm not
sure what.
Mr. Manzullo. Mr. Bates, what did you do wrong?
Mr. Bates. Absolutely nothing.
Mr. Manzullo. Mr. Roolf?
Mr. Roolf. Nothing.
Mr. Manzullo. Mr. Renn?
Mr. Renn. Nothing.
Mr. Manzullo. I closed over a thousand loans, I brokered at
a couple of banks and even before RESPA when you had the three
pages like that, and when you go to a closing nowadays, people
don't read them. You can't. If you don't sign them, you don't
get the house.
So now we have more and more regulations including
appraisers going out, doing RESPA for years, MERS came along,
and we fought that like crazy because with the electronic
recorder of the mortgages, you can no longer track who owned
the note to the county offices on it.
And as I see what's going on here, the Federal Reserve has
always had the authority to govern underwriting standards and
documents to the extent it has authority over banks, and it
wasn't until 2 years ago that the Federal Reserve actually came
up with a rule requiring written proof of a person's earnings
before a person could borrow.
The GSEs either as to the loans they would collateralize
and sell to the secondary market or hold in their own portfolio
have always had the authority. They have underwriting standards
to the loans that they would accept. What did they do? They did
nothing because housing went from a privilege to a right, then
it became an entitlement, and at that point, all the standards
fell.
And so here we are with this biggest mortgage collapse
going on because somebody didn't use any common sense out
there, and the people who did not cause the problem are now--
many of them are sitting before us saying, ``You have to do
something.''
We had a hearing, Mr. Chairman, I think it was last week,
with the acting Director of the Consumer Financial Protection
Board, and he said they're examining over 10,000 transactions
as to which they're trying to determine whether or not they
have authority.
This is outrageous, but I would like to, Mr. Ohlendorf, ask
you another question.
I come from Northern Illinois, North Central Illinois, and
I'm impressed with the force of bankers here, and I am very,
very disturbed on Page 4 of your testimony when you talk about
the qualified residential mortgage and because regulations are
written incorrectly and then the Farm Credit System, the direct
lenders can come in and actually threaten to take away your
business. Could you expand on that?
Mr. Ohlendorf. I'm concerned about several of the new
mortgage rules and the definitions of what they're going to be.
In a community bank, it's easy to understand a 30-year
plain vanilla mortgage, and I wish everyone would qualify for
one, but it just isn't the truth.
If you're in rural areas like we are, all our homes aren't
cookie cutter subdivisions where all of them look alike and
they all follow the same rules. We have people with horses and
a barn and other things like that, and so we make balloon loans
which are just a way that we can portfolio that, hold the
interest rate exposure risk to 5 years, and then refinance the
product as 5 years roll along.
They're starting to define disqualified residential
mortgage and unqualified mortgage and what these terms will be
and what the safe harbors will be. And our significant concern
is as they define these terms, if they're defining them too
stringently, what's going to happen is a lot of the loans that
we as community bankers have made and the portfolio, which
means we have the entire risk, the credit is on our balance
sheet. If this loan fails, it's ours.
And then you tie the mortgage escrow requirements in on
high-cost loans and the way some of those indices were set
which were set many, many years ago with interest rates as low
as the Fed had allowed them to drop were triggering on very
normally-priced loans triggering into high-cost mortgage loan
territory, and so now I'm saying to my customer, ``In order to
give you this loan, we have to escrow your taxes.''
And we have had these customers for 10, 15, 20 years, and
we have managed their finances quite nicely, thank you, and we
have managed their escrow, and now we look at them and say in
essence, what we're saying is, ``We don't trust you enough
anymore to handle it on your own, we now have to add another
layer of bureaucracy.''
That's always very, very expensive to offer. A lot of
community banks aren't in that business because it is complex,
it is cumbersome, and now I'm telling my consumer that, ``We
really don't trust you anymore.''
So what happens with all of these rules and regulations is
that the type of loans that we make, we have been creative, we
have helped people with unusual circumstances and situations
become very successful, and now, because they're not cookie
cutter and they don't follow what maybe the definitions turn
out to be, all of a sudden, some of those loans we're going to
have a very difficult time doing.
And again, I have heard bankers say, ``We just may not be
in that business anymore, we're running out of businesses to be
in.''
Mr. Schmitt, you have a unique background, having come from
the real estate industry. Why did these standards slip, why did
the normal loan-to-value ratio and the amount of downpayment?
What happened?
Mr. Schmitt. I don't know exactly what happened totally. It
might have been a little bit higher than my pay grade at the
time, but I was always told that the loans had to be certain
specifications and certain standards so that they could be sold
onto the secondary market, and so they basically had to be
cloned. Okay?
Then I believe they had the ability and the secondary
market began to buy them when they weren't necessarily cloned
and weren't all the same, and it had to be greed.
We used to insure anything more than 80 percent financing.
Where it really got kind of absurd is when you would have an 80
percent mortgage, a 10 percent mortgage, another 10 percent
mortgage, and then can get a line of credit as you walk out the
door of the closing and be underwater.
Mr. Manzullo. During the height of the real estate heyday,
about 25 percent of the mortgages were collateralized with the
GSEs, and now, it's about 95 percent, but the GSEs had the
authority at that time to insist upon strict underwriting
standards.
We have been looking at these all day in the subprime
mortgages; am I correct? You would know that. That's a matter
of law.
Mr. Schmitt. Yes, I don't know why it happened except, as
you said, it went from a privilege up to almost an entitlement.
Mr. Manzullo. Thank you.
Chairman Bachus. Mr. Dold?
Mr. Dold. Thank you, Mr. Chairman. I appreciate it. Again,
thank you so much for taking your time to be with us today.
I have had an opportunity to talk to a number of financial
institutions, and many bankers have actually had the
opportunity to talk with me and my staff about the
disproportionate impact of the increasing regulations that are
out there, and I'll go back to my earlier premise.
We need regulations. We want them to be smart regulations,
we want them to be focused. We just don't want more of them
just to have them.
Can you talk to me a little bit about how Dodd-Frank--and
again, when we look at the rules and regulations that are out
there, there are an enormous number of rules that have yet to
even be written, and the uncertainty that's out there that's
being placed not only on the financial institutions but on
those that are looking to try to comply, can you give me some
sort of an indication of how that's impacting your business
right now in terms of the small financial institutions in
Illinois?
I guess we'll go more on this side.
Mr. Roolf. If I may?
Mr. Dold. Sure.
Mr. Roolf. I talked to a few bankers and I asked them to
give me some live examples. And this happens to come from a
bank in New Lenox, Illinois, a small community bank that was
started about 6 years ago, and they're a $125 million bank with
24 employees, and their annual cost right now is about $200,000
a year and growing. That's a very significant, significant cost
to put on a bank of that size.
And I think when you recall I mentioned Regulations A
through QQ, any one of those regulations is probably
appropriately defined and put in place, but when you start
looking at the cumulative impact that all of those are having,
a bank that's $125 million trying to comply with the same rules
and regulations as someone that might have 400 people in their
compliance division is just something that I think you're going
to cause banks like this to look at their organization and say,
at what point have we spent so much money on compliance to a
point where we can't return on investment to their local
investors.
When you talk about these small community banks, their
investors are the hardware store guy, the barber, the doctor,
the dentist. They're people in the community who invested in
their own community, and thus, this bank plays a very intricate
role in it.
And I think that's the concern, because there are, as I
mentioned earlier, 584 banks that are headquartered in this
State. They're in communities as small as 700 or 800 people. If
you take that bank and continue to layer on this regulation,
their survival is indeed in question.
Mr. Manzullo. Any one of you can jump in also.
Mr. Ohlendorf. Congressman, we understand as well, as you
stated in your premise, that regulation is part of our business
and it's certainly required for many things. We get that, but
it is akin to treating a patient with cancer. We don't go in
and kill the body because that would get rid of the cancer. We
go in and try to surgically take out as little as we can and
treat the area around it and then move on.
And unfortunately, these regulations, especially if we have
come down because of the mortgages and because some of the too-
big-to-fail institutions, we all get blanketed with the
solution, and we're looking for the opportunity to tier out the
folks who didn't do the wrong thing.
You have all said, and we appreciate that you're
understanding, that the community banks didn't cause this
problem. We have talked about that over and over, and we really
appreciate your understanding there, but then also, we can't
just get blanketed with the solution, and so there have to be
places in these regulations where we can find ways to
surgically go after the things that didn't go well and the
folks who didn't do the right thing and protect the rest of us
from having to comply because it's this overlap, as Mr. Roolf
said, this overlap of regulation. One more regulation doesn't
seem like a lot until you add them all up.
Mr. Roolf. May I add one thing, Congressman?
Mr. Dold. Please do.
Mr. Roolf. Mr. Palmer made a statement earlier about 94
percent of the problem or the financial meltdown, if you will,
was caused by unregulated financial organizations. That's a
critically important statement because the regulations and
those who were playing by the rules are still playing by the
rules.
Don't misunderstand our concern with whining. We are not
whining; we are indeed concerned. And the 6 percent of us who
operate in the world by the regulations, however many of them
there are, are not saying we shouldn't have regulation, but
what we're saying is we need to be meaningful in terms of
reviewing what's there and what continues to be applicable and
modify it accordingly.
Mr. Dold. One of the concerns that I have had is the one-
size-fits-all kind of mentality that Dodd-Frank has really
placed on some of the financial institutions and its impact as
Mr. Schmitt, I think, brought up in his testimony on some of
the entrepreneur small businesses that are out there.
As a small business owner, let me just tell you I recognize
that access to capital is absolutely critical just to run the
business each and every day, and if your receivables are up a
little higher, you're going to need to dip into perhaps a line
of credit that you have at a bank or something along those
lines.
One of the things that I hear about is we have heard about
the banks that have to limit that line of credit in light of
that, a $100,000 line of credit, $50,000 line of credit, and
all of a sudden, if you have $20,000 off on that $50,000 line
and you drop that line to $25,000, all of a sudden, that
impacts your credit score because now you have borrowed a
significantly higher percentage.
And so, you find those that are in performing mortgages
right now that all of a sudden, banks are going back to them
and saying, ``By the way, your loan to value is now underwater,
and we're going to require that you put in additional
capital,'' which for most small businesses is devastating. They
come to you for the access to capital; you're not supposed to
go to them and ask for additional capital. And these are the
performing mortgages.
And so we hear about the entrepreneur that is 100 percent
occupancy in a building that they're operating that has to go
to 22 financial institutions just to get access to additional
liquidity.
Is this something that you're experiencing in the banks in
your day-to-day operations, and could you shed a little bit of
light on that?
And more importantly, really more importantly why we're all
here is what should we be doing in the United States Congress
to try to rectify that, because I can tell you I have an
instance, we have a thriving practice, physician practice, up
in the 10th District that purchased a building and a piece of
property, and the banks came to them and said, ``Look, we're
going to have to foreclose unless you come up with an
additional million dollars.''
They were able to come up with that additional million
dollars, but I would argue that the highest and best use of
that land and that facility that was built for them is to run
this physician practice. They never missed a payment.
Running a small business, I can tell you that when you
factor in things like rent, that you know you have to pay the
bank ``X'' number of dollars each and every month, and whether
the bank views that as underwater, they're viewing it as a
block between running their business.
If you have any examples, I would welcome that, and then
we'll come down to this end of the table because we don't want
to deny you the opportunity.
Mr. Roolf. I have an example of that.
You'll recall I mentioned that I had traveled about 2,000
miles without leaving the State of Illinois over the last few
weeks talking to bankers in preparation for today, and let me
read it just because I haven't been able to study it
sufficiently, but I think it's a good example.
It says: ``Allow me to highlight a specific example. We
have a local borrower who owns a gas station which faced an
enormous real estate tax increase. This tax increase caused the
borrower to come to us and plead for assistance, parenthetical,
a lowered rate and a modified amortization schedule, yet
because we would be forced to carry this loan in a troubled
debt/restructured category or TDR as it's known in the
industry, it results in a classified asset.
``We told this borrower we could not help him. As a result,
he shut his business down and fired his employees. The bank was
left with no alternative but to incur a loss via the sale of
the asset in order to avoid carrying the classified asset on
the books for an extended period of time.
``These actions forced upon us were morally gut wrenching.
We did not help an individual, and we certainly did not assist
in economic recovery.''
This banker specifically asked if we would review the
requirements of the troubled debt restructure.
If we take a borrower who is struggling and we modify the
terms of their agreement in any way, it becomes a troubled debt
restructure, and as such becomes classified. When it becomes
classified, they charge capital, make the loan provision, and
it erodes your capital base.
This is a very significant issue so this is one that we
could look at very much so. Particularly if the borrower over
the last 5 years has paid as contractually agreed to, we should
be allowed to work with those individuals, and we can't.
Mr. Dold. If I can just turn a little bit--and I certainty
want to talk more about this as we go another round. I just
want to talk about the FSOC and then the CFPB for just a
second.
The CFPB has a decision that they make concerning your view
on this and the perspective.
In order to overturn a decision that the CFPB makes or
perhaps the Director, who right now, the sole power really
rests with the Director of the CFPB, and we can all agree that
we want consumer financial protection. I don't think there's
anybody who wants to see, or in the room who doesn't agree that
we should be able to have some protection for the consumers but
a decision made by the Director.
And really, what I would like to do is take it forward 10
years from now so that we take all politics out of this. So
whoever the President appoints as the Director to the CFPB,
that individual will have a significant amount of power.
The decision that they make, should it be overturned by the
FSOC or Financial Services Oversight Council, right now, it's a
two-thirds majority to do so. Is that too high a threshold for
the CFPB in terms of something that would have systemic risk?
Mr. Ohlendorf. Congressman, I'm very concerned about that,
and I'm concerned about the single Director as well. I would
love to see it be a panel. I think there's a lot of power
vested if you appoint one individual.
Once the CFPB is cut away and it's out standing on its own,
my prudential regulator which is responsible for safety and
soundness also did my compliance in days gone by and wrote the
rules, and they knew when they wrote those rules--they knew my
safety and soundness situation, they knew the bank safety and
soundness. They were very close. I think there's a nice
relationship there.
Now, we have stripped that and put it over in some corner,
and this two-thirds requirement--and it's not just two-thirds,
it's two-thirds under some very limiting circumstances where a
rule could be overturned. Prudential regulators would really
pull away from that.
And they have the regulators, they're in the banks, they're
in the bank every year, every 18 months. They're gathering a
lot of good information about what's really happening in the
field, and I think it's very important that they're staying
involved, and I'm very concerned that the bar has been set too
high and also the criteria upon which a decision can be
overturned is also very stringent.
Mr. Dold. Ms. Rand, if you just wanted to chime in, go
ahead.
Ms. Rand. No surprise, I disagree with that opinion. I
think it's extremely important that the Director and the CFPB
have independence and autonomy within the context of consulting
with the prudential regulators.
I think part of the reason we got to this foreclosure
crisis is because the prudential regulators were in what we
call regulatory capture; they were too closely identified with
the banks that they supervise.
In fact, I think it was Mr. Chairman who even said, ``the
regulators are there to serve the banks,'' and that's really
how a lot of them looked at their job. So I think having an
independent agency whose sole purpose is to look out for
consumers is absolutely essential.
Mr. Dold. I guess I--
Chairman Bachus. Ms. Rand, that has been a quote that has
gone around.
My statement was that the regulators were public servants,
and that means they should be public servants to the banks as
well as to their customers, and that was taken out of context.
Actually, it wasn't even taken out of context. It's a
misstatement similar to the 60 Minutes show where it said that
Immelt told Paulson that GE might default on some of their
obligations, and that Paulson may have told me, and that I
short-sold GE.
I bought GE, so it was a total misrepresentation, but those
things, they take on a life of their own.
Ms. Rand. Mr. Chairman--
Chairman Bachus. And I can tell you that you see that on
some of the blogs, but if you go back to the original article,
you can see that I said that the regulators should consider
themselves as public servants.
And the question was, do you consider them as public
servants to the banks, and I do. I think they're there to serve
the banks and everyone else, but you took that out of context.
That's why they're called public servants.
Mr. Dold. I guess if I can follow up.
Chairman Bachus. But I also said that they should enforce
the rules and that they should enforce them right.
Mr. Dold. I guess if I could just--for clarification, it
wasn't the existence or whether we should have a CFPB or an
FSOC, it was the threshold of two-thirds, should two-thirds of
the FSOC have the vote because that's an extraordinarily high
threshold. Should it be a simple majority when you look at just
who comprises the FSOC?
And that was really my question, should it be at two-thirds
or the smaller--
Ms. Rand. I think it should be the two-thirds requirement
because I believe it's necessary to preserve independence of
the agency, yes.
Mr. Dold. Okay. Thank you.
Mr. Chairman, thank you.
Chairman Bachus. Actually, the CFPB is a voting member, so
it's seven out of nine, which is actually greater than two-
thirds, but someone mentioned the burden.
The burden of proof is that the rule would bring down the
entire American economy, and I doubt that one rule--it may
bring down all of the community banks, it may bring down all of
the insurance companies, but anyway, that's a debate we are
having, whether one person ought to have that much power, and
there are differences of opinion.
Mr. Schweikert?
Mr. Schweikert. Thanks, Mr. Chairman. And it's always sort
of fun trying to explain the differences between selling short
and actually buying long.
Chairman Bachus. And obviously, if you were in a meeting
and someone said ``GE is going broke tomorrow,'' and 2 days
later, you went out and bought the stock, I have hearing aids,
and maybe my hearing aids were off, but I was a railroad lover
and a representative of GE years ago, and they make the only
diesel engines for the trains, and I bought it because I
thought they had a good business, and the stock had fallen and
fallen and fallen. As opposed to short selling it because ``I
didn't have faith in the financial industry, I was buying it--
produced British aircraft engines.''
They also said I went out and bought financial--here I am
the Financial Services Committee Chairman, and I went out and
got financial services, ETF, and I won't bore you with what ETF
is--and that I shouldn't have been doing that, I should have
bought energy or technology and something else.
I didn't buy financial; I bought energy futures. They were
an energy company, but that doesn't prevent those stories that
will be out there till the day I die, sort of like all of us in
this room, where do you go to get your reputation back?
Mr. Schweikert. Mr. Chairman, two things I have learned in
my 11 months now doing this job: you would be stunned how much
public policy is done by folklore; and I'm heartbroken to find
out how often a good story is the story that you can just make
up.
Because I'm the guy from out of town, I want to try to do
this quickly, because I know our time is somewhat limited.
Ms. Rand, before there was a part of the discussion of how,
I guess, these local regulations in regards to what a lender--
we're a nonrecourse mortgage state here, yes?
Ms. Rand. We're a judicial foreclosure state.
Mr. Schweikert. Yes.
That the lender is obligated to go in and maintain and
board up a property that's declared abandoned by a
municipality?
Ms. Rand. I don't have the details at my fingertips,
Congressman, but my understanding is that for confirmed vacant
and abandoned properties where the foreclosure is not yet
complete, the servicer has some obligations under the ordinance
that require some upkeep so that--
Mr. Schweikert. So there's an ordinance that actually
allows them to gain access onto the property?
Ms. Rand. It requires them to do some maintenance so that
it doesn't become a blight on neighboring properties.
Mr. Schweikert. I appreciate the blight thing. We have
dealt with that.
What I mean is just how the municipality--specifically how
the municipality from a governmental standpoint is able to gain
access to the property, and very often, they attach a lien.
It's an interesting property rights issue if you're going
to have a lienholder who now goes and has access to that. I
will make a point to read about this.
I must tell you, we have been--one of the things I have
great interest in is mortgage insurance and the way you
securitize some of these, the mechanics out there, and I always
have this great concern we're heading towards a time where
there will be a differential in the pricing of loan mortgage
guarantees because of if it truly takes 500 or 600 days to do a
judicial foreclosure here, you're a lot more expensive than a
deed-of-trust State such as I come from where it can be--I
think we're averaging 4 or 5 months.
Just reality, you deserve to pay a premium on your loans
because your loans are more expensive, and why should my folks
in Arizona be subsidizing your mortgage instruments?
Just understand--and as you stack other things on, just
understand that you will--not only for your court system, the
type of loan instruments you do or your regulatory system, you
deserve to pay a premium. Other folks in other parts of the
country, why should we be subsidizing them?
I have a great interest because it's not often we get to
sit down with community bankers in this type of forum, I hear
lots of discussion in literature about the mark-to-market and
how often we'll have an occasion where you have a performing
strip center. And I'll use this because I have a little article
with me about this very situation.
A strip center, long-term tenants, a couple of them even
credit tenants, the strip center down the street goes through
foreclosure, sells here. The regulator walks in and says,
``Yes, this is a performing loan, yes, you have some credit
tenants, but yes, you have too high a debt ratio when we adjust
to the sale over here, go get your owners to bring in some
cash.''
Have any of you had that experience? I'll take anyone.
Mr. Roolf. I would say that's not an untypical situation. I
think that those occurrences happen across the State.
In terms of working with bankers as I have, as I said, over
the last few weeks, I have heard examples from them where they
were required to ask for additional equity and for additional
collateral of some sort, equity in your business or additional
collateral that helps bring that loan to value and balance.
Mr. Schweikert. When you have had that type of occurrence,
has your discussion with regulators looked at either the
tendency or the cash flow? Because I come from the world where
you would look at the cap rate and say yes, the cap rate works
and my payment history works, but even though those things
would look fairly solid, you would still be having to go into
the capital call.
Mr. Roolf. We would still be challenged in that regard,
yes.
Mr. Schweikert. Is that a consistent story here you come
across?
Mr. Roolf. It would be unusual to ask for a show of hands,
but you could ask the bankers in the room specifically, and I
would not be out of line to suggest that every one of them has
had that experience over the last 2 or 3 years.
Mr. Schweikert. While it's a concern to so many of us, if
you have an ongoing concern that's working, you have just
pushed on a level of uncertainty to not only the lender but
also that other business saying just because some--forgive my
language--screwball made a mistake and this all of a sudden, is
your gas station example--the economic future now is in the
hands of not your loan performance, not your quality of your
capital and not your history but this becomes now that mark-to-
market issue.
Mr. Roolf. And you have taken out the judgment that the
banker uses to assess the risk and the character of the
individual they're doing business with. That's an important
component of the loan arena.
We have to know our borrowers and we have to understand
what it is they're trying to do, and if we can't give them the
benefit of the doubt, then we have a vertical climb trying to
make loans anywhere.
Mr. Schweikert. Mr. Chairman, I know I'm out of time, but
this goes to anyone else in the room. I am trying to collect--
Chairman Bachus. You're actually 2 minutes shy.
Mr. Walsh. Mr. Chairman, don't tell him that.
Mr. Schweikert. I'm sorry. I'm the guy from out of town.
Okay? Did I mention all the sales tax revenue?
Mr. Walsh. Yes.
Mr. Schweikert. In all sincerity, I'm doing my best to
collect something beyond those examples, sort of regulatory
examples, so I can sort of ferret into it where regulatory
policy needs to go so we stop creating this sort of uncertainty
and this sort of wake of damage that comes with this sort of
policy, so thank you, Mr. Chairman.
Mr. Schmitt. We have used the term a lot, ``performing
loan,'' a performing loan, and there's no credit for a
performing loan anymore.
Many times, with some of these rules and regulations, the
performing loans are forced into noncompliance and they can't
perform anymore so we have seen the example that you have used
and everything throughout our community with a number of
people.
Chairman Bachus. Adam?
Mr. Kinzinger. Thank you, Mr. Chairman, and thank all of
you for coming out. And those in the audience, thank you for
coming out as well and taking an interest.
And specifically, Mr. Ohlendorf and Mr. Roolf, as district
residents, it's great to have you here.
I want to say that one of the things I have seen in just
the 10 or 11 months I have been in Congress now is, I get
people from all over the place coming in and talking about this
thing, Dodd-Frank, and talking about how it's going to affect
them. And this is to the level of what I never expected when I
went to Congress.
I have had people who run grain elevators come in and talk
to me about the impact that Dodd-Frank is going to have on
their business and people from all walks of life. It's like
this is a monster that really has its hands in places you never
would have imagined. I wouldn't be surprised if a little league
team doesn't come in and start talking about how it affects
their life.
But, in the process of all this, we're trying to find that
balance between too much government regulation, which freezes
up the system and continues to stagnate the economy, and no
government regulation, which also is bad for the economy, and
we saw to an extent in the past what no government involvement
or no regulation has done, so we're trying to find that.
But let me just--I want to get more of a 10,000-foot view
on this because we have had a lot of good discussion here, and
I'm not going to take my time just to take it, but as
regulators are implementing Dodd-Frank, as they're coming in,
they're barely even making a mark so far on what needs to be
done, but as that is being implemented, if you could give these
folks who are implementing it one takeaway of one thing to keep
if mind as they're building this up, what would it be? What
would be--I'll just go down the line.
What would be from each of you the one thing that you would
love to tell these folks?
Mr. Ohlendorf. Congressman, it is good to see you.
What we would like to see is that the community bank
business model be taken into consideration while these rules
are being written.
I think in real life, there is an opinion on Dodd-Frank in
a number of places regarding the difference between large banks
systemically and more financial institutions and community
banks, and you see it littered in the bill, in the law now, and
there are places where community banks were given some
exceptions and carveouts.
There are also a lot of places in the rule-writing process
where that can also take place, and I think there has been
given some rope in order to craft the law and write the rules
in such a way that community banks are considered and are
considered as being different.
And again, we have all said how many times that we didn't
create it and we're different and we serve a different market.
I think every time there's a rule written, the folks who
are writing the rule, whether it's an agency or whether it
becomes another piece of legislation, we have to consider the
impact on community banks, we have to consider how the rule
could be written so that it has the appropriate impact on those
who need to have the impact and no inappropriate impact on
those who are just sort of left as collateral damage.
Mr. Kinzinger. Thank you.
And the rest of you, I also want you to keep in mind that
some of these rules are going to span multiple agencies, and
that can be a situation that's going to be even more difficult
and more confusing.
Mr. Bates. I would echo what Mr. Ohlendorf said, and I
would like the regulators to remember that even though there
may be exemptions for community banks on certain things, a lot
of the regulations that will go into place will then turn
around and be used as best practices that over time, community
banks will have to adhere to, and again, the cost of
implementing these best practices as well as the actual
regulations that we have to comply with come around them.
Mr. Kinzinger. It also takes out of the--it seems like from
what I hear from folks, this is going to take out of the
community bank process the ability to make a decision based on
you are part of that community, you know somebody, you know
their history. Beyond just what you see on paper, it's maybe
the experiences that you have, and I think maybe that's a touch
that community banks have that big banks don't.
Mr. Roolf?
Mr. Roolf. They clearly have that issue.
Have you ever closed a business and then walked into the
same supermarket, the same aisle with the individual you put
out of business? I can tell you it isn't fun.
I think as we look at all of the regulation that's out
there, if I could do one thing in this whole great scheme, it
would be to make sure that people understand that we are not
trying to eliminate regulation; we just want it to be done in a
consistent and rational fashion.
Now, that may be one large, large task to accomplish as we
look at the myriad of regulation that's out there already. Some
have clearly outlived their usefulness.
So if we could look at--if I could have one thing, it would
be to look at what we have eliminated and establish what's
appropriate and practical in today's environment.
I will restate it. We are not for eliminating regulation.
We are for making sure that it's well-thought-out, practical,
and something that is consistently applied throughout our
industry.
Mr. Kinzinger. Mr. Renn?
Mr. Renn. I believe you used that phrase ``the 10,000-foot
view,'' and Dodd-Frank is really just it's an add-on to rules
that we have now, and I think that my point of my testimony is
that you can accomplish things and that substance over form and
Mr. Ohlendorf's comment about have things applicable to what
we're in business for.
Our balance sheet is a little bit different than our
business model is a little bit different than the other
witnesses, but that's my biggest take on it is that you have to
have rules and policies, procedures and you're examined for
things that are applicable to your business, that we don't feel
that we're--we feel that we're micromanaged.
Mr. Kinzinger. For the next three, I'll have to ask you to
keep it real brief. We're up against time.
Mr. Schmitt. Mine would be basically you cannot write rules
and regulations for one-size-fits-all. We have different size
banking, and we have different size businesses. There has to be
some flexibility coming into account, some judgment calls when
dealing with these various businesses and organizations.
Chairman Bachus. Ms. Rand?
Ms. Rand. I think the CFPB should continue to do what it
started, which is to create evidence-based policies based on
input from consumers, from the industry, from the general
public, and take all that information, look at real facts and
then create--I agree with Jim--practical, consistently-applied
policies that protect consumers.
Mr. Kinzinger. Thank you.
Mr. Palmer?
Mr. Palmer. And I would say that Dodd-Frank levels the
playing field between the big banks, community banks and the
previously-unregulated others so I think in the long term,
leveling the playing field is actually good for community banks
because the foreclosure crisis happened because big banks and
unregulated lenders were able to make really risky loans that
the community banks didn't, and because of that, they captured
more market share so eliminating that situation, again, is good
for consumers and is good, again, for community banks.
Mr. Kinzinger. Thank you, sir. Mr. Chairman, thank you
again. And a special thanks to Mr. Schweikert.
Chairman Bachus. Mr. Palmer, one thing. You're correct what
you have said of unregulated and subprime lenders.
Some of the large regulated banks bought unregulated
subprime lenders. They were actually a sub--they were an
unregulated affiliate. And we actually changed that in a
subprime lending bill about a year before Dodd-Frank, and it
included provisions which I had written and introduced in 2005.
But you're right, the big banks sort of fooled us when we
would say, are you doing this, no, but the story was they were
doing it in their unregulated affiliates.
So once bitten, twice shy, but yes, they were coming in the
back door.
Mr. Walsh. Thank you, Mr. Chairman. I'll be very brief.
A couple of questions for our four bankers. And Mr.
Ohlendorf, let me go off of your analogy.
In attacking the cancer, did Dodd-Frank kill the body, or
would you describe it as a whole as surgical precision? If the
four of you could give a concise answer to that?
Mr. Ohlendorf. It was clearly a mixed bag, and the jury is
still way out.
There were certain things inside the deposit insurance
reform, and the raising of the deposit insurance limits was
very important in the community banks, there's no question.
There are so many--I think the statistic was 28 percent of
the rules actually haven't been written and the scope and size
of the legislation is very, very challenging. The interchange
is going to be a big problem. There are a lot of things that
came into the bill that are going to be a big problem.
We knew it would have been naive to suggest that a bill of
this sort wouldn't have come out, but Congressman,
unfortunately, I think the jury is still out on a lot of it.
We're very concerned about how CFPB gets done, and to talk
about what Chairman Bachus was suggesting, the unregs are still
unregulated. There is nobody who is able to go after those
folks so that piece of carveout that was written, I'm sure, at
3 a.m., was pretty clever, and those folks are still
unregulated.
So all the unregs and the CFPB right now affect all of us
here at the table, and the ones that we were most concerned
about that were in my analogy of cancer are still out there
without any regulation. So it's going to take a lot to see how
that all gets reined in, and I'm going to leave the verdict out
there for now.
Mr. Walsh. Mr. Bates, did your government kill the body, or
was it surgically precise?
Mr. Bates. To extend the analogy, community banks, for the
most part are the healthy tissue in the body, and we want to
ensure that the solution does not further endanger the healthy
tissue and does work to root out the cancer so we're
essentially hoping that the regulators and the government will
be very prudent in what they do and enact regulations that will
protect consumers without raising the costs and the risks to
community banks to do business.
Mr. Walsh. Mr. Roolf?
Mr. Roolf. Congressman, we had an opportunity to meet with
some of our regulators in Washington during the month of
September. In a couple of instances, at the very highest level
within those regulatory agencies, it was suggested to us that
Dodd-Frank would not differentiate between the very largest and
the very smallest, even though there are some thresholds
identified or embodied within that legislation.
And further, they used the health care analogy of, you
break your arm, you go to the hospital, and they treat you with
radiation and chemo, and you die. That's essentially what they
told us Dodd-Frank would do, and it was startling to me that
regulators would be really that candid, but I think that's the
concern that's out there.
Think of driving--and all of us have revelations from time
to time. I had one the other night.
I was driving on the interstate, and it was a crystal clear
evening, and I was thinking about Dodd-Frank and thinking about
today and the things I would say and more importantly not say.
And it dawned on me that I was driving 65 miles an hour on a
moonlit night. The road was clear so I was able to keep doing
my business, if you will, without any question.
All of a sudden, I hit a wall of dense fog, and I'm driving
and I'm thinking somebody's behind me, in front of me, I don't
know if they're on the other side of the road or directly in
front of me, coming from the side or coming right side or left
side. All of a sudden, I'm in a fog, and I'm not really sure
what to do.
I think that's what Dodd-Frank has done in many respects to
our industry because there are so many unknowns in this
process--28 percent of it has been--the rules have been
developed. There are 4,000 pages for 28 percent. That's 4,000
pages on top of Regulation A through QQ plus all of the other
Acts that I have referred to.
It's an inordinate amount of business and regulation that
has been placed on an industry where, quite frankly, consumers
have many options. And if we don't do our job and do it
effectively, that customer is going to say, ``Jim, I'd like to
bank with you, but because of ``X,'' I'm going somewhere else,
because they do it a little better than you and a little less
expensive.''
So I guess I would encourage all of the Members of Congress
to understand that while we need to make sure that we are
protecting the consumer, don't underestimate the intelligence
of the American consumer. They're pretty good at it.
Mr. Walsh. Mr. Renn?
Mr. Renn. Being the fourth person, I don't think I can add
that much more to what has been said. The only thing that I
might think of is when we have an exam, the examination team
oftentimes quarrel among themselves about certain things, their
viewpoint on certain things.
And so when this is all sorted out, I guess one thing I
would like for you to think about, for us to think about, is
that when you're examined, whatever this monster would look
like at the end, will the people who are looking at you have
uniform application of the law, will they understand it, and
will they agree among themselves on certain aspects that
they're looking at?
Mr. Walsh. Again, just being a freshman in Congress, that's
probably my biggest frustration with this job is you have
described it as a monster. We know it's a monster. We're not
quite clear what it's going to look like yet, but we tend to
create these monsters, and then we scramble for the next few
years to try to make that monster look like something, but it's
still a monster.
I'm going to try to pin you down on it for a yes-or-no
answer. This monster, if you go back a day before Congress
approved Dodd-Frank in toto, if this entire bill was plopped in
your lap a day before the previous Congress passed it, would
you have advised us to vote yes or no on the entire package?
Yes or no?
Mr. Renn, I will start with you.
Mr. Renn. No.
Mr. Walsh. Mr. Roolf?
Mr. Roolf. No.
Mr. Walsh. Mr. Bates?
Mr. Bates. No.
Mr. Walsh. Can you top that, Mr. Ohlendorf?
Mr. Ohlendorf. I don't know what to do with that. There's
no good answer to that, Congressman. I'm sorry.
Mr. Walsh. Mr. Chairman, thank you.
Chairman Bachus. Thank you.
This concludes our hearing.
I want to say this: Consumers were abused, and the
regulators did not do their job in protecting consumers in many
cases, and so the American people were, I think, sometimes
traumatized and demanded action.
We did have a credit card boom, we had a subprime boom, and
we had Dodd-Frank, and there are parts of Dodd-Frank, the
Stability Oversight Board, that could--I think could be
beneficial.
And if the Consumer Financial Protection Bureau would spend
its time on going after the bad actors, I will say Elizabeth
Warren did state almost every time she spoke that she wanted to
go after the unregulated bad actors. And we know they're there,
we know we have been there, and the bank regulators don't have
jurisdiction over them, and I think there could have been a
better solution.
And another thing that happened, not only did the banks buy
unregulated affiliates, some of them, not your entities, but
they also padded these securitizations and sold them to the
American people, and so they are--but the community banks are
the victims of someone else's malfeasance and misconduct.
But we appreciate your time and we appreciate all of the
views, and by having everyone's views, I think we're better off
for it.
[Whereupon, at 11:17 a.m., the hearing was adjourned.]

A P P E N D I X

December 5, 2011

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