[House Hearing, 116 Congress] [From the U.S. Government Publishing Office] OVERSIGHT OF FINANCIAL REGULATORS: ENSURING THE SAFETY, SOUNDNESS, DIVERSITY, AND ACCOUNTABILITY OF DEPOSITORY INSTITUTIONS DURING THE PANDEMIC ======================================================================= HEARING BEFORE THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED SIXTEENTH CONGRESS SECOND SESSION __________ NOVEMBER 12, 2020 __________ Printed for the use of the Committee on Financial Services Serial No. 116-113 [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] __________ U.S. GOVERNMENT PUBLISHING OFFICE 43-527 PDF WASHINGTON : 2021 -------------------------------------------------------------------------------------- HOUSE COMMITTEE ON FINANCIAL SERVICES MAXINE WATERS, California, Chairwoman CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina, NYDIA M. VELAZQUEZ, New York Ranking Member BRAD SHERMAN, California ANN WAGNER, Missouri GREGORY W. MEEKS, New York FRANK D. LUCAS, Oklahoma WM. LACY CLAY, Missouri BILL POSEY, Florida DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri AL GREEN, Texas BILL HUIZENGA, Michigan EMANUEL CLEAVER, Missouri STEVE STIVERS, Ohio ED PERLMUTTER, Colorado ANDY BARR, Kentucky JIM A. HIMES, Connecticut SCOTT TIPTON, Colorado BILL FOSTER, Illinois ROGER WILLIAMS, Texas JOYCE BEATTY, Ohio FRENCH HILL, Arkansas DENNY HECK, Washington TOM EMMER, Minnesota JUAN VARGAS, California LEE M. ZELDIN, New York JOSH GOTTHEIMER, New Jersey BARRY LOUDERMILK, Georgia VICENTE GONZALEZ, Texas ALEXANDER X. MOONEY, West Virginia AL LAWSON, Florida WARREN DAVIDSON, Ohio MICHAEL SAN NICOLAS, Guam TED BUDD, North Carolina RASHIDA TLAIB, Michigan DAVID KUSTOFF, Tennessee KATIE PORTER, California TREY HOLLINGSWORTH, Indiana CINDY AXNE, Iowa ANTHONY GONZALEZ, Ohio SEAN CASTEN, Illinois JOHN ROSE, Tennessee AYANNA PRESSLEY, Massachusetts BRYAN STEIL, Wisconsin BEN McADAMS, Utah LANCE GOODEN, Texas ALEXANDRIA OCASIO-CORTEZ, New York DENVER RIGGLEMAN, Virginia JENNIFER WEXTON, Virginia WILLIAM TIMMONS, South Carolina STEPHEN F. LYNCH, Massachusetts VAN TAYLOR, Texas TULSI GABBARD, Hawaii ALMA ADAMS, North Carolina MADELEINE DEAN, Pennsylvania JESUS ``CHUY'' GARCIA, Illinois SYLVIA GARCIA, Texas DEAN PHILLIPS, Minnesota Charla Ouertatani, Staff Director C O N T E N T S ---------- Page Hearing held on: November 12, 2020............................................ 1 Appendix: November 12, 2020............................................ 65 WITNESSES Thursday, November 12, 2020 Brooks, Brian P., Acting Comptroller of the Currency, Office of the Comptroller of the Currency (OCC).......................... 10 Hood, Rodney E., Chairman, National Credit Union Administration (NCUA)......................................................... 5 McWilliams, Hon. Jelena, Chairman, Federal Deposit Insurance Corporation (FDIC)............................................. 7 Quarles, Hon. Randal K., Vice Chairman for Supervision, Board of Governors of the Federal Reserve System (Fed).................. 9 APPENDIX Prepared statements: Brooks, Brian P.............................................. 66 Hood, Rodney E............................................... 97 McWilliams, Hon. Jelena...................................... 112 Quarles, Hon. Randal K....................................... 130 Additional Material Submitted for the Record Waters, Hon. Maxine: Letter from the Credit Union National Association (CUNA)..... 187 Letter from the Independent Community Bankers of America (ICBA)..................................................... 195 Letter from the National Association of Federally-Insured Credit Unions (NAFCU)...................................... 197 Perlmutter, Hon. Ed: Letter from various undersigned organizations................ 200 Porter, Hon. Katie: Various inserts for the record............................... 202 Brooks, Brian: Written responses to questions for the record from Chairwoman Maxine Waters.............................................. 236 Written responses to questions for the record from Representative John Rose................................... 245 Written responses to questions for the record from Representative Anthony Gonzalez............................ 248 Written responses to questions for the record from Representative Tom Emmer................................... 249 Hood, Rodney: Written responses to questions for the record from Chairwoman Maxine Waters.............................................. 250 McWilliams, Hon. Jelena: Written responses to questions for the record from Chairwoman Maxine Waters.............................................. 255 Written responses to questions for the record from Representative Anthony Gonzalez............................ 269 Written responses to questions for the record from Representative John Rose................................... 270 Written responses to questions for the record from Representative Roger Williams.............................. 271 Quarles, Hon. Randal: Written responses to questions for the record from Chairwoman Maxine Waters.............................................. 273 Written responses to questions for the record from Representative Anthony Gonzalez............................ 289 Written responses to questions for the record from Representative Joyce Beatty................................ 291 Written responses to questions for the record from Representative Stephen Lynch............................... 293 Written responses to questions for the record from Representative Ben McAdams................................. 295 Written responses to questions for the record from Representative John Rose................................... 299 OVERSIGHT OF FINANCIAL REGULATORS: ENSURING THE SAFETY, SOUNDNESS DIVERSITY, AND ACCOUNTABILITY OF DEPOSITORY INSTITUTIONS DURING THE PANDEMIC ---------- Thursday, November 12, 2020 U.S. House of Representatives, Committee on Financial Services, Washington, D.C. The committee met, pursuant to notice, at 12 p.m., via Webex, Hon. Maxine Waters [chairwoman of the committee] presiding. Members present: Representatives Waters, Maloney, Sherman, Meeks, Clay, Green, Cleaver, Perlmutter, Himes, Foster, Beatty, Vargas, Gottheimer, Lawson, Tlaib, Porter, Axne, Casten, McAdams, Wexton, Lynch, Adams, Dean, Garcia of Illinois, Garcia of Texas, Phillips; McHenry, Lucas, Posey, Luetkemeyer, Stivers, Barr, Hill, Emmer, Loudermilk, Mooney, Davidson, Budd, Kustoff, Hollingsworth, Gonzalez of Ohio, Rose, Steil, and Taylor. Chairwoman Waters. The Financial Services Committee will come to order. Without objection, the Chair is authorized to declare a recess of the committee at any time. Before we begin today's hearing, I want to remind Members of a few matters, including some required by the regulations accompanying House Resolution 965, which established the framework for remote committee proceedings. First, Members are reminded to keep their video function on at all times, even when they are not being recognized by the Chair. Members are also reminded that they are responsible for muting and unmuting themselves, and to mute themselves after they have finished speaking. The staff has been instructed not to mute Members, except when a Member is not being recognized by the Chair, and there is inadvertent background noise. Members are further reminded that they may only attend one remote hearing at a time. So if you are participating today, please remain with us during the hearing. Members should try to avoid coming in and out of the hearing, particularly during the question period. If, during the hearing, Members wish to be recognized, the Chair recommends that Members identify themselves by name so as to facilitate the Chair's recognition. I would also ask that Members be patient as the Chair proceeds, given the nature of the online platform the committee is using. Finally, Members are reminded that all House rules relating to order and decorum apply to this remote hearing. Today's hearing is entitled, ``Oversight of Financial Regulators: Ensuring the Safety, Soundness, Diversity, and Accountability of Depository Institutions During the Pandemic.'' I will now recognize myself for 4 minutes to give an opening statement. On November 3rd, America decisively rejected President Trump, his harmful policies, and his dangerous rhetoric. The American people have given President-elect Biden a mandate to govern and reverse the harmful policies of the Trump Administration, including the many actions that several of our witnesses have taken to deregulate Wall Street. This mandate is entirely consistent with recent State referendums in which voters in red States embraced progressive economic policies. For example, in Nebraska, voters banned usury, approving a Statewide interest rate cap of 36 percent. In Florida, voters approved a $15-an-hour minimum wage. It is clear that Americans want a financial and economic system that works for them and not against them. I was inspired by the words of President-elect Biden on how he wants to unify the country. As ever, I stand ready to work with Members on both sides of the aisle, and the incoming Biden Administration, on reforming our financial system so that consumers and investors have the protections they need. President-elect Biden has already begun the work of building a better future for our nation. On Monday, we established a coronavirus task force, showing how seriously he is working on this virus. Make no mistake, the pandemic continues to take a terrible toll. There have been over 10.2 million U.S. cases, and over 239,000 people have lost their lives to the virus. We are now seeing over 100,000 new U.S. cases a day. From the beginning of this pandemic, I have urged regulators to focus their efforts on pandemic response, and halt rulemakings unrelated to addressing the crisis. I am very concerned that regulators have nonetheless issued numerous harmful regulatory rules in the midst of the ongoing pandemic. For example, the Office of the Comptroller of the Currency (OCC) issued a harmful rule that badly undermines the Community Reinvestment Act (CRA). Regulators have also moved to weaken the Volcker Rule, which prevents banks from gambling with taxpayer money. There have also been a number of troubling rulemakings to weaken capital and other prudential requirements for the nation's largest banks. The last thing the nation needs during this crisis are actions from regulators that harm communities and make our financial system insecure and less stable. I am putting our witnesses on notice that I will be working with the Biden Administration to roll back these rules. Financial regulation, and the approach to diversity and inclusion in this country, are going to change for the better. With the historic election of this country's first woman and person of color to serve as Vice President, it is already changing for the better. Under my leadership, the committee has led the way on diversity and inclusion, establishing an historic Subcommittee on Diversity and Inclusion, aptly chaired by Representative Beatty. Under President Biden's leadership, our financial regulators will and must be diverse. We are emerging from the dark days of the Trump Administration into the dawn of a new progressive America where pro-consumer and pro-investor policies will always be first on the agenda. The Chair now recognizes the ranking member of the committee, the gentleman from North Carolina, Mr. McHenry, for 4 minutes for an opening statement. Mr. McHenry. Thank you. And I want to thank the regulators for being here. I would also note for the Chair that I don't see the election outcome as this vote for the woke left policy agenda of House progressives; it was anything but that. We have more Republicans in the next Congress in the House of Representatives because, quite frankly, the far left went so far. And so, while you may have had some successes in the election, I don't think it is the wide endorsement of a far left policy agenda that the Chair noted. In fact, what I would note is that in the middle of this pandemic, instead of taking political potshots, we should make a serious, concerted effort to have a serious conversation in this committee, like we have not had in the midst of this pandemic. And I think it is a very, very sad thing that we have not been more focused on financial stability, and the important work that these regulators who are before us today have been about this year. So with that, I would like to thank our witnesses for being here today, and I want to commend them for the work that they have put in to address the effects of the pandemic on our financial system. They have done a fantastic job, a wonderful, fantastic job, and they all should be commended for the work that they have put in, tacked decisively at the start of this crisis to provide the necessary certainty and clarity for our financial system. Your quick implementation of the provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act from March forward provided financial institutions and consumers appropriate flexibility to accommodate the daily challenges that they faced in the midst of this pandemic. I would also encourage you to continue examining the regulations in your purview to ensure stability in the banking system. As I have said previously and will repeat again today, our focus must be on the following: increasing testing; opening schools safely; and getting people back to work. Last week, unemployment dropped to just under 7 percent, a rapid turnaround from the April high of 14.7 percent. This is a good start. Our economy is rebounding, but more can be done, and I believe pro-growth regulations and policies are the key to sustained success. We know that modernizing and right-sizing regulations will unleash the economy and allow consumers and small businesses to flourish, and that is what you are doing, and I appreciate that work that you are about. A big part of that is regulatory clarity. I want to thank Acting Comptroller Brooks and Chair McWilliams for their work to help bring certainty to the legal status of loans made through banking partnerships. Much of the innovation in financial services right now is happening within the context of partnerships between banks and fintech firms. Your efforts have helped bring greater definition to the regulatory and supervisory models for these partnerships. We should also continue to examine the importance of de novo charters in rural banking. Serving banking deserts is a necessary aspect of supporting our Main Street rural small businesses. And I want to commend my colleague from Kentucky, Congressman Barr, for his work on this important issue. Now more than ever, technology is going to play an essential role in our financial future. Innovation is important for our success. As new policies are considered, we should ensure that government is not standing in the way of private sector creativity and helping our people. I will end where I started. The tone of this hearing does not bode well for the next Congress. We have the ability to find good bipartisan solutions to help promote a successful financial system that is inclusive and addresses the needs of the American people. Yet, my colleagues continue to choose divisiveness over bipartisanship, and that is disappointing. I want to thank all of the witnesses for being here today and for your solid, good work in the midst of this health pandemic. Thanks so much. Chairwoman Waters. The Chair now recognizes the gentleman from New York, Mr. Meeks, who is also the Chair of our Subcommittee on Consumer Protection and Financial Institutions, for 1 minute. Mr. Meeks. Thank you, Madam Chairwoman. As we reach the end of the 116th Congress, it is important to consider all of the accomplishments of this committee, for which I congratulate our chairwoman and all of the members of this committee. As Chair of the Consumer Protection and Financial Institutions Subcommittee, I set out to focus my work on issues of discrimination, inequality, and the unbanked and underbanked. I spent the bulk of my time working on Minority Depository Institutions (MDIs) and Community Development Financial Institutions (CDFIs), and thinking that a period of relative stability in a decade into the expansion that started under President Obama's leadership was a perfect opportunity to tackle these issues. The COVID-19 pandemic and nationwide protests against police brutality and racial injustice have laid bare the structural inequalities, and, yes, discrimination across our system. I would argue that the agenda set in this committee for the 116th Congress was persistent and laid the foundation of the urgent priorities that our nation grapples with today, and it is an inflection point. And so, therefore, I thank you, Madam Chairwoman, again, for tackling these issues, and I look forward to continuing to work with you. Chairwoman Waters. Thank you. The Chair now recognizes the subcommittee's ranking member, Mr. Luetkemeyer, for 1 minute. Mr. Luetkemeyer. Thank you, Madam Chairwoman. And thank you to all of the regulators who are here today, for being here in this critical time for our nation's economy. As you know, the pandemic caused a blanket shutdown across the country and threatened tens of millions of American jobs. But the strength of American businesses and workers responded with an astounding 33 percent increase in the GDP in the third quarter. It is clear that Americans have undergone an heroic effort to adapt to the strain and pressure of the pandemic. And with recent news of a vaccine, economic recovery is in full swing. While this is good news, we must ensure that Congress and the regulators do not hinder the progress that the economy is making. To the contrary, regulators should enhance financial institutions' ability to aid in the economic recovery and ensure that consumers and businesses can make it to the end of the pandemic. Many provisions in the CARES Act, including a Troubled Debt Restructuring (TDR) provision, are set to expire at the end of the year. I am very interested to hear what you, the prudential regulators, are going to allow institutions to do to keep their customers and communities afloat in this time. With that, I look forward to discussing these matters, and I yield back. Thank you. Chairwoman Waters. Thank you very much. I would now like to welcome today's distinguished panel: the Honorable Rodney Hood, Chairman of the National Credit Union Administration; the Honorable Jelena McWilliams, Chair of the Federal Deposit Insurance Cooperation; the Honorable Randal Quarles, Vice Chair of Supervision at the Board of Governors of the Federal Reserve System; and Brian Brooks, Acting Comptroller of the Currency at the Office of the Comptroller of the Currency. Each of you will have 5 minutes to summarize your testimony. You should be able to see a timer on your screen that will indicate how much time you have left, and a chime will go off at the end of your time. I would ask you to be mindful of the timer, and quickly wrap up your testimony if you hear the chime, so we can be respectful of both the witnesses' and the committee members' time. And without objection, all of your written statements will be made a part of the record. Chairman Hood, you are now recognized for 5 minutes to present your oral testimony. STATEMENT OF THE HONORABLE RODNEY E. HOOD, CHAIRMAN, NATIONAL CREDIT UNION ADMINISTRATION (NCUA) Mr. Hood. Chairwoman Waters, Ranking Member McHenry, and members of the committee, thank you for the opportunity to provide an update on the safety, soundness, and diversity of federally insured credit unions and the NCUA's efforts to assist them during the ongoing COVID-19 emergency. Our nation's credit union system was well-capitalized at the start of the pandemic, and it remains so today. With high levels of net worth and ample liquidity, this strength has allowed credit unions to adapt to the operational challenges resulting from the pandemic. Total assets in federally insured credit unions rose 15 percent over the year, ending in the second quarter of 2020 at $1.75 trillion. Credit union shares and deposits rose by nearly 17 percent, to $1.49 trillion. Since mid-March, the NCUA has worked diligently to provide credit unions with regulatory relief and much-needed flexibility so they can continue to safely serve their member owners. We have also adjusted our examination program to protect our staff, and we all continue to work remotely and effectively. We continue to examine for compliance with the Bank Secrecy Act and potential cybersecurity risk, helping to ensure our credit union system remains secure and resilient. We have issued 11 interagency statements and 20 guidance letters to the industry to date, helping credit unions to address emerging risk, and to implement the regulatory and statutory changes that have been made in response to the pandemic. The NCUA has provided over $3.7 million in technical assistance to small, low-income, and minority credit unions in the form of our 2020 Community Development Revolving Loan Fund allocation, which went directly to COVID-19 assistance. The credit union system's net worth increased 6.8 percent over the year, to $182.9 billion. The aggregate net worth ratio of the system stood at 10.46 percent, well above the 7 percent statutory requirement. The Share Insurance Fund is also strong, and the equity ratio remains well within the statutory range under the Federal Credit Union Act. Accordingly, we believe there is no need to assess a premium at this time. Credit unions have continued to provide needed credit and financial services, with lending rising to an all-time high of $1.5 trillion in all major loan categories. Credit unions collectively extended $8.4 billion in loans under the SBA's Paycheck Protection Program (PPP), with an average loan amount of $49,000. Like capital, liquidity is a pillar of strength and the bedrock upon which the safety and soundness of the credit union system rests. Congress' decision to increase the flexibility of, and borrowing authority for, the Central Liquidity Facility (CLF) in the CARES Act has contributed greatly to bolstering the availability of liquidity in the credit union system. Since the Act was signed into law, the NCUA has successfully encouraged natural person and corporate credit unions to join the CLF. Today, the Facility's borrowing capacity has exceeded $32 billion and provides access to nearly 80 percent of all credit unions. I am indeed grateful that Congress provided this much- needed authority in the CARES Act. However, I respectfully request that these changes be extended for the pandemic's duration so the credit union system and the NCUA can respond effectively should the need for emergency liquidity arise. One important lesson from 2020 is the need for greater financial inclusion. Lamentably, recent events have revealed many inequities in our society, not the least of which is that the pandemic has had a more deleterious impact on communities of color. At the NCUA, we are proud of the fact that diversity, equity, and inclusion are part of who we are and how we do business, and Section 342 of the Dodd-Frank Act has been a catalyst for growth and change. Indeed, we have made tremendous progress in this area over the last decade in terms of recruitment, employee retention, and procurement. Since becoming the 11th Chairman of the NCUA, I have made financial inclusion a priority within the agency and the credit union system as a whole. I recently reinforced that commitment with the launch of a new financial inclusion initiative called ACCESS (Advancing Communities through Credit, Education, Stability, and Support). This initiative will refresh and modernize regulations, policies, and programs that all support greater financial inclusion within the agency and the credit union system and will address the specific needs of diverse communities. I look forward to working in partnership with the members of this committee towards this worthy endeavor. In closing, I would like to thank the committee again for the opportunity to appear before you, and I look forward to answering your questions. Thank you. [The prepared statement of Chairman Hood can be found on page 97 of the appendix.] Chairwoman Waters. Thank you, Chairman Hood. Chair McWilliams, you are now recognized for 5 minutes to present your oral testimony. STATEMENT OF THE HONORABLE JELENA MCWILLIAMS, CHAIRMAN, FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) Ms. McWilliams. Thank you, Chairwoman Waters, Ranking Member McHenry, and members of the committee and staff, and thank you for the opportunity to testify today. I hope that you and your families are staying healthy. When I appeared before you 6 months ago, we were confronting great uncertainty and volatility due to the COVID- 19 pandemic. Many industries and segments of the economy were experiencing unprecedented declines in activity, and this shock was reverberating throughout the financial system. Although there remains considerable uncertainty about the path of the economy, the banking system has served as a source of strength throughout this period. Banks of all sizes have supported their customers and communities, including by originating nearly $500 billion in Paycheck Protection Program (PPP) loans and accommodating more than $2 trillion in new deposits over two quarters. Today, I will provide an update on five areas in which the FDIC has made significant progress: responding to economic risks related to COVID-19; enhancing our resolution readiness; supporting communities in need; prompting diversity and inclusion at the FDIC; and fostering technology solutions and encouraging innovation. My written statement provides greater detail in each of these areas, but I would like to briefly touch on each of them, starting with how we responded to the economic risks related to the pandemic. Beginning in early March, the FDIC and our fellow regulators undertook a series of actions that helped maintain stability in financial markets. In addition to providing flexibility for banks to work with their borrowers, we made many targeted, temporary regulatory changes to facilitate lending and other financial intermediation. We continue to monitor conditions and receive feedback from supervising institutions, and we will consider additional guidance as appropriate. As the FDIC responded to the immediate impact of the pandemic, we also focused on enhancing our resolution readiness in several ways. Although we entered the pandemic with a historically low number of bank failures, we recognize that the absence of failure could not last forever. Accordingly, the FDIC approved our resolution-related capabilities by, among other actions, centralizing our supervision and resolution activities for the largest banks, establishing a new approach to bank closing activities to help protect the health of our employees during the pandemic, and carrying out targeted engagement and capabilities testing with select firms on an as- needed basis. We are particularly mindful that minority and low- and moderate-income (LMI) communities have suffered disproportionately during this pandemic. Shaped by my personal experiences and guided by commitments to increasing financial inclusion in traditionally underserved communities, one of my priorities as FDIC Chairman has been expanding our engagement and collaboration in support of Minority Depository Institutions (MDIs). One of the options we are exploring is a framework that would match MDIs and CDFIs with investors interested in the particular challenges and opportunities facing these institutions and their communities. We are in the process of creating a vehicle through which investors' funds will be channeled to make investments in or with MDIs and CDFIs. We are still developing the details but expect to release more information in the near future. The FDIC is deeply committed to fostering a diverse workplace and an inclusive work environment. Although we are not yet satisfied with our progress or the pace of change, we have taken meaningful steps in furtherance of this goal and we will not stop. The racial, ethnic, and gender diversity of the FDIC workforce continues to steadily increase. At the end of 2019, minorities represented over 30 percent of the permanent workforce, and women accounted for approximately 45 percent. The FDIC has also increased diversity across our leadership. Minorities hold 22 percent of the management level positions, and women hold 39 percent, up from almost 16 percent and 30 percent, respectively, 10 years ago. Likewise, my senior leadership team comprises a diverse set of individuals. Notwithstanding, we know more needs to be done, and we are fully committed to doing it. As we consider additional ways to create a more inclusive banking system, we must recognize the tremendous benefits that financial innovation can deliver to consumers. Our recent biennial survey on household use of banking and financial services shows that individuals are increasingly moving to digital banking. To enable this evolution, we established an office of innovation, FDiTech, and began working on several initiatives. Notably, we recently sought feedback on a groundbreaking approach to facility technology partnerships within banks and fintechs which aims to reduce the cost and uncertainty associated with the introduction of new technology at an institution. Thank you again for the opportunity to testify today, and I look forward to your questions. [The prepared statement of Chair McWilliams can be found on page 112 of the appendix.] Chairwoman Waters. Thank you, Chair McWilliams. Vice Chairman Quarles, you are now recognized for 5 minutes to present your oral testimony. STATEMENT OF THE HONORABLE RANDAL K. QUARLES, VICE CHAIRMAN OF SUPERVISION, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM (FED) Mr. Quarles. Thank you. Thank you, Chairwoman Waters, Ranking Member McHenry, and members of the committee, for the opportunity to testify today on the Federal Reserve supervisory activities. My last appearance before this committee in May followed a period of historic financial stress. The emergence of COVID-19 and the measures taken in response added a deep strain of uncertainty to financial markets, which prompted a sharp and global flight from riskier, more volatile asset classes and a retreat to the safety of cash. That retreat demanded immediate, extraordinary, and concerted public intervention to ensure stability, restore calm, and see the nation through an unfolding crisis. The Federal Reserve's intervention spanned a wide range of intermediaries and markets, including the banking sector. Strengthened by a decade of improvements in capital, liquidity, and risk management, including the refinement and recalibration of the last 3 years, banking organizations became an important shelter from financial distress. Our goal was to ensure that this shelter stood fast, that banks could respond to the emergency and address consumer, business, and community needs without jeopardizing their own safety and soundness. The report accompanying my testimony lists these actions in detail, and we have extended several of them as the COVID event has continued. They include temporary adjustments to capital and reserve measures, compliance requirements. They include offsite examination activity. [inaudible] They clarify beyond doubt that safety and soundness are no impediment to working constructively with borrowers and other customers in times of strain. Together with monetary, financial stability, and fiscal actions, these regulatory measures helped calm the waters. The initial wave of market stress has passed, and the recovery has begun much sooner than expected. This speaks to the country's tenacity, ingenuity, and spirit in responding to even the greatest of shocks. The challenge we face now is distinct, formidable, and complex. The surprise of the COVID event is gone, replaced by a clearer view of its economic consequences. The burdens facing households and businesses are better understood, but they are no less significant, and they are not evenly borne. I am confident that we will work through them together, support those hardest hit, and ensure that our economic wounds do not become scars. The Federal Reserve remains committed to using our full range of tools to support the economy for as long as needed. A strong, resilient banking system is an essential element of such support. A durable recovery demands banks that lend actively, confront gains and losses honestly, withstand unexpected shocks, and help customers rebuild and adapt. Our task as supervisors is to ensure that the country's banks continue to meet that exacting standard. The Federal Reserve's earliest COVID-related guidance encouraging banks to work constructively with the borrowers was an important step toward this goal. Since then, working with our colleagues in other financial regulatory agencies, from principles to guide COVID-related credit accommodation through a clearer statement on Community Reinvestment Act consideration of COVID-related activities, to steps that make it easier for banks to participate in emergency lending programs. It also includes the use of flexibility in our stress testing apparatus to better understand the effects of the COVID event shock on the strength of banking organizations. As our report shows, that strength is still intact. Liquidity and capital remain high and, indeed, have increased at our largest banks over the course of the COVID event. Firms have sharply increased their reserves, setting aside resources today against possible losses tomorrow. Banks are well- positioned to serve as a bulwark against broader financial and economic stress. It is worth recognizing how things might have been different. This foundation would not exist after a once-in-a- century shock, if not for a decade of work by officials and the banks themselves to make banks stronger and more stable and to make banking supervision fairer, more efficient, and more transparent. Those values are not contingent only for an economic boom. They represent an ethic and a commitment to addressing the most pressing supervisory and regulatory issues in the most effective ways that are even more critical during a crisis. That ethic has steered the Federal Reserve through the last 7 months and will continue to guide us through the recovery. COVID-19 changed many aspects of the Federal Reserve's work. It also affirmed the values and priorities that remain the same, those that will continue to guide us in our support for the financial system, the economy, and the country long after the COVID event has passed. Thank you for your time, and I look forward to answering your questions. [The prepared statement of Vice Chairman Quarles can be found on page 130 of the appendix.] Chairwoman Waters. Thank you, Vice Chairman Quarles. Acting Comptroller Brooks, you are now recognized for 5 minutes to present your oral testimony. STATEMENT OF BRIAN P. BROOKS, ACTING COMPTROLLER OF THE CURRENCY, OFFICE OF THE COMPTROLLER OF THE CURRENCY (OCC) Mr. Brooks. Chairwoman Waters, Ranking Member McHenry, and members of the committee and staff, thank you so much for the opportunity to update you today on the OCC's work ensuring that the Federal banks operate in a safe, sound, and fair manner and remain sources of strength for their communities. Over the past 8 months, the OCC has supported the orderly function of our banking system through an extraordinary time. Fortunately, banks and savings associations entered this period with near historic high levels of capital and liquidity. Asset quality was strong, and the economy had enjoyed the longest expansion on record. And then, as part of the national response to COVID-19, economic activity was suspended. Regulators at this table collaborated to provide banks the flexibility necessary for them to use that strength to support their customers and to sustain economic activity. My testimony today will provide detail on the actions the agency has taken on this front. Now, today, we continue to monitor the effects of shutting down the economy. While banks remain sound, we see potential for troubled assets ahead in commercial and residential real estate, small business and consumer lending, and travel and hospitality sectors. Banks, particularly those with concentrations in those assets, must take a sober view of their risks and work with customers to the maximum extent possible consistent with safety and soundness. The recent OCC semiannual risk perspective highlights the credit, operational, and compliance risks in the system, which we will focus our supervisory efforts on in the months ahead. Prudent risk management today can avoid the need for more extreme loss mitigation tomorrow. Having said that, we also see reasons for cautious optimism about the future based on strong third quarter GDP growth, continuing reduction in unemployment, strong consumer and small business sentiment, and better-than- expected news about the near-term availability of effective COVID-19 vaccines. While the economy and banks clearly face uncertainty as to the length and depth of the pandemic's trough, I also want to highlight what gives me optimism for the future of banking and, frankly, for the future of the country. During the social unrest that followed the killing of George Floyd this summer, it became clear that the protesters were angry, among other reasons, because too many Americans have been left out of our national wealth creation engine for far too long. The OCC founded Project REACh for just this purpose, to convene bankers, civil rights leaders, innovators, and business people to promote full, fair, and equal participation in our economy. The Project is working to eliminate obstacles to credit for 45 million people with no usable credit score, to expand affordable housing for those who cannot afford high down- payment requirements, and to reinvigorate minority banks that serve often neglected communities. And we have now kicked off regional REACh efforts, including one serving the greater Los Angeles areas, Chairwoman Waters, that you and I both call home. And we have hosted events on access to capital and credit in places ranging from South Carolina to Colorado. I have been humbled by the momentum among the industry, community and civil rights advocates, and our staff. Indeed, Project REACh has become a movement to tear down barriers so that all may pursue their American Dream. Another reason for my optimism comes from innovators within banks and elsewhere who are excited about improving banking and financial services to consumers, businesses, and communities. We are seeing new products and better ways of delivering them and much more efficient ways of operating. Ultimately, this progress will benefit consumers and businesses as people have greater choice and more autonomy over their financial well- being. At the OCC, we believe that consumers, businesses, and the economy are best served when this innovation can occur within the banking system and the system is allowed to evolve as consumer preferences evolve. Now, we think this for several reasons. First, the banking system is among our most strictly regulated and most closely supervised industries. Those who fear that innovation may harm consumers should consider the possibility that innovation might be safer in a supervised environment than it is under the current, largely unsupervised one. The same is true for those focused on prudential risk. Over the last decade, it is clear that large market shares of lending and payments have migrated from the commercial banks into less-regulated shadow banks. This trend reduces our collective ability to spot and manage issues early on. And, of course, we should not underestimate the risk of a status quo in which incumbents seek protection from competition and, thus, delay the delivery of innovative financial services that are already available in other parts of the world. The OCC has been a leader in this area since coining the phrase, ``responsible innovation,'' in 2015. We remain committed to encouraging responsible efforts to deliver more choice and more economic opportunities in safe, sound, and fair ways within the Federal banking system to benefit consumers and businesses across the country. Thank you again for this opportunity. I am very proud to have served as Acting Comptroller of the Currency and to support the agency's important mission. I look forward to your questions. [The prepared statement of Acting Comptroller Brooks can be found on page 66 of the appendix.] Chairwoman Waters. Thank you very much. I will now recognize myself for 5 minutes for questions. First, let me just ask each of you about the deregulatory efforts that you have made during this pandemic, despite the fact that this committee specifically asked you not to do that. I won't go into all of the deregulations, but simply, I would like to ask each of you, would you commit to freezing these deregulatory actions? Let's go right down the row on this and ask each of you if you would agree to freeze the deregulatory actions that you have taken. We will start with Mr. Brooks. Mr. Brooks. Chairwoman Waters, thank you for the question. I guess I don't perceive what we have done at the OCC as particularly deregulatory. We have regulated a true lender in ways that solve the rent-a-charter problem by holding banks accountable for their marketplace lending partnerships. We have provided lists of community reinvestment activities to make clear which things will count. We have fined banks record numbers of dollars and fined individual bank executives in ways that have never been done before to hold them accountable. Chairwoman Waters. Okay. Reclaiming my time here, you are saying that no, you don't feel that you have done anything that is deregulatory. I hear that. Chair McWilliams, what about you? Ms. McWilliams. Chairwoman, I am afraid that you don't want us to stop, because some of the things that we have done actually have ensured that borrowers and consumers, especially low- and moderate-income people, can stay in their homes. We have done a number of things to either satisfy the role of Congress that you implemented through the CARES Act or to ensure that our regulated entities have an opportunity to work with their borrowers proactively and not have a repeat of the 2008 financial crisis. Chairwoman Waters. Okay. So, you are saying no, also. You don't feel that what you have done is deregulatory. Vice Chair Quarles? Mr. Quarles. Yes. The changes that we have made have been designed to ensure that the right incentives are in place to ensure we have a resilient financial system. And I think as we consider the resiliency of the financial system, we should be willing to do what is necessary to keep it safe and sound. Chairwoman Waters. Thank you. Chair Hood? Mr. Hood. Yes, ma'am. All of our efforts have been to provide regulatory relief and flexibility so credit unions can serve their members during the time of the pandemic. Every action I have taken to date is to do things such as providing the loan forbearance. In fact, credit unions have now made over 1.7 million loan forbearance loans to the amount of $55 billion. Chairwoman Waters. Okay. Thank you. If I may interrupt, you don't feel that you have done anything that is deregulatory, is that right? Mr. Hood. Only to aid the credit union member owners. Chairwoman Waters. Thank you very much. I want to just go now to Chair McWilliams. We talk a lot about diversity and inclusion, and I am very interested in what is happening with our small banks, some of the community banks. Is it true that we have banks that are basically closing down, they are leaving banking, or is that just a rumor? Ms. McWilliams. Chairwoman, when you say banks closing down and-- Chairwoman Waters. Community banks. Ms. McWilliams. Community banks. There has been a great consolidation trend for years now. And as you are probably aware, we lose about 200 to 220 community banks to mergers every year. So, yes, banks or community banking-- Chairwoman Waters. Of any of those banks that you described as having merged, have you had the opportunity to interact with Blacks or Latinx about bank ownership and acquisition of banks that are being merged? Ms. McWilliams. Yes, we have. And, actually, one of the key components of our MDI outreach efforts, in pursuit of our mandates to preserve and promote them, has been to look at the ways that would provide that an entity that is being sold, that is either failing or about to be sold-- Chairwoman Waters. Have you been involved in any acquisitions by MDIs or Latinx bankers? Ms. McWilliams. We are in constant discussions with our MDI banks-- Chairwoman Waters. Have you been successful at any? Do you know of any acquisitions that have been made by MDIs or Latinx bankers? Ms. McWilliams. Yes. Chairwoman Waters. Would you tell me which ones they are, please? We don't know of any, and I am really interested in this. Ms. McWilliams. I would be happy to provide you that information. I don't have the information in front of me, but I am in active discussions with a number of MDI banks to make sure that they have an opportunity to acquire failing MDI banks. Chairwoman Waters. That is my question, and if you have been successful, I want to know about it, because we are talking about wealth building and we are talking about opening up opportunities that have not been available in the financial system. And so, I want to know more about this and whether or not you actually have a program by which you will be outreaching to ensure that these opportunities are opening up to MDIs. So, I want to thank you very much. And I now recognize the ranking member of the committee, Mr. McHenry, for 5 minutes. Mr. McHenry. Thank you, Madam Chairwoman. And what I would like to first say to this group of regulators is that this committee has followed very closely your actions since this unprecedented pandemic has hit this country and the world. And I have great confidence that the actions that you have taken have made a very challenging situation, a very challenging health situation that has become a challenging economic situation, that because of your actions, we have been able to prevent a financial crisis. And without your concerted action, until the final moment that you are in your seats, the American people would be in a tougher position than they are currently in. So what I want to ask you to do and to commit to do is, to the fullness of your terms of office, that you do the business that you have set out to do to ensure the safety and soundness of institutions, that the American people can have confidence that their regulators are on the job, watching out for them, and taking every action necessary to prevent bad outcomes. And so I commend you for that action, but I also urge you to continue this good work. To that end, the work of the Federal Reserve has been foremost in this discussion. And so, Chair Quarles, I want to commend you for the actions of the Federal Reserve since March especially, but we also need to know this process going forward. And so, as I have mentioned before and raised with you before, we want a clear understanding of the path forward on the London Interbank Offered Rate (LIBOR). This is an important rate for a number of financial products, looking at over $200 trillion notional value for contracts, and we know that LIBOR is ending at the end of 2021. So can you give us some assurance about your process going forward? Mr. Quarles. Yes, I would be happy to do that. The issue that you raised, I think, is an important one from a stability point of view, which is that there are a lot of legacy contracts that current rely on LIBOR, but that we need to define a path forward for them after the end of 2021. The transition for new contracts is going pretty smoothly. The legacy contract is the big issue there. I think finding a way to allow those legacy contracts to continue for at least some period, to allow the bulk of those legacy contracts to mature on their existing terms without a significant change, would probably be the best way forward, and we are working on a method to do that. There are a variety of different ways one could do that, but I would expect over the next couple of months to be able to publicly define the way forward to address that. Mr. McHenry. Thank you, Vice Chair Quarles. And at this point, do you have a legislative request or a need for legislative action by the Congress? Mr. Quarles. I think that the ultimate transition will ultimately require some legislative element, but at this point, I think the answer would be no, because I think it's good to--I think what we want to try to do is find a way to allow those contracts to mature before we have a legislative solution for the so-called hard tail. Mr. McHenry. Yes. Thank you. Chair McWilliams, I want to commend you for the action you have taken to modernize the FDIC, to focus on financial innovation and to use technology to keep your people safe and secure, and also, our institutions safe and secure. Mr. Brooks, I want to commend you for the actions you have taken on OCC's true lender rulemaking to provide certainty and clarity on those partnerships that are very important for our current economy. Can you, Mr. Brooks, at the top line describe how that rule will work in practice and why it is a good thing? Mr. Brooks. Ranking Member McHenry, thanks for the question. Two quick top lines. First of all, the purpose of the rule is to redress what happened in light of the Madden rule, which reduced the availability of credit to low- and moderate- income Americans by as much as 64 percent. And so, allowing banks to leverage their balance sheets will solve that. We have also addressed the rent-a-charter problem by making clear that banks that do those partnerships are accountable for all consumer compliance obligations. Mr. McHenry. Thank you. Thanks for your testimony. Thank you all for being here or being wherever you are. Thanks so much. Chairwoman Waters. Thank you very much. Mrs. Maloney of New York, you are now recognized for 5 minutes. Mrs. Maloney. Thank you, Madam Chairwoman, and congratulations on your reelection, and to all of my colleagues, it is great to be back in business. My question is for FDIC Chairwoman McWilliams. The COVID crisis is a threat to our economy. It will not go away until we have a vaccine, sto we should be using every tool at our disposal to guarantee the safety of our banking system. During the Great Depression, over 400 banks failed, and one of the most important lessons we learned from that time was the need for banks to shore up sufficient capital to withstand severe economic downturns. And, Chairwoman Williams, my question for you is, given the positive correlation between economic downturns and bank failures, are you expecting an increase in bank failures at this time? Ms. McWilliams. Thank you for that question. The bottom line is that fortunately, and fortunately for me at this time, we entered the pandemic and the related financial crisis caused by the government shutdowns with banks very well-capitalized, with high liquidity levels, and the lowest number of banks on the problem bank list. Thus far this year, we have had four banks fail. Historically, when we look at our data, during good times, we have about five banks fail a year. So I would say we are on trend for just a normal year thus far, which surely shows the resiliency of the financial system as highlighted by Vice Chairman Quarles in his opening statement. We are grateful for the efforts of the banks to shore up their capital balances and liquidity during the good times, and we are certainly monitoring conditions on the ground to make sure that they can do what they need to do. But I also want to highlight that I am not sure that we would be in as good of a place as we are right now if we did not take a number of regulatory actions over the past few months to make sure that banks can stay in the business of banking and that, for example, loans that were modified for the purposes of the pandemic, that were performing before the pandemic, would not constitute troubled debt restructuring. And if I can just highlight briefly, during the 2008 crisis, the reason banks were not really eager to modify loans up front is because they weren't sure how the regulators were going to treat those loans, and they didn't want to have nonperforming loans and impaired debt on their books. So, it was imperative for us to act quickly and promptly to make sure that we have good banks that are serving their communities, that consumers can stay in their homes and that, frankly, the FDIC doesn't have to jump into action with more bank closures than absolutely necessary. Mrs. Maloney. Some countries have prohibited dividend payments to shield their banks. Do you believe that prohibiting dividend payments would help our banks shield them from failure, forcing them to hold onto more of their capital? Ms. McWilliams. Sure. That's a great question. And I will tell you, with respect to small banks, community banks, a lot of those banks are privately held. Their investors are friends and family. They are local farmers, schoolteachers, et cetera, who sit on the boards of those banks and actually have ownership in the banking system. So having a blunt cut instrument such as just across the board dividend, I would say, would probably hurt those communities and the investors in community banks. We have supervisory tools where we can manage dividend payouts if we are concerned about the bank's capital position, and we have certainly utilized those tools in the past as appropriate. Mrs. Maloney. I have a question for Vice Chair Quarles, if I have the time. Your latest stress test found that several banks could be at risk of reaching minimum capital levels. As a result, the Fed banned stock buybacks, but only limited dividend payments by the largest banks to safeguard their solvency. So given the continued uncertainty of, really, the crisis with COVID, do you think that the Fed should have prohibited dividend payments entirely? Mr. Quarles. During this period, given the capital conservation measures that we put in place, the capital positions of the largest banks have actually increased even while they have been taking record levels of provisions. And we are running stress tests currently in light of the events of the spring and the effects of that on bank balance sheets in order to determine at the granular bank level what we think the effects of potential [inaudible] losses might be. So, I think we have been in a pretty good position. I think, though, that events have demonstrated that the measures we have taken have been effective. Mrs. Maloney. I believe my time has expired, and I yield back. Thank you. Chairwoman Waters. Thank you very much. I now recognize Mr. Lucas for 5 minutes. If Mr. Lucas is not available, I will go to Mr. Posey for 5 minutes. Mr. Posey. Thank you very much, Madam Chairwoman. During times of stress for our financial institutions and markets, we have the obligation to temper safety and soundness so that our potential fears over an event like this pandemic will not goad us into adopting such stringent prudential standards that we exacerbate the stress. I have the same concerns related to the troubled debt restructuring and associated accounting standards during our recovery from the financial crisis. Madam Chairwoman, you and I co-sponsored a bill to address these concerns during the recovery from the financial crisis. As you know, the bill placed common-sense parameters around putting loan modifications, often called troubled debt restructuring, or TRD, into nonaccrual status. That status negatively impacts capital requirements and it pushes banks away from working with customers facing difficulties and more toward extreme solutions such as foreclosure. I was so pleased that this committee worked together in a bipartisan manner to mitigate the impacts of accounting practices on troubled debt restructuring in the CARES Act. We need to extend that relief for a while longer, though I have concerns about tying that extension to sweeping expansion of consumer forbearance for a wide variety of credit such as credit cards and installment loans. As we know, forbearance for one entity in the chain of financial transaction creates yet another potential liquidity crisis for subsequent people. And we have other bills here today, like a treatment of PPP loans, that I believe have merit. For Mr. Quarles, as I mentioned, there is legislation before the committee to extend the pandemic-related relaxation of accounting standards associated with the troubled debt restructuring. This provision was included in the CARES Act. The language allowed banks and credit unions to provide relief to consumers and businesses by temporarily removing the burdensome troubled debt restructuring classification requirement. Financial institutions that will actually take advantage of this provision will be required to provide forbearance to consumers for a wide variety of loans, including installment debt and credit cards. Small businesses will also be afforded forbearance for a wide array of loans. The bill would impose conditions of how the loan balances deferred in forbearance could be repaid. I am interested in your candid evaluation. What would be the first concerns about such forbearance, if any? Mr. Quarles. Thank you. Thanks for that question. I think the current forbearance provisions, as you know, obviously, will allow any changes that the adjustments were made before the end of this year be for whatever length that the bank and borrower would agree, so the forbearance doesn't really end at the end of this year. It is the ability to make new changes that ends at the end of this year. I do think that in general, it is good for us to move as promptly as possible to regular order where the challenges that are facing banks, given the position of their borrowers, are at least recognized. So at least what we are seeing right now is not a--as banks begin to understand the fact that the forbearance that is available under the law doesn't end at the end of the year, but simply that they must make their decisions by the end of the year. We aren't getting a lot of pressure, at least at the Federal Reserve, for that extension, but ultimately, that would be a decision for Congress. Mr. Posey. Thank you. Madam Chairwoman, I have a couple more questions, but by the time I ask the questions, there is not going to be time to answer them, so I will yield back the balance of my time. Chairwoman Waters. Ms. Velazquez, you are recognized for 5 minutes. If Ms. Velazquez is not available, we will go on to Mr. Luetkemeyer for 5 minutes. Mr. Luetkemeyer. Thank you, Madam Chairwoman. I would be willing to yield to Mr. Lucas, who is above me in ranking here, because I think he missed his mute button a while ago. If he has found his mute button, he can take the spot, and I will follow up in a moment. Chairwoman Waters. Thank you. Mr. Lucas, you are recognized for 5 minutes. Mr. Lucas? Mr. Luetkemeyer. Apparently, he hasn't found the mute button yet, but-- Chairwoman Waters. We will let him continue to look as we go on, Mr. Luetkemeyer. Mr. Luetkemeyer. Okay. Thank you very much. Thank you, Madam Chairwoman. Before I begin my questioning, I would like to applaud all of you, the regulators this morning, for proposing to codify the 2018 interagency statement on guidance and place a binding rule on the agencies that supervisory guidance does not have the force and effect of law. This has been something that I have consistently worked on in Congress, and I look forward to continuing to work with you all to draw a clear line between rule and guidance and what is enforceable and what is not. So I appreciate your attention to that and I look forward to continuing to work with you. To follow up on Mr. Posey's conversation with regards to troubled debt restructuring, I have a bill out there to do this as well. And I am very concerned that at the end of the year when we run out of--when the CARES Act sunsets, the TDR provision that is in there, that regulators will have minimal options to--nothing to point to legislatively or any sort of other law to say that they can take a different approach on this. I can tell you from discussing this with the banking industry folks and the credit union folks, that they are very concerned about having to rely on guidance, having to rely on something like that to make these decisions in order to give forbearance to their customers, whether it be for home loans, car loans, or their business loans. Chair McWilliams, you and I have talked about this at length, but just to get you on record here with what we are talking about, where are you and what are your plans with regards to TDR guidance and how you want to work with your set of regulators and the people they regulate, which are the banks, and hopefully their customers will be impacted by those decisions? Ms. McWilliams. Thank you. Thank you for that question. As you know from our discussions back in March, I was really concerned about loans not being modified and banks being concerned about having impaired debt and driven by the examples from 2008 where some of these loans, once modified, were treated as impaired debt or troubled debt restructuring. They are still performing now 10 years later, 20 years later, but they are still on the books as troubled debt, which doesn't bode well for the bank. So driven by that, we have worked with--amongst these regulatory bodies here at the table, I would say, but on the screen--we have worked with the financial accounting standards boards to make sure that our banks can modify loans that were performing prior to the pandemic and not have TDRs on the books. And then subsequently, Congress enacted similar provisions in the CARES Act. So I would say that is probably one of the main reasons that you have seen homeowners stay in their homes and small businesses have access to credit during very, very tumultuous months in March and April. And we are certainly open to considering what additional actions Congress may come up with to make sure that we can enable banks to work with their borrowers. Mr. Luetkemeyer. Thank you for that. I can assure you that the institutions desperately need to have certainty on this on forbearance, because if they are not able to get it from the regulators, it is going to be very difficult for them to give it to their customers. So, we thank you for that. Chairman Hood, you had an article, I think last week in your Credit Union Times magazine, with regards to Current Expected Credit Losses (CECL). And I appreciate that position you took, again, indicating that CECL is going to be detrimental to the credit union folks. It needs to be done away with. It is going to be procyclical. And I know, Mr. Quarles, you and I have talked about this as well, quite a bit. And we are three quarters into the year here now with CECL data. I know the bigger banks, at the very beginning of the year, actually had to roll over another 30 to 35 percent into the reserves, and while that is fine, eventually that stresses out the income. So would you like to comment on it just a little bit, please? Mr. Hood. As you know, we have immediately, as a result of the COVID event, extended the transition periods for smaller banks. They will be insulated from the capital effects of CECL for 2 years, and then a 3-year phasing will begin. I do think that gives us the ability to understand what has happened and what the implications of CECL are, particularly as we see it operating with the larger banks, and we can then make any permanent adjustments that we think are necessary. Mr. Luetkemeyer. I see my time is up. Thank you very much. I appreciate Chairman Hood's position on it as well. I yield back. Chairwoman Waters. I now recognize Mr. Sherman for 5 minutes. Mr. Sherman. Thank you. I have a couple of comments. Ranking Member Luetkemeyer said in his statement that our economy grew 33 percent. The more accurate way to say that is that we grew 8 percent during the third quarter. I don't know if you can extrapolate that. And, of course, that was only a halfway bounceback from a terrible second quarter. This crisis continues. During this crisis, it makes sense to have limits on the stock buybacks and the dividends paid by large banks. That is why I wrote you, Mr. Quarles, back in early March, urging that you prohibit dividends and stock repurchases by megabanks during this crisis. You have, in fact, taken some action, and particularly on stock buybacks, and I hope that we can count on you to continue to limit stock buybacks and dividends as well until this crisis is over so that we are not confronted with the need to or the-- at least the asserted need to bail out huge financial institutions. We have talked about the troubled debt restructuring relief, which allows banks to restructure their debt to aid consumers and small businesses without being penalized. This CARES Act provision expires at the end of this year, though we have heard testimony that it could be applied next year to forbearance agreed to this year, that there may be forbearance agreed to next year. So I would ask, Mr. Brooks, do you have the authority to extend this loan modification flexibility for loan modifications made during the 2021 part of this COVID crisis, and if you do, do you plan to exercise that authority? Mr. Brooks. Congressman Sherman, thank you for that question. These are really important issues. And what I would tell you is, there are certain aspects of this where without an extension of the CARES Act, we would have statutory inability to do certain things, and that is because we are statutorily required to hold banks accountable for gap financial reporting. On the other hand, we have significant flexibility to protect banks from the impact of TDR treatment under various categories, and I think we have communicated some of these to your colleagues in writing. These include things, for example, like determining what TDR impact is immaterial, which is then excluded from the gap TDR standards. It also includes things like making determinations about when banks would be required to refile a call report or not, and so, there are a number of things we can do to mitigate effects. Mr. Sherman. I hope very much that we will pass additional legislation. I know that even before we passed legislation, you had a regulation project, which means you had the authority before we acted. Hopefully you will have that authority after our actions are no longer effective, unless, of course, we are able to extend them, which, I hope, the wisdom will perhaps arise in the United States Senate. Anything is possible. As to LIBOR, we have $2 trillion of legacy LIBOR. Most of those instruments do not provide a replacement rate to be used in calculating the amount of interest payable once LIBOR is no longer published at the end of next year. Some of those instruments provide that the lender gets to pick the rate, which would be an outrage if you are the borrower, and all of a sudden some new rate is imposed on you, and that is why the National Consumer Law Center, the Student Borrower Protection Group, et cetera, are very concerned about this as is, I think, the financial services community. I know there is some discussion as to whether legislation is necessary. I clearly think it is, in that I don't know how, if the instrument does not indicate how interest is to be calculated, anything other than legislation could solve that problem. I have put forward a discussion draft, and it reflects the suggestions of the Alternative Reference Rates Committee. What would be the consequence, Mr. Quarles, of simply not having any regulatory or legislative solution? Would this result in an awful lot of class-action lawsuits, et cetera? Mr. Quarles. If there were no solution at all, yes, when we--when LIBOR stops, there would be significant disruption. I think that there is a way, as I indicated in my answer to Mr. McHenry, that we can combine current measures that allow the bulk of the existing contracts to mature on their existing terms and then save legislation for the hard tail, when we have had more time to think about it. That may work best. Chairwoman Waters. The gentleman's time has expired. Mr. Sherman. I think we need to act on it. I yield back. Chairwoman Waters. Thank you. I will now recognize Mr. Meeks for 5 minutes. Mr. Meeks. Thank you, Madam Chairwoman. First, I want to thank you, Madam Chairwoman, as well as Ranking Member McHenry, for your active engagement on the bills that I drafted, which I believe were some of the most impactful bills that supported MDIs and CDFIs in a generation. Similarly, I want to thank, with an expressed gratitude, each of the regulatory agencies present here today who offered constructive input into these bills. We haven't always agreed, and, in fact, we have had some deep, deep, deep disagreements. But I believe with conviction that these bills matter, and that the collaborative approach is critical as we seek to redress structural discrimination and systemic inequalities that hold back too many families across our country. MDIs and CDFIs are essential pillars to tackling the systemic problems that we seek to solve. Chairwoman McWilliams, would you agree that MDIs and CDFIs are key pillars to addressing the issues of inequality and discrimination in our banking system? And also, I guess, would you thereby commit that the FDIC would work actively to implement the provisions of this legislation if signed into law? Ms. McWilliams. Thank you for that question. I will say that community banks serve their communities. That is why they are called community banks. But, in particular, minority depository institutions are at the very forefront of serving their communities, and those communities happen to be low- and moderate-income people and people of color. So I would say that they are not just pillars in their community, but in many cases, they are the only vehicle to get financial services for the communities that have traditionally been underserved and underrepresented in the banking system. So we are working very hard to make sure that those banks can sustain themselves, that we do what we can at the FDIC to make sure that they have regulatory flexibility. And the creation of the fund that I briefly discussed in the opening statement would hopefully help MDIs and CDFIs get additional capital. They really need capital. And so, we thought about, we can do a number of things on the regulatory side, but they seem to be getting deposits from known MDIs, they seem to be getting some assistance on the technical side, but they really need capital. So the idea behind this fund is to provide resources and have others invest into MDIs and CDFIs so that they can continue to serve their communities. Mr. Meeks. I couldn't agree with you more. And I think that your initiatives, which are supporting aspiring minority investors in MDIs so that they can strengthen their capacity, but it is also the case to strengthen the capacity of MDIs to acquire branches or operations of failing institutions. Now, I think this is key, because without de novo banks, we are on a path to the disappearance of minority banks, which is what I am afraid of, because I fear that minority banks and MDI investors are being steered solely to the most challenging markets or failing institutions. Can you elaborate a little bit more on how we can expand the number of de novo minority banks and support them in expanding and achieving scale? Because we see the numbers dwindling, and even as they merge, they dwindle more so that there will be less communities or less banks that are available throughout the United States of America. So what can we do to expand, so that more MDIs are created? Ms. McWilliams. That is a great question. And really, your question has two components. One is, what can we do to make sure that the failing banks, or the branches that are being sold off MDI banks go to MDIs, so that those communities continue to be served by MDIs? And I ran a little bit out of time when Chairwoman Waters asked the question, but we have changed the way that MDIs can bid and give technical assistance on failing MDIs so that they have additional time, they have 2 extra weeks, when we open up the books of the failing bank only to MDIs, while known MDIs have to wait for their time, 2 weeks later. But we want to give them that advantage, that window of time for them to analyze and prepare bids for the failing MDI, which, frankly, is going to result in more MDIs that are failing or selling partially. Their businesses are offered an opportunity to go to other MDIs. On the de novo front, I couldn't agree more with you. We need more new banks, and, frankly, some of these communities, rural communities in particular, and MDIs, there just aren't enough of them. And, so, we have done a number of things at the FDIC to ensure that we have changed the way that we process and approve de novo applications for deposit insurance, so that there is an increased ability in the agility of investors and the organizers to have new banks. I would be happy to give you more information in detail, as I understand our time here may be up, but thank you for that question. Mr. Meeks. Thank you. I look forward to following up with you. Ms. McWilliams. Thank you. Chairwoman Waters. Mr. Lucas is recognized for 5 minutes. Mr. Lucas. Let's try one more time, Madam Chairwoman. Can you hear my voice? Chairwoman Waters. Okay. Mr. Lucas, are you available for your 5 minutes? Mr. Lucas. Yes, ma'am. If you can hear me, I am available. Chairwoman Waters. Okay. You are recognized. Mr. Lucas. Thank you, Madam Chairwoman. PPP is a very important program in my district, and I think it is very important to the survival of all businesses across this great country. And throughout the course of the pandemic, the banking system has served as a source of strength and a lifeline for struggling businesses across the country. And those banks have played a critical role in supporting small businesses through that Paycheck Protection Program distributing more than $0.5 billion. As a result, many banks are at risk of crossing asset-based regulatory thresholds. What discretionary authorities do the Federal Reserve, the FDIC, and the OCC have to ensure that banks do not face additional regulatory burdens as a result of doing the important thing of participating in PPP? I first turn to you, Vice Chairman Quarles, and then Chairman McWilliams, and then Comptroller Brooks, please, for your observations. Mr. Quarles. Thank you, and thanks for that question. Yes, we have been looking at that issue. I think you are exactly right. The various thresholds for the imposition of various regulatory measures exist for what are intended to be sort of durable and permanent changes in the status of a bank and temporary expansion of their positions, particularly in a time of stress and when they are supporting their customers. I think we need to look at how to address that. We do have the ability to provide temporary exemptions for most of these, and we are considering doing that. Ms. McWilliams. And I would just add to that, to the extent that the FDIC has sole authority over some of these things, we have already acted, and we will continue to act. I would say that it shows that the financial system has served as a source of strength. The fact that over $1 trillion of new deposits have flocked to banks for each quarter since the beginning of the year in Q1 and Q2--we haven't gotten the data yet from Q3, and as soon as we have it completed, we will analyze it and provide it to the public. But we are talking about over $2 trillion. And so what we have done at the FDIC is exempt from the deposit assessment any assets that have come to banks by virtue of their originations of the PPP loans through the Fed Facility. And we will continue to work with our fellow regulators to continue to do so. Mr. Lucas. Absolutely. Comptroller? Mr. Brooks. Congressman, thank you for that question. I guess, the other examples I would add on to what has already been said are, first of all, we made changes in the way that the supplemental leverage ratio was calculated, specifically to make it easier for banks to not have capital impacts of these kinds of things. And in addition to that, there is ongoing interagency work across our three agencies to make sure that regulatory burdens that get tripped at different asset thresholds starting at $500 million, get a temporary exclusion of these kinds of assets so that banks below $10 billion don't find themselves in a harder regulatory climate. We haven't rolled those out yet, but we are hard at work on that at the staff level, and I expect we will roll that out before the end of the year. Mr. Lucas. Ever so briefly, Chairman Hood, can you speak to the effect of PPP loans on the credit union balance sheets? Mr. Brooks. Yes. All of the PPP loans receive a zero- percent risk rating in calculating the net worth. And I would also add that we, by statute, could only assess Share Insurance Fund premiums based on credit union insured shares and not assets, so therefore, they don't have an impact on the balance sheets as well. And in addition, credit unions originated over 171,000 PPP loans, so I am glad that we, as a board, were able to make those provisions. Mr. Lucas. Thank you, Chairman. And I want to thank the chairwoman for her indulgence, and to thank Ranking Member Luetkemeyer for his efforts to help me as I worked through my technical issues. I would offer one final thought, and that is, to all of my colleagues, be healthy, and be safe. While some of my children may think I was around for the 1930 election, on election night the Republicans had 218 seats, a majority. By the time Congress organized in March, through deaths and special elections, the Democrats had a 219-seat majority. If a podcast of a nonpartisan news source was correct that I listened to this morning, and the difference will be three seats, we are in that kind of an environment, 1930 all over again. Just a thought to my friends in the Majority and the Minority. I yield back, Madam Chairwoman. Chairwoman Waters. Thank you very much, and we will count on those three seats to be there when we need them. Mr. Clay, you are now recognized for 5 minutes. Mr. Clay. Thank you, Madam Chairwoman. And let me say that 80 years ago was a little while, or 90 years ago was a little while for Mr. Lucas and me. But my first question is for Vice Chair Quarles. With coronavirus cases surging this fall, our economy is still in a precarious position. Moody's projects that default rates for corporations could rise to as much as 15 percent next quarter. States and cities are facing estimated budget shortfalls of $1 trillion, and New York City recently saw its debt downgraded. All of this creates the possibility that financial markets will be very volatile, and we may see a return to the disruption that we saw in the municipal bond market in March. With all of this in mind, do you believe it would be appropriate to eliminate the Municipal Liquidity Facility at the end of this year? Mr. Quarles. The data that you have provided are clearly correct, and I agree with that. We are not out of the woods on the [inaudible] of the economy. The economy has been coming back more quickly than we expected, but the unemployment rate is still high. There are still a lot of burdens on small businesses. So we are looking very closely at what the acquisition ought to be with respect to all of the Facilities, including the Municipal Facility, at the end of this year. We haven't come to a decision yet. The situation continues to evolve, and we will make that decision towards the end of the year, but we are very mindful of the facts you have cited. Mr. Clay. What about the Main Street lending program? Is that in the same precarious position or-- Mr. Quarles. All of the Facilities will expire at the end of this year, unless it is ended [inaudible]. I think it is true for all of them, certainly the [inaudible]. And so, we are looking at all of them, as to this question of whether they should be extended or not, and we are very mindful of the current environment. Mr. Clay. Are small businesses out of the woods yet, or do we still have some concerns? Mr. Quarles. No, I think there is certainly reason to be concerned about the pressures on small businesses. They have performed better--the stimulus that was provided in the spring, both from the Fed and from the Treasury, has been longer lasting than expected, but obviously, it is not going to last forever. I think that households are probably in better shape than small businesses, as you look at the economic performance currently. So, again, those are issues that we are looking at. Mr. Clay. Thanks for your response. Mr. Hood, can you tell us what your agency is doing--and this is a follow-up to Mr. Sherman's question--to encourage your credit unions to do all that they can to help consumers and small business owners that need forbearance on their obligations? Mr. Hood. Credit unions have a long history, for almost a century, Representative Clay, of helping their member owners during times of adversity. We are encouraging our credit unions to do just that. I'm very proud of the fact that they have, to date, already been able to provide over 1.7 million forbearances, up to a total amount of $55 billion. We continue to let them also know that in addition to our encouragement to help their member owners, that they will not have any of these actions held against them when our examiners come to do their examinations in the year ahead. That gives the credit unions great certainty in knowing that they will not be penalized for taking prudent and pragmatic approaches to helping their member owners survive this challenging environment. Mr. Clay. Thank you for that response. Ms. McWilliams, is FDIC--are they doing anything to encourage your institutions to help small business owners and families with their forbearance obligations? Ms. McWilliams. Absolutely. We have done a number of things to encourage our financial institutions to work with their borrowers, and we have instructed our examiners to show utmost flexibility when they are looking at the books of these banks for the next exam. We have done a number of things to make sure that the PPP loans, as we discussed earlier, get processed for small businesses. We have issued a statement on the use of alternative data, which should help small businesses that usually have trouble getting traditional credit reporting metrics, et cetera. And I am happy to provide you additional information on what we have done. Mr. Clay. I see my time has expired, Madam Chairwoman, and I thank the witnesses for their responses. Chairwoman Waters. Thank you very much. Mr. Barr, you are recognized for 5 minutes. Mr. Barr. Thank you, Madam Chairwoman. It's good to see all of my colleagues, and I look forward to seeing all of you in person next week. Chair McWilliams, according to a recent study by the FDIC, citizens in rural communities are much more likely than people in urban or suburban areas to visit bank branches for their financial needs. Unfortunately, those branches are becoming scarce in rural communities across the country. A recent Fed study found that a total of 794 rural counties lost a combined 1,553 bank branches over the last 8 years, a 14-percent decline. And I worry that this decline has only accelerated as a result of the pandemic. And while more and more people nationwide are turning to online banking and mobile banking, this trend is slower among the rural population because of a diminishing number of not only bank branches, but also the lack of adequate broadband internet, which reduces their access to safe and reliable banking services. I have introduced bills to combat both of these issues, but the problems are exacerbated by the pandemic. So, Chair McWilliams, given this data, how has the pandemic affected rural populations' access to banking services compared to their urban and suburban counterparts? And what can Congress do to ensure rural populations aren't cut off from the banking system? Ms. McWilliams. It is an excellent question, Congressman, and, frankly, it is a question that we have struggled with for some time, recognizing that there is rural depopulation as more of the, I would say, younger folks are moving to urban areas where there are more jobs. And I have done extensive outreach with our rural bankers to make sure I understand what is going on in those communities. Frankly, we don't have good metrics yet on the impact of the pandemic on the rural bank branches and banking services. We are hoping to do that postmortem, when we are past the dire straits. But I would say that I have heard anecdotally that rural communities, in particular, have been hard-hit, not only by the pandemic itself, but that the economic shutdowns have affected them disproportionately, because there is a smaller number of businesses operating in those communities per capita. So when those businesses close, fewer people are able to get the benefit of being able to visit that business, and the ability of the workforce to get paid. So I would say that anything that Congress can do to help rural communities in their time of need would be welcome, in the banking sector in particular. We will continue monitoring where we have branch closures. We will continue thinking about innovation and how technology and innovation can serve those communities, especially in areas where there is a single bank branch or no branch at all. And we certainly think there is an opportunity for the Community Reinvestment Act to focus on these issues, as was done in the proposal that the FDIC joined the OCC on. And certainly, with broadband issues, we have highlighted that there should be CRA credit given for the broadband access expansion in rural communities so that banks know this, as well. Mr. Barr. Yes, that is a great idea, Chair McWilliams. And I noted Chairman Meeks' interest in the de novo charter issue. I want to work with him in a bipartisan way. Maybe we can combine my interest in rural banks and his interest in minority depository institutions, and do some good for all of these banking deserts. Acting Comptroller Brooks, you and I have discussed this topic at length. I look forward to welcoming you to Kentucky next month to discuss access to capital in rural areas with community lenders and lenders in my district. How have the OCC's efforts, since the onset of the pandemic, including the updated CRA, attempted to mitigate the negative impacts of COVID on rural communities? Mr. Brooks. Congressman, thank you for the question. And as a two-time Kentucky Colonel, I am excited to come home to the Bluegrass State and do that event with you, so thank you for the invitation. I would say there are two things that we can do together on this to make an impact quickly. The first is picking up on what Chairman McWilliams just noted, and that is, one of the main points of our CRA reform was to make lending and investment in rural communities a more attractive financial proposition for banks. And so, what we did in the CRA reform that had never been done before, is we allowed banks to count loans made in small family-farming communities toward their CRA obligations, regardless of whether those areas were in their geographic assessment areas. So all of a sudden, we have used regulatory power to make those loans more economically attractive to banks that have ignored those communities for far too long. And then the second thing, as you and I talked about, is it has simply taken too long to approve any kind of bank charter over the last 10 years, whether it is de novo in rural America, whether it is an MDI in an inner city somewhere or any other kind of bank. And so, one of the things we have done inside the OCC in the last 6 months is to develop a new process designed to cut the timeline for getting bank charters in half from an average of about 18 months to an average of about 9 months. Once we can do that, I think you will find that organizers of banks in small-town Kentucky will have a much easier time seeing an end date for that and getting it across the line. Mr. Barr. Thank you. My time has expired. I look forward to seeing you in Kentucky next month. Mr. Brooks. Thank you. Mr. Barr. I yield back. Chairwoman Waters. Thank you. I now recognize Mr. Green for 5 minutes. Mr. Green. Thank you, Madam Chairwoman, and thank you also, Mr. Ranking Member. I would like to visit with Mr. Brooks for just a moment. Mr. Brooks, you have your Project REACh, and within Project REACh, you have an alternative credit-scoring initiative. With reference to this initiative, I have some information indicating that you have said that you find promise in factors such as, do other people in your ecosystem or family have homes. I am curious as to how this will aid a person in paying bills. Could you kindly give me a response? Mr. Brooks. Sure. Congressman, there is nothing in Project REACh remotely about that. I have been asked questions in media events about the way that artificial intelligence in the future could be used to assess people's creditworthiness, and I have speculated that there are unknown factors, social factors and others that might be predictive. Project REACh has nothing to do with that. What we are looking at in Project REACh is the inclusion of rent payments, utility payments, and bank cash flow data as a way of including people in the credit system and, especially in the wealth- building system where they have been excluded for years. And I would just comment that of the 45 million Americans who don't have a credit score, Blacks are about 10 times as likely as Whites relative to their proportion of the population to not have a credit score. So we think finding a way to predict creditworthiness, particularly for African Americans, is one of the most important things we are doing at the OCC today. Mr. Green. Thank you very much. I am pleased to have you clarify, and sometimes people do make mistakes in reporting on this. I have, on many occasions, had this happen to me. I am also very pleased to hear you mention rental payments. Would you also include light bills, gas bills, phone bills? All of these things, if they are paid timely, would be indicative of a person's ability to not only be responsible, but also to meet obligations. Your thoughts? Mr. Brooks. Absolutely. This is an issue I have been working on for 25 years in my career, and it is a travesty that it has taken us this long to realize that a person's payment of a recurring obligation is predictive of their likelihood of paying a mortgage. So we need to fix this, and I think it is easier than people thought. I think we are going to be able to fix this quicker than people would believe. Mr. Green. My hope is that you will get it repaired as quickly as possible, since you seem to have a good sense of what it is all about, and I appreciate it greatly. I have some legislation, H.R. 123. It is styled the, ``Alternative Data for Additional Credit FHA Pilot Program Reauthorization Act.'' And I would like to commend it to you. I would like to get this to you for your perusal, because I am interested in your input. Would you allow me to do so, and I will see if I can get the appropriate person on your team to get this to you? Mr. Brooks. Congressman, I wish you would, and I would love to talk to you about that personally when you have an opportunity. Mr. Green. I promise you, we will have that conversation and it means a lot to me. Now, let me go on to the MDIs, the minority depository institutions, if I may. I make it my business to try to understand what is happening with them, and a lot of what is happening with them is the lack of capital. It is true. But also, they have very small staffs, and when the OCC comes in to do what you normally do in terms of testing, it takes up a lot of the time that they have. I am really interested in finding out how we can streamline this process so that it doesn't take up all of the time of the few people that they have who are having a hands-on experience with making the loans, so that they can stay in business while you are there doing what you do as a regulator? Mr. Brooks. This is a real conundrum, and I think there are two or three different prongs to the solutions. The first is, let's just talk about their small staffs for a moment. That is absolutely one of the reasons that MDIs fail at a rate far exceeding the rate of normal banks. And that is why in our MDI component of Project REACh, one of the issues we have asked big banks to pledge as part of their participation is not only that they will fund capital inside of these institutions, but that they will also do management rotations and exchange programs so that big banks can send some of their employees to work inside of MDIs, not only so they can learn about MDIs, but so that they can provide boots on the ground in a way that they don't have today. That is a critical component of success. The second thing has to do with, it is far too hard for banks and especially small banks to onboard technology solutions to outsource some of the functions that they now do manually. We have seen this as an issue in our vendor management guidance where it takes forever for banks to do that, so we will make that easier as well. Mr. Green. My time is up. I have another question, but, Madam Chairwoman, I do thank you for your kindness, and I yield back. Chairwoman Waters. You are very welcome. Mr. Hill is now recognized for 5 minutes. Mr. Hill. Thank you, Madam Chairwoman. My best wishes to all of my colleagues. I look forward to being with you next week, and thanks for this excellent panel on a very timely set of topics. Mr. Quarles, let me start with you and talk about Central Bank digital currency, not something in your bailiwick per se, but very important to financial services and the regulated side of our sector, as well as our economy and American competitiveness. Dr. Bill Foster and I wrote to Chairman Powell back in 2019 about, is the Fed considering a digital dollar, and we got a note back from Chairman Powell about a month later saying, ``Not really.'' But since that time, Fed Governor Brainard and others have become very active in thinking through the idea of a digital dollar, and, of course, your colleagues around the world are heavily focused on this. Could you give us an update of what changed? Why is the Fed now recognizing that a digital dollar is an appropriate priority for the Central Bank? Mr. Quarles. I think it would be accurate to say that understanding the implications of Central Bank digital currency is something that we have always been focused on at the Fed. It is fair to say that focus has increased over the course of last year. It has increased internationally. I think we have seen with some of the proposals from a variety of quarters for different types of payment systems that have raised some regulatory and supervisory issues internationally, that has put a premium on our tending to our own payment system, and a Central Bank digital currency could be a part of that solution. So, we are actively engaged in understanding this. I still think it would be premature to say that we believe that this is a solution that the United States would need to implement. We are doing a lot of research. We are weighing the pros and cons. We have pilot projects in place. And the international study of this is picking up as well. The Financial Stability Board (FSB) will also be looking at this. But this is still in the early stages. It is a very important issue. But I wouldn't say yet we have changed our stance, and now believe that it is something that the United States needs and it is a question of when. Mr. Hill. I certainly agree it is not imminent, but it is certainly a matter of national security as the world preserves currency, that we consider it. And I commend you for the work that your team is doing with MIT. I think that kind of research is important. But I do believe that this is a critical element for American competitiveness in the years ahead, and I want to urge on the work of the Fed's team. Let me switch gears to my friend from Missouri, Representative Clay's, line of questioning about the Section 13(3) Facilities and the use of the Treasury's Exchange Stabilization Fund. I heard your answer, but I just want to be clear, so let me ask it a different way: Will the Board of Governors and the Treasury Secretary ask Congress, by some date here just in the next few days, for legislative authority to extend the CARES Act exchange stabilization funding? Mr. Quarles. That is not something that we have decided yet, but we are actively considering the pros and cons of that. Mr. Hill. Do you think that the Fed and the Treasury have adequate resources since the economy is reopening, and there has been very little significant uptick since the height of the crisis back in March on those Facilities, do you think you have sufficient resources under existing 13(3) powers, and the Fed with their existing non-CARES Exchange Stabilization Fund? Do you think that could be sufficient as you look at 2021? Mr. Quarles. We don't need new congressional authority to extend the Facilities. It is an existing law that we can extend them. And I am sure you are all aware that there are significant unused resources currently for the Facilities they have. They have served a very useful purpose, but principally as a backstop to private sector activity. But it really would be, I think, a decision for Congress whether those amounts should be supplemented. Mr. Hill. I look forward to following up with you on this. Thanks for your time. I appreciate the panel. Thank you, Madam Chairwoman. I yield back. Chairwoman Waters. Thank you. And I will now recognize Mr. Cleaver for 5 minutes. Mr. Cleaver. Thank you, Madam Chairwoman. And I would like to just say how pleased I am that you will be the Chair of this committee for another 2 years. But let me go on and follow through on some questions that actually, Mr. Clay, and I think, Mr. Green, already spoke of. But, Ms. McWilliams, thank you for your willingness to serve our country, first and foremost. And some of you will be going on after January 20th in your positions. There is some overlap. And you are one, Ms. McWilliams. Before I left my apartment here in Washington this morning, we looked at the cases of COVID around the country, and I looked at the midwest, where I live in, Kansas City, Missouri, and Missouri and Kansas are both blood red in terms of the new cases. It is frightening. I have just been meeting with our hospitals, trying to figure out if we need to prepare for field hospitaling in our City. So, it is a big issue. And we had over 700,000 people file for unemployment. And based on conversations with Fed officials, I understand that unemployment declines may represent people completely dropping out of the workforce. So when you consider all of these things, and how we need to have a strong fight against COVID and trying to also recover the economy, are you involved in any way at this point in some kind of engagement with the Biden-Harris transition team so that the FDIC can play its historic role, have it continue without any disruption? Ms. McWilliams. Congressman Cleaver, thank you for your kind words, and I am grateful for your service as well, and I look forward to seeing you in the next Congress. But I will say that we have abided by all of the requirements of government agencies that are imposed on us, and we have certainly engaged to the extent that is feasible and possible with planning, et cetera, for the new Administration starting in January. I have not had any discussions with the Biden transition team. Mr. Cleaver. Okay. I am troubled by the fact that--we need to have a seamless move in some of these important areas, and, of course, the FDIC is one of those critically important institutions. Let me ask you, are you preparing for a transition in terms of being able to present the new Administration with information that would allow for the seamless transition that I think all Americans, regardless of their political stripe, would like to see? I don't want you to ignore--I am a little frustrated because I am not sure I understood what you just said. Are you preparing for the transition? Let me just ask you that. Ms. McWilliams. I can assure you, Congressman, that any transition to the new Administration is going to be seamless. None of our critical functions are going to be affected. We stand ready to work with whomever is in the White House come January, and you have my commitment that I will work with whomever is on my board, and I intend--I will even share this with you, I intend to fulfill the remainder of my term. Mr. Cleaver. Okay. Let me move on. Mr. Quarles, let me follow up on something that my long-time friend and colleague, whom I will miss dearly, William Lacy Clay, with issues that he raised earlier about expanding the lending programs for the Federal Reserve and Treasury. I am a former mayor, and so, I have always--oh, my goodness. I guess my time is up. I'm sorry. Thank you, Madam Chairwoman. My time expired. I heard the beep, so-- Chairwoman Waters. Yes, your time has expired, Mr. Cleaver. Thank you very much. Mr. Emmer, you are now recognized for 5 minutes. Is Mr. Emmer available? If not, we will go to Mr. Loudermilk of Georgia for 5 minutes. You are recognized. Mr. Loudermilk? Is Mr. Loudermilk on the platform? If not, we will go to Mr. Mooney for 5 minutes. If Mr. Mooney is not available, we will go to Mr. Davidson for 5 minutes. Mr. Davidson. Thank you, Madam Chairwoman. And I thank our guests for your work in this tough field, and really a period that has seen some important steps by the people represented here today. So, without spending much time, I want to get to as many as I can. Acting Comptroller Brooks, I want to commend you for the work you have done promoting innovation at the OCC, particularly within the digital asset space. I am particularly encouraged by the OCC's July interpretive letter related to banks being able to provide custody services for digital assets, especially focused on holding the unique cryptographic keys. I appreciate the approach, and it echoes custody language in my bipartisan bill, the Token Taxonomy Act. Action by the OCC was much-needed, especially as States such as Wyoming, have already provided legal clarity, for example with the special purpose charter for Kraken Financial. My main concern within this space is that we do not have sufficient legislative clarity and regulatory clarity that will enable digital assets to truly be adopted and to provide the safeguards that markets and consumers and investors need. Do you believe that digital assets could benefit from the certainty that comes from legislation signed into law? In particular, could you address this with respect to the custody issue? Mr. Brooks. First of all, Congressman, thank you for the question, and I have always appreciated your deep engagement on these issues going back many years together. What I would tell you is, on the custody side, I think that clarity around what constitutes a qualified custodian and what assets are permitted to be custody would be a good thing. And I think as you noted in your Token Taxonomy Act, and which some companion legislation kicking around has also recognized, there is a lack of securities law clarity that needs legislation. At the same time, what we have concluded at the OCC, and this is work that began long before I got here, is that digital assets are analogous to other kinds of assets that have entered the system over the years and that the banking system normally has been the vehicle for transmitting that stuff across the system. And so, picking up on a discussion that Congressman Hill and Vice Chair Quarles had just a few minutes ago, your basic view is that blockchains are essentially private payment networks. There are other private payment networks in the world, like the Automated Clearing House (ACH) system. That is a private payment network. It is just owned by a very small number of big banks, and it is only open to banks, versus blockchains are payment systems that anybody can join, right. They are open for everyone. They are free and equal to everyone, and in that sense, may be superior, in other ways, to existing networks. That is really what our work in this space is about, is the recognition that what crypto and blockchain are fundamentally about is changing the way that people interact with each other in the world of finance in the same way that the internet changed the way that people interact with each other for internet information. And so, I would thank you for your leadership on that. I think that securities clarity and custody clarity would be great as an act of Congress, but I also think that the OCC has a fair amount of existing statutory authority to clarify banks' role in that overall part of the financial ecosystem. Mr. Davidson. I agree with your viewpoint, and thanks for really clarifying what you are doing and how you view it. I hope my colleagues will take note that there really is underlying support for this, that is not partisan. And I am encouraged by the recent--some of the hearings that we have had in the FinTech Task Force. So I hope we can continue that progress, and maybe even codify some of this into law. And as you alluded to, securities law, there is certainty that is desperately needed there, and, frankly, sometimes I feel like the SEC is wandering further off course. Hopefully, Hester Peirce will continue to be a voice of reason and people will listen to her more clearly, going forward. So, thanks for that. I do have to move on to a couple of other topics. We recently launched the Sound Money Caucus with some colleagues, and we are at a period where we are printing money. We are not really borrowing it truly. We owe it. It is borrowed in that sense. It counts as debt. But inherently, that dilutes the value of all of the other money. So, Vice Chair Quarles, what is your level of concern about the long-term consequences for America's debt, and in a related topic, the size of the Fed's balance sheet? How will we know when we have crossed a limit where we could really undermine the essential liquidity that was able to be provided? We provided some stability. These are all good things. But in the long run, isn't there a level of debt that would be concerning for you? Mr. Quarles. I think history would show that for any country, there is a level of debt that should be concerning. The United States is in a special position given our wealth and our status as a reserve currency. So I don't think that is upon us soon, but that is definitely something that as we look at the overall economics and financial situation that we face [inaudible]. Mr. Davidson. Yes. Thanks, and it is hard to state specifically but, the consequence of some of the growth of the Fed's balance sheet is a related way. It was a lifeline, and I think will be a case study for years on the value of a Central Bank in a time of crisis, the last part of March. But there are a lot of regulatory policies that are having some real economic distortion, and I look forward to working with you and others there. Thanks for your work and I wish we had more time to collaborate. And I yield back. Mr. Perlmutter. I think I am up next, but I have to get recognized first. Okay. I will begin. To our panel, thank you very much for your service at this difficult moment in American history. I think that the banking system and the financial system has proven itself strong, but I would just state to everybody, we are not out of this. And in Colorado, just as in Kansas, we have seen a terrible spike in the infection rate. A month ago, less than one in 1,000 had the infection. Two weeks ago, we were at less than one in 300; and last week, one in 200. Madam Chairwoman, I went ahead and started, if that is okay with you? Chairwoman Waters. Yes. We had a little technical difficulty. Thank you for getting started. Go right ahead. You have 5 minutes. Mr. Perlmutter. Okay. And so, the infection rate now is less than 1 in 100 in Colorado. Our hospitalizations are higher than they have been at any time since the beginning of this, and we had terrible hospitalization rates back in March and April. Our death rate is starting to rise again, and we thought we had this in hand. This virus is a very nefarious, insidious thing. And so, to the regulators and to my colleagues, I would say we are not out of this. And as strong as it has been, I think that this pandemic is not over, and it will have a long tail. Madam Chairwoman, I would like to offer a letter from the Mortgage Bankers Association and other industry partners to be submitted to the record. Chairwoman Waters. Without objection, is is so ordered. Mr. Perlmutter. Thank you. One of the things that Mr. Luetkemeyer and a number of my colleagues have mentioned is that we took certain steps in the CARES Act to make sure that there could be flexibility from the regulators to the banks, from the banks to the borrowers, the landlords, for instance, from the landlords to the tenants. And I think that flexibility is going to have to remain in place. For instance, we limited the troubled debt restructuring kinds of assets to 6 months for modified loans, and only through the end of the year. So I would ask all of the panelists, do any of you plan to update this guidance to allow these COVID loan modifications to extend beyond 6 months, and extend well into next year, given the state of the pandemic? And I will start with you, Chair McWilliams. Ms. McWilliams. Certainly, and thank you for that question. We have worked hard to reach a compromise with the Financial Accounting Standards Board (FASB), and I would say we are willing to do--I can't speak for others, but I will say, I am willing to do what it takes to make sure that our banks can continue to be strong and resilient and that homeowners and small businesses can continue to have access to credit to stay in their homes and operate their businesses. As with many, many other things, it takes two to tango, and in this case it takes a village of us, and you only have a part of that village here on this panel. We will have to work with FASB to make sure that they also are willing to accommodate the extension of what we have agreed to back in March. Mr. Perlmutter. Thank you. Mr. Brooks, how about you? Mr. Brooks. Congressman, thanks for the question. I echo what Chair McWilliams says, and I guess I would go a little bit further and say that I think that accounting treatment is just one part of the puzzle for banks. In our world, one of the most important exposures is on the residential mortgage side. And those large banks that I have spoken to, specifically about how they are doing loan modifications and forbearances, tell me that they learned a lot from the Home Affordable Modification Program (HAMP) coming out of the financial crisis, and they understand that even irrespective of accounting treatment, it is better to maximize the net-present value of these loans by keeping existing borrowers in those loans as long as there is a future ability to repay. So I think that there is a commitment on the part of both banks and regulators to work there. But on the technical issue of TDRs, there is some more to do so with FASB, I agree with that. Mr. Perlmutter. While we are on that subject, in the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act that we proposed, we had some substantial housing assistance pieces in there. My concern is, and I would ask how you look at this from a regulatory standpoint, we have forbearances, or we have moratoria on evictions. But then these tenants are going to have to come up with several months' worth of rent. How do you analyze that? Do you think they are going to be able to do that without assistance from us, the United States Government? Mr. Brooks. Congressman, I would say rent is a little bit more complex than mortgage. I think the good news is in the CARES Act, it was fairly clear on the mortgage side that when a borrower comes out from forbearance, the loan is contractually current on the first day out of forbearance. Mr. Perlmutter. Yes, but let me stop you. But the landlord is eventually going to have to pay the bank, and you are eventually going to have to analyze that bank. Mr. Brooks. Yes. That is my point, that rent is more complicated, and I think it is worth looking at it legislatively, as you say. Mr. Perlmutter. Okay. Thank you. And thanks, Madam Chairwoman, for the time. I yield back. Chairwoman Waters. Thank you. Mr. Emmer, you are now recognized for 5 minutes. Mr. Emmer. Thank you, Madam Chairwoman, for hosting this important hearing during this uncertain time. As we close out the 116th Congress, we have a lot to be thankful for because of the nonpartisan efforts to educate and inform Members on the financial technology issues on the FinTech Task Force. I want to take a moment to thank Representative Lynch for his efforts in leading the task force. As we have seen over the past 2 years, fintech issues are only rising to higher prominence. It is my hope that next Congress, we will continue that nonpartisan dedication to fintech issues, whether that be on the task force or an even stronger focus on the issues through perhaps a subcommittee. One thing is for sure, the opportunities that fintech innovations present for all Americans and, indeed, the entire world are not going away. Thank you to both sides of the aisle for their ongoing focus on these issues. And thank you also to Vice Chairman Quarles, Chairman McWilliams, Chairman Hood, and Acting Comptroller Brooks for all of your work over the past couple of years. In particular, Mr. Brooks and Chairman McWilliams, you have both demonstrated a strong commitment to crafting a regulatory environment that encourages innovation and growth in the fintech space. As we know, with more competition, products, and services in banking, the American people are afforded with more choice, fairer prices, and control over their financial future. Chairman McWilliams, thank you for dedicating resources to developing a financial technology strategy that works with industry to craft smart and considerate regulations for financial technology, allowing more consumers to access the banking system. And, Mr. Brooks, thank you for providing the necessary certainty for banks to provide custody of cryptocurrency assets, and all you have done to ensure that the Federal Government remains supportive of new technologies and is capable of adapting regulations to suit our country's continuing investments in innovation. I am hopeful that additional regulators will come on board and provide support for these technologies. Vice Chairman Quarles, Chairman Powell informed us in a previous committee hearing that private sector individuals and innovations may not have a place in the Fed's consideration of a digital dollar. This is concerning. So far, private actors have been responsible for the entirety of these innovations and are advancing implementation of these technologies with or without the Fed. I urge the Fed to make additional efforts to make public their considerations regarding the digital dollar and to involve private sector innovators to craft a digital dollar that is sound, safe, and protective of individual privacy. Acting Comptroller Brooks, during your short but impactful tenure at the OCC, you have made extraordinary inroads into providing guidance necessary for OCC-regulated financial institutions to engage with digital assets such as Bitcoin and Stablecoins. What difficulties or obstacles do you encounter when promoting regulatory or supervisory guidance related to digital assets to OCC-regulated financial institutions, and how can that be improved? And I guess when you are done answering that, I have a couple more for you. Mr. Brooks. Congressman, first of all, thanks so much, and thanks so much for your partnership on this over the years. I really do appreciate your vision, and it is great to be part of this team. What I would tell you is on the institution side, there are very few impediments. You can see that very, very shortly after we gave our guidance on crypto custody, the nation's largest bank, JPMorgan, announced it was going to launch a crypto custody business in partnership with Fidelity Digital Assets, which is the crypto arm of Fidelity Investments, a company that we are all familiar with. This recognizes the fact that somewhere between 50 and 60 million Americans own this stuff. And some of us might be excited about it, and some of us might be less excited about it, but the point is, a gigantic proportion of our society believes it is the future for various reasons. That part is important. I think the other thing that is a bit of a challenge is, as a country, we haven't yet recognized the important competitiveness aspect of this. When you see that China has already issued the e-Renminbi--China has adopted a digital currency of their national fiat currency that is now transacting on a blockchain--and in this country, we are still years away from a national real-time payment system, I come to the conclusion that you come to, which is that the best solution is to win the way America has always won, by unleashing the power of our innovative, dynamic, risk-taking private sector. We have built private Stablecoins in this country that already have a market cap in the tens of billions of dollars. These things are transacting daily, they are growing rapidly, and they are used for broad commercial purposes. I don't think, in this country, we need to wait to build a command and control government solution. I think the private sector is on it, and I think the role of the regulators on this panel is to provide a framework to make sure there aren't bank runs or other problems that consumers would be affected by. I am sorry for eating up your time. Mr. Emmer. That is okay. Thank you. I look forward to continuing the conversation. Thank you, Madam Chairwoman. Chairwoman Waters. Mr. Himes, you are recognized for 5 minutes. Mr. Himes. Thank you, Madam Chairwoman, and a hearty welcome back to my colleagues on the committee. I look forward to working with you. And welcome to all of our regulators. It is good to see you, too. I cut my teeth in the Congress starting in 2009, when we were experiencing a just brutal meltdown of another type, very different, of course, than what we are seeing today. But I think what we are seeing today, the economic effects of the pandemic and the economic shutdown, therefore, is not something we would have predicted. And to give credit where credit is due, I appreciate the actions that you have taken, especially the Federal Reserve, working with Treasury, with the authorities granted to it by the Congress under the CARES Act. My hope is that this was handled well. I give credit where credit is due to the Dodd-Frank Act, too. I was a freshman when we crafted that legislation. And when it was done, it was appreciated by pretty much nobody on the left or the right, but here we are where the dog that didn't bark, of course, was a major dislocation in our financial system despite the dramatic dislocation to our economy. So, Mr. Quarles, my questions are to you, and hopefully I will give you enough time to answer them. Obviously, the crisis has uncovered a number of things that are concerning, and I would like you to, if you would, just address each one. And, obviously, you won't be able to do so comprehensively, but if you could try. Number one, the dislocation in the Treasury market in mid- March gave an awful lot of us heartburn. Number two, a number of you have mentioned concerns with the commercial credit market. Could this be something that at the end of the day, causes a significant problem within the banks? And then, if COVID has done one thing, it has really uncovered the disparities that exist in our society. And while I have heard a lot of back and forth, I actually haven't heard the regulators offer suggestions on how we might increase the bank population and make credit available to more Americans. I know that is a tall order, Mr. Quarles, but you have the remainder of my time to address those three issues. Mr. Quarles. Thank you. Thanks for that, and I will be brief. I could take the remainder of the hearing on those three issues. On the Treasury market, there clearly was dysfunction in March. It was severe dysfunction for a few days that was caused by the Treasury market trading infrastructure essentially being overwhelmed by sales orders on the parts of many different participants. You had a variety of people who were looking for cash liquidity, given the severe uncertainty that there was in the middle of March, and that overwhelmed the infrastructure of the systems' ability to handle that. We are currently looking at a variety of factors. We are working multilaterally with other domestic agencies. We are working internationally because this was a problem internationally. One of the significant issues was foreign sellers selling in order to get dollars for their dollar needs in this time of--in this dash for cash. And I think that there are things that we will need to look at about the structure of the Treasury market in order to improve its operation under stress. It would be premature to say what they would be. The commercial credit market--given the nature of this stress, an element of the solution has been increasing debt on the parts of many companies that had severe revenue restrictions in the spring. The corporate sector was already reasonably highly indebted going into this, and so that is something we need to look at. We are running bank stress tests currently to see how we think that could roll up into the financial system. Those will be very granularly run, and we will release in the middle of December results for each bank, public results of how they performed in this, that I think will give us more clarity into that issue. On disparities, just to be very quick, I think that the actions that we have taken at the Fed to improve a more rapid return to economic health--and we aren't there yet, obviously. We have learned at the Fed, over the course of the last few years, that when we allow the economy, and particularly allow the unemployment rate to fall faster and to fall further than the Fed has been comfortable allowing it in the past, that benefits particularly those who are most disadvantaged in society, and that is something that we can do. The Fed doesn't have a lot of distributive tools, but we have seen that there are distributive effects to that that are important. And that was one of the reasons why we changed our framework as we did recently announce. Chairwoman Waters. Thank you. The gentleman's time has expired. Mr. Loudermilk, you are recognized for 5 minutes. Mr. Loudermilk. Thank you, Madam Chairwoman. I appreciate the opportunity to be online with you here today. And, Vice Chairman Quarles, let me first thank you for aligning the Fed's supervision with the tailoring regime by applying Large Institution Supervision Coordinating Committee (LISCC) only to Category 1 firms, and moving smaller and less risky firms into the large and foreign banking organizations with provision portfolio. I think this rightly refocuses the LISCC supervisory portfolio by recognizing substantially reduced size and risk of Category 3 firms and does not change the capital liquidity requirements for firms not in the LISCC portfolio. We really appreciate your efforts there. On another topic, lenders did an outstanding job of issuing PPP loans to support small businesses and their employees, but PPP loans remain an asset on lenders' balance sheets until the loans are forgiven, and forgiveness is taking longer than we all expected. That means a number of financial institutions are on the verge of crossing an asset-based regulatory threshold because of PPP loans which are guaranteed by the SBA and are designed to have a zero credit risk to the lender. I recently sent a letter with 13 of my colleagues on this committee asking you all to address this issue. I also introduced a bipartisan bill with Congressman David Scott that would exclude PPP loans from asset-based regulatory thresholds of $10 billion and under. Madam Chairwoman, thank you for including the bill in our discussions during this hearing today. Chairman McWilliams, I appreciate that the FDIC has addressed the $500 million and $1 billion asset thresholds, and I hope you can address the others. Chairman Hood, thank you for addressing this issue for credit unions. Now, to my questions. Acting Comptroller Brooks, I understand the banking agencies are discussing how to proceed with this on an interagency basis. Can you share what you are planning? Mr. Brooks. Yes, Congressman, and thank you for the question. We are not final on this yet, but I can definitely give you some parameters of what is being discussed amongst us. The idea is there are, first of all, the need to identify each of the asset thresholds that trips you into a new regulatory regime, and there are many of them, just being the government. So, there is a threshold at $500 million, a threshold at $600 million, a threshold at $1 billion and $2.5 billion and $10 billion, et cetera. The basic parameters, I believe, are that for a period of 1 year, which could, of course, be extended by the agencies, but to Vice Chair Quarles' point earlier, we want to get to normal as soon as we can get to normal. So for a period of 1 year, we would exclude PPP assets from each of those asset thresholds, up to and including the $10 billion threshold but not above that. Our theory is that we want to do surgery here. We don't want to act with a meat cleaver. We want to be very careful, and we don't want to dislocate the agency's ability to manage risk, but I think that we will settle out somewhere pretty close to that. Mr. Loudermilk. Okay. We appreciate your efforts, and if you could please keep us updated as you move forward, because you are right, there is a myriad of regulations and tripwires along the way. Vice Chairman Quarles, does the Federal Reserve plan to address these regulatory thresholds? Mr. Quarles. Yes. There is an active--we are obviously engaged in very active interagency discussions, and I would subscribe to what Comptroller Brooks said and I think we will have something to report pretty quickly, actually. Mr. Loudermilk. Okay. I appreciate that, because a lot of the small banks are really left hanging out there. We actually have a bank in our district. It has two branches, a small bank, which issued more PPP loans than one of the largest banks in the nation did nationwide. And so, you can see how that could really negatively affect this bank that stepped up. It is Vinings Bank. They stepped up, and they took on a lot because they are a community bank, and their community was riding on the needs of having these PPP loans. And my final question is, Chairman McWilliams, do you anticipate that the FDIC will provide additional relief as well? Ms. McWilliams. Yes. We have already excluded PPP loans from the deposit assessments for banks, but we are now working with the other regulators as mentioned to make sure that we--to the extent that we don't have the clear statutory authority to change thresholds, to maybe freeze the total consolidated assets as of a prior date for those thresholds. So we are trying to be, I would say, as flexible as possible to make sure that banks have a venue to proceed with helping stimulate the economy and make sure that borrowers can stay in their homes. Mr. Loudermilk. Thank you very much. Because I mentioned this has been a collaborative effort between the private industry and government as well, and so we need to make sure that we are covering them as well. So, Madam Chairwoman, that is all the questions I have. I know it is unusual for me to yield back time. Chairwoman Waters. Thank you. I appreciate it. Mr. Foster, you are recognized for 5 minutes. Mr. Foster. Thank you, Madam Chairwoman, and to our witnesses. And I would like to get started by just seconding the comments of my colleague, French Hill, regarding Central Bank digital currencies. Vice Chair Quarles, you just spoke and have spoken before about the dysfunction that occurred in our Treasury bond markets in March, and noted that the sheer volume in that market may have, ``outpaced'' the ability of the private market infrastructure to support stress of any sort there. Under normal circumstances, the Treasury market is the deepest and most liquid fixed income market in the world. It serves as a critical benchmark for the mortgage corporate loan and mini bond markets that are essential to the flow of credit in our economy, and it allows the U.S. dollar to operate as the world's dominant reserve currency. And that is why it is crucial that these financial pipes continue to function well, even in stressed and volatile conditions, and especially as we continue to fight COVID-19 and work to provide fiscal relief to millions of struggling families and small businesses. Now, when the Fed has to step in to support the markets for Treasury bonds, I view it as sort of the financial equivalent of our military going to DEFCON 2. When that happens, it is our duty in Congress to see what sort of technical changes could prevent this in the future. One straightforward solution to this issue would be a simple requirement that all secondary market Treasury transactions be subject to central clearing. Today, participants in the markets for Treasuries face a centrally cleared counterparty in less than a quarter of all transactions. By comparison, because of the Dodd-Frank Act, central clearing covers virtually 100 percent of the exchanged traded derivatives and equities and a majority of the swap market transactions. And despite a fair amount of squealing at the time, I believe that this is now widely viewed as one of the many successful reforms of Dodd-Frank. So, Vice Chair Quarles, could you explain to us your view of why requiring central clearing of Treasuries might be beneficial to market functioning? And what are the drawbacks and tradeoffs, if any, of this approach? Mr. Quarles. As we look at the lessons from the Treasury market in March, we have been looking closely at this issue of central clearing of Treasuries. The advantage would be that central clearing would reduce pressure on dealer balance sheets. The current system requires the dealers to basically take those Treasuries onto their balance sheets, and when there isn't another side to the trade, that is obviously a significant strain. The cons are really the cons of any [inaudible] It is a complex risk management problem. And so, we want to think that through carefully for a market that is as large and as central as you have correctly identified the Treasury market as being. The pros are attractive. We are looking through this carefully with an interagency group. I would say just as an additional thought, though, that could lead to improved Treasury market functioning generally. What we saw in March, though, was simply that everyone was selling and no one was buying. And there was a period of a few days when there just wasn't another side to the transaction. So, a smoother mechanism for matching buyers and sellers probably would not have addressed the March issue because the question was that there just wasn't a buyer. But that doesn't mean that it is not a useful wakeup call for thinking about the structure of the Treasury market in that particular situation. Mr. Foster. So you anticipate for situations like that, there is no substitute for having the Federal Reserve have some pathway in to support things? And is there a merit, if we have to go down that road, to actually have a legislative clarity on the circumstances and making sure that the taxpayer is never on the hook in that sort of intervention? Mr. Quarles. Let's hope that situations like that are as rare as this one was, which is once a century, if not longer. I think the Fed has the authority to do what it is that we need here and that our strong and reasonable expectation is that something like this is not going to be repeated in our lifetime. Mr. Foster. Well, my goal is to die before we ever have a crisis like we have been going through. So, thank you. My time is up. I yield back. Chairwoman Waters. Thank you very much. Mr. Mooney, you are recognized for 5 minutes. Mr. Mooney. Thank you. So, direct questions for Vice Chairman Quarles. Let me just start by saying that insurance is normally State-run, and so, Vice Chairman Quarles, under the oversight of the Financial Stability Board, they have adopted a holistic framework to identify and proactively address systemic risk in the global insurance market. Can you explain how the U.S. insurance regulatory regime has performed in minimizing systemic risk, and more specifically, how this performance compares to other regulatory systems for insurance around the world? Mr. Quarles. I think we have seen in the current stress, which has been severe, that the insurance industry, which is regulated by the States in the United States and has been since the McCarran-Ferguson Act, has performed quite well. And, in general, over the history of our industry, compared to industries abroad and other forms of regulation, I think that regulatory system has stood up well. It has passed the practical test of what works. As we look at insurance regulatory reform more broadly, which the International Association of Insurance Supervisors (IAIS), which is a member of the FSB, is considering in the United States, the so-called team in the U.S., which is the Federal Reserve and the National Association of Insurance Commissioners (NAIC) and the Treasury, have worked to ensure and have been successful in ensuring that there is scope in that process for the U.S. system to be recognized internationally, and I expect we will [inaudible] process comes to completion several years from now. Mr. Mooney. That kind of leads to my follow-up question. I agree with you, first off, that it has worked well and the States regulating it and we have worked well, better comparable to other countries. But given that our U.S. insurance regulatory system produces comparable results to foreign frameworks, how is the Federal Reserve planning to make the case that the American system is, ``outcome equivalent,'' with the IAIS insurance capital standard? Mr. Quarles. There is a monitoring process that is going on at the IAIS of their proposed global standard. We have created space in that standard for the U.S. framework to be viewed as equivalent as a solution that works within the IAIS project. That monitoring process has a fair ways to run yet. It will be incumbent on us in the United States to put forward a well- articulated framework for how a global consolidated insurance regulatory framework could work. The Fed has done its piece with respect to our building block approach for how insurance companies that include a depository institution can be regulated. The NAIC is working hard on its group capital approach, and again, I am pretty confident that as we put those forward in the international discussions, the equivalent will be viewed positively and that the effort will be successful. Mr. Mooney. Thank you, Vice Chair Quarles. And let me just close--I don't know how much time I have left. Let me just close by saying, as we discussed, here in the United States, insurance has been regulated primarily at the State level for over a century, so, ``If it ain't broke, don't fix it.'' We have a system that works well here. The needs of West Virginia are different than the needs of Massachusetts and California. You can't have a one-size-fits-all standard that is going to work in this country. If we are forced to adopt an insurance capital standard at European centric set of rules for-- Chairwoman Waters. The gentleman's time has expired. Mrs. Beatty, you are recognized for 5 minutes. Mrs. Beatty. Thank you. Madam Chairwoman, let me start by thanking you for your stellar leadership, for all of the work that we have gotten done during this very difficult time, a difficult time in this nation, and certainly as we have been confronted with COVID-19, all of the work that we did in helping save lives, through what we have gone through with our economic problems and with PPP and housing. I just think it is very important for me to recognize your work. With that said, to our witnesses, thank you for being here today. Many of my colleagues have talked about where we are, and related it to the problems we have had or the successes that we have had with PPP. We have also talked about the greater financial portfolio. We have talked about capital and liquidity and, certainly, access to capital. But as I look to the title of this full committee virtual hearing, we talk about oversight, and we talk about it as it relates to the departments that our witnesses oversee. We talk about it, as we should, in ensuring safety and the soundness of diversity. Certainly, you all know, as Chair of our Subcommittee on Diversity and Inclusion, I like to devote much of my time to that, because I think it is most appropriate when we talk about the economic downturn, when we talk about the COVID-19 crisis, and we talk about social injustices. Why? Because when we look at the disparities and how African Americans and others are disproportionately affected, it is a clarion sound bell that is in the financial services area. Mr. Brooks, I am going to start with you, and this will be very quick. All of the other witnesses have been asked this question. I take great honor that I have had the opportunity to be in the forefront with the Offices of Minority and Women Inclusion (OMWIs), so I don't want to break my tradition by not asking you, do you know what OMWI is, have you met with your OMWI Director, and who is your Director? Mr. Brooks. My Director, Joyce Cofield, I consider to be a close friend and mentor. She and I meet for an hour every single week and have really leaned into a number of important initiatives here, which I am happy to talk about if you like. Mrs. Beatty. Thank you very much. She has done a great job on that. Let me go to my next question. And, if so, we can come back, or offline, I can ask you some things. I was very disturbed when, on September 22nd, the President issued Executive Order 18950, which seeks to halt certain forms of diversity and inclusion training in contracting with programs in the Federal Government. So to each one of you, yes or no, are you familiar with this? And the second question, yes or no, have you ceased diversity training in your department? I will start with you, Mr. Quarles. Mr. Quarles. Thank you. I am somewhat familiar with it, although that order does not apply to the Federal Reserve, given the nature of the agency, and we have not changed our practices. Mrs. Beatty. Thank you. And while independent agencies don't necessarily have to comply with the Executive Order, we also know that many of you have been known to voluntarily comply with the order. Mr. Quarles. We haven't changed our practices with respect to diversity. Mrs. Beatty. Thank you. We will just go down the line. Mr. Brooks? Mr. Brooks. I am familiar with the order. We are obviously a unit of the Treasury Department. There is a review process for our diversity programs, but we continue to provide diversity programs that don't run into any of the issues in that order. For other things, we go through a review process as required by the order. Mrs. Beatty. Okay. Thank you. Ms. McWilliams. And I will say that like the Fed, we are an independent agency, and we generally comply with the spirit of the Executive Orders. We have been able to continue our diversity in training as we have done in the past. Mr. Hood. Representative Beatty, at NCUA, we often strive to comply with the spirit of Executive Orders. In this case, this has been turned over to our general counsel for review, but I assure you we are continuing to have outreach and engagement opportunities. In fact, I have spoken at over 20 diversity, equity, and inclusion events, especially following the murder of George Floyd. It has been my responsibility to ensure that our employees have a safe space to talk and hear from me directly during this challenging time. Mrs. Beatty. Thank you very much. I yield back my remaining 5 seconds. Mr. Green. [presiding]. Thank you. The gentlelady's time has expired. Mr. Budd is now recognized for 5 minutes. Mr. Budd. Thank you, Mr. Chairman. Just to clarify, I heard a mention earlier in this hearing about President-elect Biden. To my knowledge, none of the States in question have certified their results, and their State electors have met, so there is really no President-elect. So we are asking for the same courtesies and the legal processes that were extended to Vice President Gore in the year 2000 be extended to President Trump in 2020. As you are aware, Democrats lost seats in this body, and that is evidence enough that the American people recognize the failure of the far left socialist policies. Now, this gives me concern regarding the next Congress, but we have several opportunities before us to seek more bipartisan solutions and to reject the extreme. So, I want to thank the panel for being here. And as we continue to weather this pandemic, I appreciate that you and all of your agencies have worked with our banks and our credit unions to provide some flexibility so that they can provide access to credit and financial services to creditworthy consumers and creditworthy businesses. All of you have shown your ability to work with our banks and credit unions, but it is now time for Congress to help out those consumers and those same businesses as well. And that is why I am pleased to be an original co-sponsor of H.R. 7777, the Paycheck Protection Small Business Forgiveness Act. This bipartisan bill would not only help millions of small businesses by forgiving all loans under $150,000 with a simple, one-page forgiveness form, but it would also free up countless hours and resources for our banks and our credit unions, allowing them to focus on the core of banking: providing access to credit and financial services to individuals and businesses. As a result, some banks are crossing asset thresholds that subject them to greater regulatory burdens. So, my question is this: What are you all doing to ensure that these financial institutions aren't faced with potentially costly regulatory burdens just because they helped with implementing a relief program? Chair McWilliams, I will start with you in reference--I think you may have made some comments to my colleague, Mr. Loudermilk, in relation to that, so I will start with you, Chair McWilliams. Ms. McWilliams. Sure. We are doing a number of things to make sure that these thresholds do not provide a disincentive for banks to engage with their borrowers, individual consumers, and small businesses. We are going through an interagency process to ascertain what all we need to do to address those thresholds and to make sure that banks need to do what we want them to do, which is continue to stimulate the economy and be there for their consumers and customers. And with respect to the FDIC, we have also done a number of things, including a change in what counts for the audit purposes thresholds as well as excluding PPP Facility assets from the deposit assessments for banks that have engaged in extensive PPP lending. Mr. Budd. Thank you very much. Comptroller Brooks, if you would, please comment on that? Mr. Brooks. Congressman, thank you for the question. I would endorse what Chairman McWilliams said; we are obviously part of the FDIC's process on that. The one other thing I would comment on is, like the other agencies, we excluded PPP assets from our assessments of the first half of the year, and we also adopted a supplemental leverage ratio of rule with the two other banking agencies to make sure that banks could exclude pandemic-related deposit inflows from messing around with their capital ratios and with their leverage ratios. I think all of those things create a safe space for banks to proceed. Mr. Budd. Thank you. Vice Chair Quarles, during your testimony earlier this week on the Senate side, before the Senate Banking Committee, you were asked about the Fed's plan to extend the exclusion that was made for the supplementary lending ratio (SLR) to the global systemically important bank (G-SIB) surcharge in order to ensure that capital is not increased at the end of this year. I think your response to that question was that the Fed has not heard concerns about this from the impacted banks. So, I am looking for clarification to that response, because as I understand it, the Fed has discussed the likelihood of a capital increase with the banks themselves. I am sure you are aware, along with every Republican member of this committee--we sent you a letter requesting action on this because we have been hearing from the banks that an increase in the G-SIB scores could impact their ability to support the economy when we need it most. Any comments on that? Mr. Quarles. Yes. The way the G-SIB calculation works--and I didn't get into this with the Senate, but it is probably good that you have given me the chance to do that here. The way the G-SIB calculation works is that there is not an immediate capital consequence for a firm going over, moving up a bucket in the G-SIB framework. Instead, that capital consequence would take place after a year. And the framework is designed specifically so that temporary changes would not have the effect that you and we are concerned about here. This will give us the chance, if we think that the changes are likely to be durable, to consider whether there should be adjustments made over the course of time. So, what I was saying was that there is not an immediate capital consequence. We are not hearing that there is an immediate capital consequence, that is not how the framework works, and we have time to think this through should we discover that the effect is going to be more durable. Mr. Budd. Thank you. I yield back. Mr. Green. The gentleman's time has expired. Mr. Vargas of California is recognized for 5 minutes. Mr. Vargas. Thank you very much, Mr. Chairman. Can you hear me? Mr. Green. Quite well, Mr. Vargas. Mr. Vargas. Thank you. It is a pleasure to be here again. And I want to thank all of the witnesses today. I appreciate very much their testimony. It is a very difficult time, and I think they are working very hard on behalf of the American people. Now, I have to say, at the beginning of this hearing, we Democrats were lectured on the issue of divisiveness, and now we were just lectured on the notion of who won the election. I think that we won, not only at the President level, but also at the congressional level. So I find it interesting that somehow the winners are the ones who are saying we were somehow rejected by the American people when we won. I would also remind people that 4 years ago when Mr. Trump was running for President, and Mr. Trump won about the same amount of electoral votes as Vice President Biden has now, we didn't like it, but of course, we acknowledged it and we had a transition. Now, to hear that we are in the same situation and we are not supposed to acknowledge that Vice President Biden has won is really rather ridiculous, just to be frank. Also to divisiveness. I have to say this. I have been on this committee for 4 years. From he previous chairman, all I heard was divisiveness, mostly around the issue of Dodd-Frank, and other things too but especially Dodd-Frank; it was demonized, in particular. And I think I heard today from the witnesses how well Dodd-Frank has worked. Did I mishear or did I hear correctly that Dodd-Frank, in fact, was very beneficial during this time? Vice Chair Quarles, why don't you respond to that? Has it been helpful, Dodd-Frank? Mr. Quarles. I think the increases in capital and liquidity that were put in place after the 2008 crisis have been very helpful. Mr. Vargas. Anyone else disagree with that? How about Acting Comptroller Brooks? Mr. Brooks. No. I would echo the Vice Chairman's comments. Mr. Vargas. Now, I have to say, that was--when I first got on this committee, it was a far left sort of bill. They told me how unhelpful it was going to be, and I believe most of you were appointed by President Trump. So anyway, I--again, what becomes demonized and far on the left all of sudden becomes very helpful in the middle. So, again, I hope that we can work together and get away from this divisiveness and name calling. I don't think it works. And I do think we have a lot of work to do together, and we should work together. Now, I do have some concerns about COVID-19 and where we are today. COVID-19, of course, is a virus, and this virus, as all viruses, has seasonality. In fact, recently, I think one of the medical groups said that you would see during the summer, a diminution of COVID, and then in the autumn, it would come back, and then in the winter, it would spike. I am very concerned about where we are here. In fact, recently here, very recently, I heard from both Jerome Powell, the Fed Chair, as well as Christine Lagarde, the president of the European Central Bank, that they are very concerned too about this. Could you comment on that? Because I do have great concerns that this is roaring back and we are going to be in trouble. Mr. Quarles, don't you comment first? Were they wrong? Mr. Quarles. I think there is a great deal of uncertainty about how the situation will evolve, and so we shouldn't be complacent about that as [inaudible] ability and within the Fed's [inaudible] economic support as well. Mr. Vargas. Mr. Brooks? Mr. Brooks. Congressman, I think that the watch word here is, ``uncertainty.'' There is a lot of negative information out there, including increases in cases and hospitalizations. There is also a lot of positive news out there, including the approval of new therapeutics, the reduction in the length of hospitalizations, and effective vaccines. So, I think a lot of it depends on our reaction to it at this point. Mr. Vargas. I think that they took that into account too when they commented. In fact, they still say the uncertainty is something that worries them. How about Chair McWilliams? What do you think about that? I don't know if you heard their statement, but their statement was concerning to me. Ms. McWilliams. We are certainly monitoring the conditions on the ground to make sure we understand what related business closures may be happening in different jurisdictions. We are working closely with our regional offices to make sure that we are appropriately addressing any issues that may come up for our banks that are trying to help consumers stay in their homes and small businesses continue to operate. So, I would say that certainly we are very careful about analyzing the numbers and understanding what our regulatory response should be. Mr. Vargas. Thank you. I guess my time has almost expired. What I would say is, let's try to work together. I think that is important. And let's get away from this divisiveness. Let's acknowledge what happened, too, in this Presidential race. Thank you very much, Mr. Chairman. My time has expired. Mr. Green. The gentleman's time has expired. Mr. Kustoff is now recognized for 5 minutes. Mr. Kustoff. Mr. Chairman, I want to thank all of the witnesses for appearing today. And I do want to echo the comments of the ranking member and so many others this afternoon, who have talked about the incredible work that all of you have done, the witnesses, in protecting the soundness of our financial system over these last 8 months. I think you have probably given a lot of stability to people across the nation. You provided relief to businesses that, frankly, have struggled initially, and to those individuals who struggle. So, thank you for all of your hard work. Comptroller Brooks, back in May, the OCC completed and updated the Community Reinvestment Act. Obviously, these were important changes that were made that weren't trivial changes. It was a complete regulatory overhaul. Under the new framework, banks are going to be assigned a CRA grade based on whether they meet certain benchmarks and community development minimums. But when the rule was adopted, the OCC didn't necessarily define what the benchmarks would be. As I understand it, and the way I interpret it, you wanted a separate rulemaking process for setting those benchmarks. Now, of course, here we are about 6 months later, and the OCC still has not started the second rulemaking process. Can you talk to us about your plan, what the OCC's plan is, and how you are going to provide banks with the certainty regarding their responsibilities under the regulation? Mr. Brooks. Congressman, absolutely, and thank you for that question. First of all, I would tell you that we are just a few days away from releasing the notice of proposed rulemaking on performance standards, so you will see that very shortly, I would expect by next week. In terms of the work that we have done, one of the things that we were able to do after adopting the original CRA rule was to bring on board one of the world's leading banking economists, Dr. Charles Calomiris, to lead our economics function. And Dr. Calomiris has had a significant role in helping us think through what the performance assessments ought to look like. So, the onboarding of a new economics leadership team has been one of the reasons it took us a few extra weeks beyond what we would have hoped. But the good news is, we now have that level of input to make sure we get it right. What I can tell you that you will see in the rule when it comes out in just a few days is a couple of things. First of all, we are going to be moving from a highly relativistic standard under the old rule, where we basically had banks compete with each other to see who got the A grade, so it was both subjective and relativistic. And we are hoping to move toward a more objective and predictable kind of standard so you will know that you have to hit this threshold in order to get an ``outstanding,'' this threshold in order to get a ``satisfactory,'' et cetera. That is a significant change from in the olden days. The way that I like to put it is we want to see CRA as more like a math test and less like an English test. ``Satisfactory'' shouldn't be in the eye of the beholder; it should be predictable so banks know how to meet what we expect of them. And the other thing we have said is that we will be holding banks accountable for meeting or exceeding their previous levels of CRA contributions. We know that one of the concerns expressed by commenters in the original rule was that somehow our new framework was going to result in a reduction of CRA activity. We are confident it isn't, and the performance standards will speak to that issue in terms of who gets a pass and who doesn't. Mr. Kustoff. Thank you very much. I appreciate that. Vice Chairman Quarles, there was some discussion earlier, during questioning from Congressman Barr about de novo banks. And I think we are all concerned that we have not seen the creation of de novo banks over the last 10 years, like we did prior to 2008. If you can, just to set the stage, what are the primary factors that led to the lack of de novo banks over the last decade? And what, if anything, can we as Congress do to facilitate de novo banks? Mr. Quarles. I think the primary factor is more of a question of mindset. There had been, leading up to the 2008- 2009 crisis, a significant spate of de novo banks approved, particularly in some jurisdictions. Many of those banks failed, and that has resulted in a caution over the course of the last decade in the regulatory system generally about the approval of de novo banks. Myself, I think that is a little bit of a question of a matter of a cat that sat on a hot stove. It won't do it again, but it won't sit on a cold stove either, and that there are things we can do and have done to improve and streamline the regulatory environment for small banks to help make, establish [inaudible]. Mr. Green. The gentleman's time has expired. Mr. Lawson of Florida is now recognized for 5 minutes. Mr. Lawson. Thank you very much, Mr. Chairman. And I would also like to thank the panel on the Hill for this discussion today. I know that there have been a lot of things that have occurred since we have been through this pandemic, and so I want to ask Vice Chairman Quarles, the Federal emergency COVID- 19 Facilities are created to support a broad cross-section of the financial market and economy supporting the availability of credit for households, small and medium-sized businesses, to maintain their payroll and employees through new and expanded loans providing credit to larger employees so that they are able to pay supplies and maintain their business operation. However, the Facilities are set to expire at the end of 2020. Do you know if the Fed and the Treasury has already created a plan to help these businesses maintain on their feet and meet payroll, as COVID will still be a concern next year? Mr. Quarles. Certainly, the Section 13(3) Facilities that we put in place in conjunction with Treasury have been very helpful in restoring market function and the availability of credit across a broad swath of the economy, as you note. The question of whether, in light of the performance of the economy since the spring, they should be extended, is one that we are currently engaged on. And while the economic progress since the spring has been better than many people, including we at the Fed, expected that it might, we are still a long ways away from being on the other side of the COVID event. Unemployment is too high. Small businesses are under credit pressure. So, we want to take all of that into account as we consider this question. We haven't made a decision on it yet. We are talking with Treasury about it, but obviously, we need to decide that before the end of the year. Mr. Lawson. Okay. Thank you. And it will be interesting to see what happens with your conversation with the Treasury, because it is a major problem. When I travel throughout my district and so forth, I get more questions about that than anything else, because there are still a great deal of dilemmas there. But, Mr. Vice Chairman, I have one other thing. In September of 2020, the Fed banned stock buybacks and constrained dividends payment by large banks to safeguard their wealth against COVID-19. However, I think, is it safe to say that the Fed officially doesn't want to repeat the history by using government funds to capitalize banks rights? So why did the Fed prohibit dividend payment entirely, given the economy activity will likely be constrained until the pandemic is over? Mr. Quarles. Thank you for that. As you note, we did constrain dividends. We prevented them from being increased [inaudible] An income test. Most importantly, we prohibited share repurchases, which is for our large banks, how 70 percent of their capital distributions are made. So, the great bulk of capital distributions have been suspended. The result of that is that during this COVID event, even while the banks have been taking very large provisions, particularly in the second quarter for expected credit losses, capital at these institutions has actually increased. It increased in the second quarter and it has increased in the third quarter. We are now running detailed stress tests with two different scenarios, given the uncertainty as to how the world might evolve. And we will release publicly the results of those stress tests before the end of the year, which will give us much more insight into the banks' resilience in light of the economic circumstances that we are facing. And then we will make a decision as to whether we should extend or modify in any way the capital constraints that we have implemented. Mr. Lawson. Okay. Thank you. And, Mr. Chairman, with that, I yield back. Mr. Green. The gentleman yields back. Mr. Hollingsworth is now recognized for 5 minutes. Mr. Hollingsworth. Good afternoon. I want to thank all of the panelists as well for being here today. My first question goes to Mr. Quarles. I know Mr. Budd touched on this a little bit earlier, but I want to come back to it and put a finer point on it. I was, admittedly, a little bit stymied, I say respectfully, by your answer to Senator Rounds yesterday when he asked about the G-SIB surcharge and some of the effects that our largest institutions, because of an increase in deposits, are seeing on moving into the next category in terms of the G- SIB surcharge. You said in response to Senator Rounds' question, ``We are not hearing from the large firms that changes in their balance sheet over the period of the COVID event might lead them to being pushed up into a higher bucket.'' I just wanted to confirm to you that I certainly am hearing from those institutions that this will be a challenge. They are certainly telling their investors that this will be a challenge. Recently, JPMorgan's CFO said, ``In the absence of rate calibration, which we remain hopeful about, managing that back down--she means back down to a lower category G-SIB surcharge-- will certainly be challenging.'' It's certainly something that she is already thinking about, and something that JPMorgan is already planning on. And I recognize that you have sufficient time to still make news on this next year, but many of those capital allocation decisions are already being made. I and every other Republican member on this committee also sent a letter a couple of weeks ago asking about this same thing. I just wanted to confirm to you and hear your confirmation that this is an important issue. This is something that you are hearing about that I am hearing about that others or the Fed are hearing about and will at least begin to think about. Mr. Quarles. Yes. Absolutely. My reference to Senator Rounds' to apple of buckets as opposed to the G-SIB surcharge buckets. And as I explained, there is a--we have a year timeframe in which to see what the consequences are. You are absolutely right that if banks aren't sure whether--what accommodations will be made or how they see their balance sheets evolving organically, that they will need to take steps well before a year from now in order to manage their G-SIB position. But we do have time to think that question through because of the way the G-SIB framework is structured. Mr. Hollingsworth. I understand. And certainly, I don't want you to not think it through. Please don't think I am a proponent of that. But I just want to make sure that it is being thought about and that we all recognize collectively that this is a real issue, and it is going to start having meaningful impacts on our large institutions even earlier than a year from now. Mr. Quarles. Absolutely. Unquestionably. Mr. Hollingsworth. Perfect. Wonderful. To you, Chair McWilliams, I wanted to ask about your FDIC rule modernizing the regulatory framework for broker deposits. You said, I think earlier today or perhaps yesterday, that this should be finalized before the end of the year. Is that correct? Ms. McWilliams. That is correct. Mr. Hollingsworth. Wonderful. I know I sent a letter, along with many others, about how we can work through the facilitating portion of that rule. I know that I expressed some real concern that the restrictive nature of how you thus far had defined, ``facilitating'' might lead to an adverse impact on some of our community banks. As a part of finalizing that role before the end of the year, do you expect there to be changes to the facilitating definition, enabling our community banks to use third-party servicers for some of their critical technology and infrastructure? Ms. McWilliams. I can't engage in the specifics of what the final rule will look like, but I can certainly tell you that the reason we have the notice in common process is to solicit the type of feedback that you and others have provided so that we can improve the rulemaking before it becomes finalized. Mr. Hollingsworth. Wonderful. I certainly appreciate that. I certainly understand that. Please know that from my perspective, and so many of the community institutions all the way across our districts and all the way across the country, this is something that really concerns them. They utilize these third-party vendors to enable them to compete with larger institutions that have that technology, have those capabilities in-house. They don't want to see themselves be deprived of those infrastructure pieces so that they can compete for consumer attention, for consumer deposits, for more opportunities for them and their consumers. So please know, at least from our standpoint, that is an important thing to tweak. And with that, Mr. Chairman, I yield back. Mr. Green. Thank you. The gentleman yields back. Ms. Tlaib is now recognized for 5 minutes. Ms. Tlaib. Thank you so much, Mr. Chairman, and thank you all so much for being with us. I know in the financial stability report released this week, the Board had acknowledged that climate change is a financial stability risk. I represent Wayne County, which has one of the poorest air qualities in Michigan, and hasn't met the Clean Air Act standards in over a decade, so I do want to talk specifically about Marathon Petroleum Refinery, which is in my district. They have repeatedly had a number of violations recognized by the State of Michigan, and the residents who live near that refinery continue to have a number of concerns and issues that they bring to my office almost daily. Marathon bonds are also owned right now by the Fed, basically the public, $15 million worth of bonds that we own right now. And you all know I wrote a letter to the Board where I highlighted how long [inaudible] Marathon nearly 20 percent of the Fed's secondary market Corporate Credit Facility portfolio is bonded--is bonds from the energy--for the energy and utility companies. So, I would like to ask Vice Chair Quarles, what do I tell my constituents about this? When they see this and they see the various headlines, when they find out that the public's resources and our money and the risk on us, it is not investment into State and local governments but instead, invested in the very companies that are in their communities, that are responsible for bad air quality in their community? Mr. Quarles. Thank you for that. The Federal Reserve Facilities--we do have a Facility for State and local governments that has been serving a useful market support function-- Ms. Tlaib. But how many cities have benefited from [inaudible]? Mr. Quarles. I am getting that information now, because I want to respond precisely. Three issues that--the MLF about three issues, but its principal function is to restore the capacity of private markets, and many markets have healed across-the-board. But for those Facilities to do their job, we at the Fed can't be involved in credit allocation. We establish broad parameters, and the allocated decisions as opposed to the market support decisions are really for Congress. Ms. Tlaib. I do want to get very centered on--the report came from you, the Financial Stability Report that acknowledges the risk of climate change, how it poses a financial--kind of, it poses instability in our economy. What are the Board's plans to change the Corporate Credit Facility's account of those risks? Are we just ignoring them? And I still want an answer as to how many cities you all helped through the MLF program? Mr. Quarles. There were three purchases. I said that. But the new Facility operates mostly through its effect on the broad market, and the broad market has healed substantially. So with respect to climate, we are looking at that from a broad systemic point of view as opposed to specific purchases. Ms. Tlaib. Doesn't holding these millions of dollars in bonds in Marathon Refinery create instability? It is like you are trying to create stability, but your own report says climate change is posing financial instability. Then, why aren't we just basically saying, ``Hey, we are going to move away from this, and maybe focus on local and State Governments?'' Mr. Quarles. No, that was not the conclusion of the report at all that we should-- Ms. Tlaib. What was it saying? Wasn't it saying that there is a climate change issue? Mr. Quarles. I do think that there is a climate change issue, but we have certainly not concluded that the mechanism to address climate change is credit allocation. That should not come from the Federal Reserve. If there is a credit allocation decision to be made, that is a decision for Congress, to be debated by the public's representatives. Ms. Tlaib. Yes, I agree. I understand. And I am working on that, as you probably know. Why aren't we helping local and State Governments more? It sounds like we only helped one or two States. What cities have benefited from the MLF program so far? We are in a pandemic. They were in survivor mode prior to this pandemic. They literally are the frontline communities, Vice Chair Quarles-- literally, the frontline communities that are stopping the spread of COVID, and you don't even know how many cities have been helped. Mr. Green. [presiding]. The gentlelady's time has expired. We will accept the answer in the record. Mr. Quarles. Thank you. Mr. Green. I am advised by the chairwoman to announce that we have a hard stop at 3:30, and that I am to get to as many Members as possible between now and 3:30. With that said, the gentleman from Ohio, Mr. Gonzalez, is recognized for 5 minutes. Mr. Gonzalez of Ohio. Thank you, Mr. Chairman. And thank you to our panel for being here. I want to start my questions with Mr. Quarles, and go back to the Secured Overnight Financing Rate (SOFR) conversation a bit and try to put some fine points on some of your earlier comments. First question, how has SOFR stood up from a stability and suitability standpoint during the pandemic? Mr. Quarles. Our experience with SOFR during the pandemic is that as a reference rate, it has stood up quite well. Mr. Gonzalez of Ohio. Great. And then just a more direct question: At this point, is there any reason to believe that SOFR would not be a suitable replacement for LIBOR, going forward? Mr. Quarles. No, particularly for capital markets and derivatives transactions, which are the bulk of the transactions that use LIBOR as a preference rate. Mr. Gonzalez of Ohio. Great. And then, could you clarify what you meant when you said earlier that the plan is to allow existing contracts to mature on the LIBOR rate without needing a congressional solution, given that so many of the contracts would, in fact, expire after LIBOR would go away? Could you just kind of clarify that one for us? Mr. Quarles. Yes. The issue that we have had is that extensions of LIBOR, which there have been a couple of over the course of the last decade, after it became clear that it would be going away, results in the writing of new contracts, so, the problem just perpetuates itself. I think that the best solution would be a framework in which we allow the existing contracts--we create an environment in which the existing contracts could mature on their current basis without renegotiation, without change to a different rate, but that new contracts would not be written. And over a relatively short period of time, the bulk of existing contracts would run off. These are not usually long-term contracts. There is a hard tail of contracts that would require a longer time, and legislation could be useful to help with those. I think once it became clearer what the nature of that hard tail was, and we had more time to think it through, therefore, potential legislative responses, that the combination of some mechanism to allow the bulk of the existing contracts to mature with time over the course of the next year, year and a half, to think about the legislative solution for those that won't would be the best approach. Mr. Gonzalez of Ohio. Thanks. And then with respect to that hard tail, how soon would you suspect we would need to act, congressionally or otherwise, before we would start to see implications in the broader economy, in the real economy? Mr. Quarles. Sorry. I think we are still working through that issue currently. It is not a long time. I think probably a year, or a year-and-a-half. This is something that we should be engaged with the folks who are concerned [inaudible]. Mr. Gonzalez of Ohio. I hope to work with you and your office on that. I personally think we need to act a bit sooner than a year and a half, but I am sure we can hammer that out. I want to shift now to Chair McWilliams. One of the things we have talked about is the difficulty of MDIs and community banks in adopting technology. This year, the FDIC issued a Request for Information (RFI) for public input on the idea of fostering the creation of a public/private standard-setting organization for technology vendors and models seeking to work with community banks. The idea is that small banks need to be able to adopt the technology developed by third parties, but those organizations need to meet standards to be sure tools are effective, secure, and compliant. Can you just talk a bit in my last minute about what your vision for this program is, what problems you are trying to solve, and how this will make our community banks more competitive? Ms. McWilliams. Sure. And you have a minute, so I am going to get all of this in, in a minute. I realized early in my tenure that one of the elements for survivability of community banks will be to engage with third-party source providers, primarily fintechs and technology companies, that can help them deliver better products, more products, and reach more customers, especially in rural areas as discussed earlier in the hearing. And I reached out to several Silicon Valley firms. I went and I met with them, technology firms, and to partner with banks, and I asked them, ``What can be done to help you partner up with these banks more quickly?'' We don't regulate these firms. And fintechs, budget, through the third-party service arrangements, were able to provide this feedback to us. And they said that in the beginning, when they approach a bank, to be on-boarded with a bank, they have to go through the same due diligence process with each and every bank. So we said, why don't we kind of cut out that process and make it very simple where they get certified to this public/private partnership, and then use that certification to ease the burden on the banks, and use the burden on the fintechs when they partner up. Mr. Gonzalez of Ohio. I think that is a fantastic idea. I yield back. Mr. Green. The gentleman's time has expired. The Chair now recognizes Ms. Porter. Not hearing from Ms. Porter, I will now recognize Ms. Wexton. Ms. Wexton. Thank you, Mr. Chairman. And thank you to the witnesses for appearing today. I want to switch gears and talk a little bit about something that I kind of see as a potential ticking time bomb in our financial system, and that is the commercial real estate market. Chairwoman McWilliams, there has been a rapid growth in CRA exposure, especially for smaller banks. Is that correct? Ms. McWilliams. They have had high concentrations in CRA portfolios, and it was one of the primary concerns we had in the last crisis as well. Ms. Wexton. And currently, the FDIC considers at least 356 banks as concentrated in the commercial real estate bank market. Is that correct? Ms. McWilliams. That number sounds right. I don't know how--it may be slightly outdated. Ms. Wexton. So what do you mean by, ``concentrated?'' Ms. McWilliams. The majority of their portfolio, or a very large number of their portfolio--we don't have a magic number. We don't tell them it is X percentage has exposure and is heavily concentrated in the CRA market. Ms. Wexton. But that means that by, ``concentrated,'' you mean that they are exceeding the FDIC's regulatory criteria or your recommended proportion of a portfolio being made up of commercial real estate portfolios? Ms. McWilliams. We don't have a clear-cut number, where--it depends on the individual institution, and we are trying not to manage our institutions with that kind of a blunt-cut instrument by telling them it is X percentage. But we will look at each individual institution, look at their risk management profile, capital levels, their CAMEL ratings, management experience, do they know how to manage this, did they go through the last crisis with these issues as well and how did they fare? So I would say we have more of an individual ad hoc bespoke, if you like, approach to how we look at commercial real estate exposures at individual community banks. Ms. Wexton. But it is fair to say that these are institutions that are more likely to fail if we see commercial loans go bad in large numbers. Is that correct? Ms. McWilliams. I would say that it would be one of the factors that could lead to their failure if it is not managed appropriately and the management doesn't have experience in how to deal with it. Ms. Wexton. What are some of the indicators or warning signs that we are seeing now in the commercial real estate sector that give you pause for concern in the FDIC? Ms. McWilliams. We are certainly looking at a number of buildings. And there was just an article this morning that folks are subletting their leases. They are realizing they don't need the high level of occupancy in the square footage that they have seen in the past. And so, we are working with our banks to make sure they understand what the exposure is. This is not a--kind of a snapshot-in-time exposure. Most of these leases are multi-year, in some case, multi-decade leases. And we want to make sure that small banks, in particular, have the ability to manage those portfolios, are working proactively with their borrowers, they understand where the companies that own these buildings are in their economic cycle, and also reaching out to both regulators, us, and their examiners to charge if they foresee any issues. Ms. Wexton. But these losses are slow to materialize because of the duration of those loans and everything else? For example-- Ms. McWilliams. I'm sorry. The first part of the-- Ms. Wexton. --and they didn't peak until 3 years after the 2009 recession. Is that correct? Ms. McWilliams. I'm sorry, the question--it broke up in the first part of the question. Can you repeat it, please? Ms. Wexton. I was just saying that it takes a while for these losses to materialize because of the duration of the loans. Ms. McWilliams. It generally does, yes. Ms. Wexton. Right. But the fallout when these loans go bad won't just be contained to the banking sector, because--can you talk a little bit about the exposure to pension funds and others and what that will mean? Ms. McWilliams. Sure, and it truly is an ecosystem. The reason that some of those folks who are renting commercial space are unable to make their payments is because the commercial activity has subsided, which is generally a sign of the economic downturn. And so, that is something we have tried frankly to prevent with some of the actions we have taken over the past few months. Certainly, the ecosystem doesn't stop with the borrower and the lender. There are investors in the banks that have exposure here as well. To the extent that these commercial real estate loans get securitized, we have exposure in the secondary market, as you mentioned. So it is not a simple formula whether it is-- Ms. Wexton. I am running out of time, and so I just would ask, other than banks increasing their reserves to absorb loan losses, what else should we be doing to head off this situation? Is there anything else that you would recommend? Ms. McWilliams. I can tell you from our perspective, we are working with individual banks that have high concentrations in the affected industries, including commercial real estate throughout the country. I can't think of any recommendations right off the bat. If we exhaust our regulatory discretion in how we can address and work with these, I will certainly let you know. But the best thing we could do is-- Ms. Wexton. In my last 15 seconds--I am sorry to interrupt you, but do you think that you have the authority to extend the troubled debt restructuring theory beyond 6 months as a regulatory matter of course, or do you need statutory authorization to do that? Ms. McWilliams. There are two different TDRs: one in the CARES Act: and the other is our personal individual FASB to take concurrent by FASB to do so for us. Mr. Green. The gentlelady's time has expired. The Chair now recognizes Ms. Porter for 5 minutes. Ms. Porter. Thank you. Mr. Quarles, the Fed is largely responsible for dispensing the $500 billion in taxpayer money that Congress provided as a bailout for corporate America, the biggest bailout in our country's history, potentially. Using taxpayer dollars to buy bank debt was never part of that plan. In fact, the Federal Reserve stated, explicitly in this document, that it would not be purchasing bank debt. What happened? Mr. Quarles. I couldn't quite tell. I am on the grid, but I couldn't quite see what the document was, so I am not quite sure what document you are referring to. Ms. Porter. It was the Federal Reserve's own rules regarding the frequently asked questions for the Primary Market Corporate Credit Facility. And what it says, in fact, is that-- what bonds will be included. And it says, those that are issued by an issuer that is not an insured depository institution holding company or subsidiary of a depository holding company, in other words, a bank. So, the Secondary Market Liquidity Facility-- Mr. Quarles. Yes. Ms. Porter. The Corporate Credit Facility and the Secondary Market Corporate Credit Facility said they weren't going to be buying bank debt. That is in the FAQs, which I am going to put into the record, so what happened then? Why are you buying--why is the Fed bailing out the big banks? Mr. Quarles. Yes. I understand the question now. No, we haven't bought bank debt in those Facilities. To begin the-- Ms. Porter. Mr. Quarles, reclaiming my time, has the Fed, as part of a coronavirus bailout, purchased bank debt, yes or no? Mr. Quarles. No. We have purchased-- Ms. Porter. Okay. What is an exchange-traded fund (ETF), Mr. Quarles? Mr. Quarles. As I was getting ready to say, we have purchased exchange-traded funds at the very beginning of the process in order to jump-start the reignition of the economy, and we stopped purchasing exchange-traded funds several months ago. Ms. Porter. Exchange-traded funds, for everyone who is watching, are just baskets basically of stocks issued by a variety of companies. And is it not correct that the Fed bought $1.3 billion in ETFs? Mr. Quarles. That number sounds right. Ms. Porter. Okay. So, this is our-- Mr. Quarles. But that is not $1.3 billion of bank debt. Ms. Porter. Okay. No, so it is $1.3 billion in exchange- traded funds. And my question for you is, how much of that was bank debt in those exchange-traded funds? Mr. Quarles. Yes. I can get that information for you. I don't have the numbers in front of me. Ms. Porter. Well, it was a lot, right? The bank money that is in these exchange-traded funds, this is companies like JPMorgan Chase. Their debt is in there. And it is a big problem that you did this. A White Paper published by the Yale School of Management showed that, in fact, 15 percent of all that ETF purchased was for big banks, and ultimately, to the tune of more than $2 billion in taxpayer money. Mr. Quarles. I am not-- Ms. Porter. This is a headline from Bloomberg, ``Despite Stated Exclusion, the Fed Is Buying Bank Debt.'' Would you like to revise your statement about--your earlier answer when I asked you whether or not the Fed had purchased bank debt as part of coronavirus relief? Mr. Quarles. No. That answer was entirely accurate. We have not purchased bank debt. We purchased ETFs. Those ETFs-- Ms. Porter. Do those ETFs contain bank debt? Mr. Quarles. The ETFs contain a portion of bank debt. We stopped buying the ETFs several months ago. It was important to buy the ETFs in order to jump-start the general process of restoring the economy, which has benefited everyone. Ms. Porter. So, what happened here is you said you wouldn't buy bank debt. Then, you crafted a loophole using ETFs so the Fed could buy bank debt, a loophole buried in a subparagraph of rules on the Fed's website, and this loophole essentially swallowed up $2 billion in taxpayer money during COVID to bail out big banks, even as you told the public that the money could not go to any bank? Mr. Quarles. We did not purchase any bank debt. If we had not purchased the ETFs, we would have had a credit market implosion that would have been devastating to the economy. No one would have wanted that. As soon as that was no longer necessary, we stopped purchasing ETFs. Ms. Porter. Reclaiming my time, who is the world's largest issuer of ETFs? Mr. Quarles. I don't know, off the top of my head. Ms. Porter. BlackRock. Mr. Quarles. Probably BlackRock. Ms. Porter. BlackRock, yes. I think you do know that. BlackRock. Who is Larry Fink? Mr. Quarles. Larry Fink is the CEO of BlackRock. Ms. Porter. Did the Fed hire Larry Fink and BlackRock to advise it--and this seems beyond belief to me--to buy BlackRock's own ETF products? Mr. Quarles. I'm sorry, the alarm had gone off. Mr. Green. The gentlewoman's time has expired. The answer may be submitted for the record. Mr. Quarles. Thank you. Ms. Porter. Mr. Chairman, may I submit these documents for the record? Mr. Green. Without objection, it is so ordered. Ms. Porter. Thank you. Mr. Green. Mr. Rose is now recognized for 5 minutes. Mr. Rose. Thank you, Chairwoman Waters and Ranking Member McHenry, and thank you to our witnesses for being here today. Like many of my colleagues, I also want to thank you for the great work done by our regulators throughout this pandemic response. Your swift efforts to accommodate regulatory and supervisory policies were extremely important, and moving forward, I urge you to continue to be flexible to ensure a strong economic recovery. Nearly 60 percent of the automated teller machines in the United States are independent, nonbank terminals. It is those ATMs that are typically found in low-income communities and thinly-populated rural areas in which there are few, if any, bank offices or bank-owned ATMs. The widespread closures and denials of bank accounts to businesses within the independent nonbank ATM industry present a serious threat to the financial stability, not only of consumers who live in the area served almost exclusively by independent nonbank ATMs, but also the tens of thousands of retail and service businesses serving these consumers on a daily basis. In a Financial Services hearing on February 15, 2018, the National ATM Council's Tim Baxter testified about the, ``widespread and severe consequences that in, recent years, have resulted from financial institutions' practice of de- risking,'' and I might add, the prejudicial treatment that was a direct result of Federal regulators' implementation of Operation Choke Point in 2013. He noted that it is impossible for ATM operators to do business without having a bank account. But even with the end of the Operation Choke Point initiative, independent ATM providers were increasingly being notified by their banks, without explanation, that their deposit accounts were to be closed, or, in some cases, already had been closed. My question for you, Chairman McWilliams, Vice Chair Quarles, and Acting Comptroller Brooks, is, could each of you describe what the regulators are doing to address the fallout, the ongoing fallout from Operation Choke Point and its effect on ATM owners and the operators who are still having their accounts closed? Chair McWilliams, you may begin. Ms. McWilliams. Sure. And I suspected the question was coming my way, so I reached out for the pronouncements we have issued in the past. Certainly, we have made, I would say, very concentrated and concerted efforts to make sure that our institutions understand and offer services to the businesses in their communities, including businesses that might have been ostracized in the past by so-called Operation Choke Point. I have a statement I issued in November of 2018 telling our colleagues at the FDIC to make sure that when we examine banks, we were clear in our communication. We have resolved a lawsuit that was pending against the FDIC in connection with Operation Choke Point, even though that operation wasn't necessarily named Operation Choke Point by the FDIC. But in any case, we have issued a statement basically saying that financial institutions should have the ability to assess the risk profile of individual clients, and do so in accordance with their risk appetite and management practices. And then, we have a statement that we issued in 2015, basically saying that the FDIC encourages institutions to take a risk-based approach in assessing individual customer relationships, rather than declining to provide banking services to entire categories of customers without regard to the risks presented by an individual customer or the bank's ability to manage the risk. I don't know what else to say, to tell you the truth, to make sure that it resonates down to individual institution's level that they should not shut out the entire industry, or the entire type of business, but that they should manage that risk based on their risk appetite and management's experience in handling the type of risk that they may be concerned about. Mr. Rose. Thank you, Chair McWilliams. And I see our time is about to expire. I recently led a bipartisan letter to the three of you, Chair McWilliams, Vice Chair Quarles, and Comptroller Brooks, and I would just encourage you, the three of you, to respond to that in a timely manner. And thank you for your answer, Chair McWilliams. And with that, I yield back the balance of my time. Thank you. Mr. Green. The gentleman's time has expired. Mr. Taylor is now recognized for 5 minutes. Mr. Taylor. Thank you, Mr. Chairman. I appreciate this hearing. I think this is important. I wanted to dig down on forbearance with our banking institutions. I recall the March 13th guidance that came out about forbearance for banks. This question, by the way, Mr. Brooks, is for you in your capacity as Acting Comptroller of the OCC. My question is, at what point are you going to start telling banks you have forbeared long enough, it is time that you start looking at foreclosure for assets? This borrower cannot pay. How are you thinking about the end of forbearance? And I will say that forbearance is extremely important. We have seen real trouble in the commercial real estate space, building on what Ms. Wexton was talking about earlier, where you have CMBS loans that don't have a forbearance mechanism in them that the OCC has been able to guide for banks. So, that has made banks much more flexible as a credit facility, but at some point, that flexibility ends. Where do you think it will end, Mr. Brooks? Mr. Brooks. Congressman, that is a great and really important point. I would start by saying, one of the lessons we learned in the financial crisis is that two things in a downturn like this are equally important: one is making sure that you provide loss mitigation guidance and forbearance for everybody during a crisis; and the other is unwinding all of that as soon as the crisis abates. And the reason I say that is so important is that the data in the financial crisis shows that those States that extended long eviction moratoriums and long foreclosure prevention programs long after the immediate crisis was there had the most sustained real estate downturns, the longest term unemployment, and the most sustained sort of decline in overall real estate prices relative to States that came back to normal faster. So our basic view is it was appropriate to put forbearance programs in place right away, as soon as the pandemic was recognized as a crisis, but it will be equally important to go back to normal with not one moment to spare, lest we repeat the mistakes of kind of the 2012, 2013, 2014 era post-financial crisis. And so, the way we look at things is basically this: First of all, banks learned in the financial crisis that it is in their interest to make net present value positive loan modifications. They get that. And every CEO I talk about is fully aware of the fact that anybody who reasonably can repay should be kept in the loan or kept in the property until such point as they are able to start doing that. There will come a time, almost certainly, where there will be some amount of long-term permanent economic damage here. And in those circumstances, we are not doing anybody a favor by pretending like those assets are still assets on the balance sheet of a property. The reason that mortgages and secured loans are a lot cheaper than credit card loans and unsecured loans, obviously, is because they are secured by collateral, and at a certain point the safety and soundness of the system requires that execution against the collateral occur. I don't think we are there yet. It is very clear that at this point, we are still in the midst of the late stages of the pandemic, but I would be surprised if in one or two quarters, given the vaccine, the therapeutics, and the economic upturn, that at some point, the data will suggest that a return to normal is required, and at that point, we are going to need to go back to normal treatment of collateral. Mr. Taylor. Okay. That is helpful. So you are sort of saying one to two quarters. And then are you--as you go and do your inspections with banks, with institutions, when it is clear to you, look, this company is in bankruptcy, or their customer base is completely gone, there is just no way they are--they are not coming back any time in the near future, are you pushing those institutions to start to foreclose and move with the collateral, or are you still saying, just keep it on your books, forbear, let's just keep your balance sheets strong or make it look strong even though it is not strong? Mr. Brooks. No, Congressman, I say just the opposite. One thing I have been very clear about, and I have been speaking to State bank trade associations about this twice a week for the last 6 or 8 weeks, is that we are not blaming any banks for originated good credits that went south in the pandemic. But what we are very focused on is making sure that banks are classifying loans as it becomes clear that they are not going to repay so that we can assess that risk, they can take provisions and they can prepare to do charge offs and foreclosures on the back end of that. We have been very focused on that. Having said that, there is good news still in the system, and this picks up on a point that Vice Chair Quarles made a couple of hours ago, which is, there is still some amount of dry powder in the system from the PPP program, a series of other programs put in place. So we can still see in bank--in deposit accounts that there is enough runway, even for some small businesses that are not currently doing business to continue to make payments out of the proceeds of those loans. That runway, obviously, will expire, and when it expires and there is no reasonable prospect of those customers going back in business, there will be foreclosures and defaults at that point. It is one of the reasons that I emphasize the need to look at-- Mr. Taylor. My time has expired. Thank you, Mr. Brooks. I yield back. Mr. Green. The gentleman's time has expired. And I must announce at this time that Mr. Casten will be the last person to ask questions. Mr. Casten, you are now recognized for 5 minutes. Mr. Casten. Thank you, Mr. Chairman. And thank you all for being here. As those on this committee know, I am here in Congress because I am deathly concerned about climate change. It affects every aspect of our lives, our health, our national security, and our financial system. And the effects of climate change, both physically and financially, are nonlinear, but our human brains think in linear patterns, which makes us prone to massive undershoot, which is what we have done over the last 30 years. In that context, I was very pleased to see that the Fed finally listed climate change among risks in its biannual Financial Stability Report, and I was happy to hear that the Fed is going to join the Network for Greening the Financial System (NGFS), reversing its earlier position. I want to start with just a quick yes or no across the panel. Do you believe that climate change poses a significant financial risk, yes or no, Vice Chair Quarles? Mr. Quarles. I believe that it certainly poses a risk that we need to understand. I should state that we did not reverse our position on joining the NGFS. We have always-- Mr. Casten. I understand. Mr. Quarles. --been talking with them about joining. Mr. Casten. Well, participating, but were not joining. Yes or no, Chair Hood, do you believe climate change poses a significant financial risk? Mr. Hood. I believe it is a risk that is worth understanding more so we can get better clarity and so we can really try to mitigate it. Mr. Casten. Chair McWilliams, yes or no? Ms. McWilliams. It's a risk we have asked our banks to take into account when underwriting loans and considering risk management in general. Mr. Casten. Acting Comptroller Brooks, yes or no, does it present a significant financial risk? Mr. Brooks. I would echo the comments of my colleagues. Mr. Casten. Okay. I am a little troubled that you all seem to be hedging on the word, ``significant,'' but moving on from there, Vice Chair Quarles, the Fed has previously said to your point that they would stay on the sidelines in the NGFS, but this week announced that you would request membership. Can you give any color on what prompted the change in approach, Vice Chair Quarles? Mr. Quarles. There was no change in the approach. We have been talking with the NGFS about joining them for some time. They had indicated that would not be possible until recently. Mr. Casten. Okay. Well, I am glad that you joined. About an hour ago, I was pleased that Chairman Powell, said, ``We do think that central banks and we here at the Fed have a contribution to make. The focus is on incorporating climate change risk into financial stability and bank regulation.'' And, ``It follows from our assigned legal mandates that we do this work.'' Vice Chair Quarles, do you believe that we currently have enough insight into banks' climate risks to appropriately assess the overall health of the banks and the financial system as a whole? Mr. Quarles. I think we can always improve it, but we do have mechanisms to understand risk of the banks, including [inaudible]-- Mr. Casten. Do you believe that the Fed has the existing authority to stress test financial institutions for potentially systemic risks, including, but not limited to, climate change, in the absence of congressional mandate? Mr. Quarles. Oh, yes, but we certainly don't need a congressional mandate to do that. There is a great deal of work that would be needed to do that properly. The Bank of England is probably--has done most of the--has probably most advanced in thinking about that, and they are still very preliminary in doing that. They have had [inaudible] Their approach on stress testing for climate. Mr. Casten. I don't know if there was a difference of opinion in the way that you all answered the question at the start, but let me be very clear: There is a significant risk associated with climate change. There are hundreds of billions of dollars of loss in assets. If you were to agree with me that there is a significant risk to the financial system, do you believe you have the obligation to stress-test the financial institutions for those potentially systemic risks? Mr. Quarles. We will stress-test all of the risks that are modelable. We do that. Mr. Casten. I hope that you can appreciate my question. We have huge amounts of loss on coastal properties, huge amounts of loss from forest fires across the country. We are going to be through the Greek alphabet pretty soon and into the Hebrew alphabet if we are not careful on the hurricanes that are hitting our shores this year. I don't know actually if the Hebrew alphabet follows the Greek alphabet; I just know that we are getting near the end of the first one. But if what it takes is congressional direction to act, then the bill that I have been leading with Senator Schatz, the Climate Change Financial Risk Act, is necessary. But I would hope that you all are willing and able and have the obligation to do that beforehand because these risks are massive, and as I said at the start, our human brains don't do very well with nonlinear change. Albert Einstein's great line was that the most amazing thing ever invented was compound interest, and we are in a very nonlinearly changing world. Thank you, and I yield back my time. Mr. Green. The gentleman's time has expired. On behalf of the chairwoman, I would like to thank our distinguished witnesses for their testimony today. The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous materials to the Chair for inclusion in the record. This hearing is now adjourned. [Whereupon, at 3:34 p.m., the hearing was adjourned.] A P P E N D I X November 12, 2020 [all]