tv Senate Banking Hearing on Oversight of Financial Regulators CSPAN May 17, 2019 9:08am-11:04am EDT
c-span is your unfiltered view of government so you can make up your own mind. >> the house will be in order. >> for 40 years, c-span has been providing america unfiltered coverage of congress, the white house, the supreme court, public policy events from washington d.c. and around the country so you can make up your own mind. created by cable in 1979, c-span is brought to you by your local cable or satellite provider. c-span, your unfiltered view of governme government. >> the senate banking committee held an oversight hearing with the nation's financial regulators. they remembered from the heads of the office of comptroller of currency, the federal reserve, the federal deposit corporation and the national credit administration.
this is just under two hours. >> the committee will come to order. today we will receive testimony from joseph otting, the controller of the krnsy, randa currency. >> the chairman of the fdic, and rodney hood chairman the nca. thank you for being here. this committee provides the opportunity to examine the current state of and recent activities related to residential supervision. reports that the economy over the las five years has contributed to the robust financial performance of the u.s. banking system and that over the past five years the banking system has expanded loans by nearly 30%, an encouraging development. it's been nearly a year since
the enactment of the senate bill and the consumer protection act. in each one of your agencies has taken additional steps for key provisions of that bill. i appreciate your agency's diligence to get these and other rule makings out quickly, you ever who, there are aspects of some recent proposals that merit further attention. including the community bank leverage ratio, senator moran and i wrote to most of you recently, encouraging you to establish the cdlr at 8% and ensure that the proposed prompt corrective action frame work for the cblr would not unintentional unintentionally deter them from use the cblr framework. invoking the volcker rule and providing the covered funds definitions overly broad application to venture capital. and other long-term investments and loan creation.
harmonizing margin requirements for interaffiliate swaps by the cftc. indexing any dollar-based threshold in the tailoring proposals to grow over time, generally in line with growth in the financial system and continuing to example will they applied to the u.s. operations of foreign inks bah are tailored to the risk pre-file of the relevant institutions. and consider the existence of home country regulations that amy on a global basis. turning to guidant and supervision, the banking committee held a hearing last month on guidant and supervisory expectations and the rule of law. during that hearing, the committee examined situations where the federal banking system enacted guidance or policy statements that are enforced as rules an and therefore comply with neither notice or rule making processes nor with the congressional view act. i urge each of your agencies to
continue to follow the cra and submit all rules to congress even if they haven't gone through the formal notice and rule making and provide clarity about the applications of guidance. more can be done within your agencies to educate and ensure that supervisors know how guidant should be treated and that they do not use the discretion provided to them by congress in inappropriate ways. i was encouraged that vice-chairm vice-chairman quarrels last week on the financial regulatory agencies to think very carefully through what the agencies mean by supervision ap what they mean by regulation and how to use each appropriately. i was encouraged this was proposed rule making to revise its controlled rules under the bank holding company act. vice-chairman qu schs quarles,
proposal allows public comment on those positions to improve their content and consistency. i urge the fed to thoughtfully consider the severe restrictions on business relationships and whether business relationships should apply to expenses of the investee and investor. while i have you all here i would stress the importance of the agency's remaining neutral, unbiased, nonpolitical, especially when it comes to reviewing bank mergers and applications, as your agencies have done successfully for many years. i appreciate each of you taking the time to testify today and i look forward to hearing more about your prospective agencies through the rest of 2019. senator brown. >> thanks, chairman. welcome all four of you.
as regulators, your jobs are important to this country and you know and we've talked. as you look at the rules that the regulators have torn up over the last year and a half, you have to wonder if they want to see another financial crisis. 2006 back when trump was just the president of a fly by night university handing out worthless diplomas. he was asked about the possibility of housing prices collapsing and thrown into chaos, he said i sort of hope that happens because then people like me would go in and buy. think about that for a moment. it really sums up the president's philosophy about this economy. he basically said, he doesn't care what happens to millions of hardworking families as long as it benefits people like him. quote again, i sort of hope that happens because people like me can then come in and buy. and maybe that's why the economy today seems to be working so well for people like donald trump, but not so great
for everybody else. things look pretty great for banks as the chairman said. pretty good for real estate investors, wonderful for the wealthiest americans, ceo pay is up and up and up, stock buybacks are up, real estate prices are up and the trump tax plan helped them, too. but if you care about the dignity of work, if you punch a clock or swipe a badge, your wages are flat. if you honor work, respect work, stay at home parent on take care of elder relatives, you struggle to get by. they're experts are looking out to make sure that there's not another crisis on the horizon that's going to wipe away all of their hide work. vice chair quarles. i appreciate you going to cleveland and in a constructive
way and you heard 44105, my neighborhood slavic village and the highest number of foreclosures in the first half of 2007 of any zip code in america, you know how it was devastated by the crisis and how many families struggle and thanks for going and doing that, the last i think this they need is another crisis. there is no bailout for people like them. when president trump was confronted about his comments on the financial crisis, he replied, it's just business. that's not good enough. it's not fair that people like him get to use bankruptcy for sport, but people struggling with student debt-- student debt can't use bankruptcy to save their work lives. it's know the fair that workers with stagnant wages and rising prices are left on their own to fend off fan predators and the
cfpb is making it easier for financial companies and the administration supposed to look out for regular people suggesting that hardworking americans need to improve their financial literacy. these are the watch dogs who are-- sure, we all should, we all should read more and know more. but these are the watch dogs who are supposed to be looking out for the american people to make sure they're not steered into a shady loan or an unaffordable mortgage could bankrupt them and concerned with making it easier for wall street firms to make them. and that will never help with slavic village. and may prevent the next crisis and may cause t i'm not the only one. two former fed reserve chairs, one appointed initially by a democrat and one initially by a republican, and two treasury secretaries that saw the last crisis firsthand, delivered a 10-page warning this week about just one of this administration's roll backs on
the safety of our financial system. and fitch, the credit rating agency suggested that the changes regulators are making will make banks riskier and that failures will be more catastrophic. bb and suntrust are on the verge of creating a bank ten times the size of country-wide and this administration so far seems happy to oblige. the new york fed reported that household death is a trillion higher. for people across ohio and america, this isn't just business, it's personal. it's about the hard choices that americans make, when having a budget, and for your child going to community college. being able to envoy a retirement you've earned over a lifetime. your job is to protect them. your job is never to forget, even as-- never to forget what happened
ten years ago even as the virus of collective amnesia seems to have infected the entire republican caucus and the conference in the united states senate. whether it's loosening the rules before mega banks or ignoring risk, and pay day lending, it doesn't em zoo -- seem like you take that job seriously enough. the president appointed you to his jobs. and notwithstanding his attacks on some of you or your bosses or agencies, his personal attacks notwithstanding, you are independent regulators. your job is to make the economy work for everyone, from slavic village to the nicest neighborhood around washington. thank you, mr. chairman. >> i remind our witnesses to pay attention to the five minutes as well as our colleagues on the-- senators to pay attention to the time. and with that we'll proceed in order starting on my left.
you may proceed. >> good morning, i'd like to apologize to the committee for being a few minutes later. i got caught up in the peace officer memorial outside which for a few minutes i thought about skipping this hearing and attending that, but it is an honor to be here, chairman crapo, ranking member brown and i'm honored to be here with my regulatory college, and ensure that the bank supervision operates in the most efficient and effective manner. since becoming comptroller of the currency in 2017, the occ is focused on ensuring regulation and supervision supports bank's ability to support their customers and promote economic opportunity. while still operating in a safe and sound manner, that includes the regulatory relief and protection act of 2018 as well as advancing several items within the agency. the financial performance of the nation's banking system
improved in 2018 and 2019 driven primarily by strong operating performance. capital and liquidity, and activity pre-crisis levels and occ banks reported healthy revenue in 2018. and assets less than 1 billion and increased nearly 50% for the federal banking system as a whole. the tax cuts and jobs act associated for nearly half of the increst and asset quality is traditional metrics such as delinquencie delinquencies, while the banking system is strong occ monitors risk on a continual basis and twice a year in our semi annual perspective. including credit, operational compliance, and interest rate ref. and this continues to evolve in the context of changing
economics and technological and banking operating developments and we work to assure our supervising institutions are appropriately managing these re revs, particularly community banks to operate efficiently and effectively without unnecessary regulatory burden. the economic growth act bipartisan to reduce the burden for small and mid sized banks while safeguarding the systems and we've made progress in implementing this act. the act authorizes the occ to issue one regulation on its own and issue others with fellow safety and soundness regulators. separately, we are consulting with the consumer financial protection bureau and a variety of protection bureaus in the act. and tasks the occ to afford
federal savings loans in consolidated assets and business flexibility without the burden of changing charters. in 2018 the occ proposed a rule to prevent this professional law and we plan for this rule in the near future. in december of 2018, the agency jointly issued final rules to expand eligibility for the 18-month cycle. this changes burdens on well managed banks and the resources on more risky enhancing the safety and soundness of financial institutions. regulators are working together to phenallize others with the remaining provisions of the fact and-- act and most are scheduled to be completed by year end. those efforts include finalizing rules easing for more than community banks, certain rules and regulations mortgages from requirements, narrow the volcker rule for banks engaged in riskier
activity and implement a simplified measure of capital for qualifying community banks or a community bank leverage ratio and regulators are working to implement rules with custodial banks and qualifying for banks in the measure and qualifying deposits such as those at the central bank. we are also focused on allowing banks to treat qualifying investment grade municipal securities at level two liquid assets and limit the type of acquisition, development and construction loans that may be considered high volatility commercial real estate exposure and heightened capital standards and we're looking at certain aspects, a company run stress test for capital and liquidity requirements consistent with section 401 of the economic act. in addition to these rules, occ has focused very specifically on a number of other activities like the community ininvestment act, the bank act and promoting small dollar ticket lending. my written testimony provides
additional details on the federal banking system, the risk it faces and the regulatory efforts underway to ensure that banks serve the needs of their customers in a safe and sound manner for decades to come. i thank the committee for this opportunity to discuss these important issues and look forward to answering your questions. >> thank you mr. otting. mr. quarles. >> thank you, chairman crapo, ranking member brown, and members of the committee, thank you for your time and invitation to testify today on the federal reserve regulation and supervision of the financial system. my visit today comes ten years almost to the day after the federal reserve released the results of its first supervisory suppress test. that exercise was an inhe thinks have of both urgency and necessity and a tool to move the country's largest financial institutions towards safety and stability. many innovations from that period are now regular elements of the federal reserve supervisory and regulatory work. these innovations have helped
strengthen firms damaged by the crisis and given supervisors in the public given a clear view of the financial system, provided a solid foundation for the nation's economic recovery and now, when the financial system and economy are in good health, is the time to consolidate the insights we've gained with experience over time and to better the regulatory frame work that we have built. today, i'll briefly review the federal reserve steps to improve that framework since my last appearance before this committee. and outline my testimony and discuss engagement on consumer and financial stability issues both at home and abroad. almost a year ago, congress passed the economic growth regulatory relief and consumer protect act, a cornerstone of this regulation was directing agencies to tailor oversight of institutions to assure that our regulations mark the character of the firms we regulate with specific regulation between 150
to 250 billion in assets. those proposals share a common goal to focus our energy and attention on institutions that pose the greatest risk to financial stability and those that are mostly to challenge safety and soundness. and a refire department-- and requirements for the foreign banks, according to size, business model and risk profile. the proposal differs for the structural differences of foreign banks and asked for input on a number of important issues. i look forward to reviewing the comments that we receive. we also have been providing targeted regulatory relief especially for community banks and other less complex organizations. the community bank leverage ratio would give community banking organizations a straight forward approach to satisfying the capital requirements, for example and expand community banking and
eligibility for longer examination cycles and holding capital company requirements. and the report acompanies my testimony requires these and other regulatory steps as well as the over all condition of the banking system. in the past half year, the board has also taken steps to consolidate the role that stress testing plays in our work. follows the directive from s-2155, we transitioned from less complex firms to the testing cycle and reflecting the lower risks to larger and more complex peers. we published new details and improved public understanding of the program maintaining the integrity of the results and stress testing conference that takes place in july in order to seek public input on prophesies and capital planning and qualitative efficiencies at most firms through supervisory rating and enforcement rather
than a stand alone qualitative objective. as detailed in my written testimony we have taken over steps with our frame work, making it simpler and more trance parent and we continue to engage with our regulatory counterparts overseas through standard setting bodies in the board where i recently began a three-year term as chair. the strengths of our financial system today rests on insight, patience and persistence of a decades work on post-crisis reform. only by thoughtfully evaluating the reforms we've made and adjusting when appropriate can we preserve and improve the efficiency of the regulatory framework, thank you and i look forward to answering your questions. >> thank you. ms. mcwilliams? >> thank you, good morning, chairman crapo, ranking member brown, members and staff of the committee. it's always nice to be back in in room. thank you for the ability to testify about the fdic's
efforts to oversight of institutions of all sizes and making sure they're serving their communities. the nation's banks are at the center of economic in the area. forms of backbone of a strong national economy. for these reasons, the fdic's oversight of banks is critical to financial stability and consumer protection. it is incumbent upon us to exercise our oversight judiciary in a manner that recognizes each university's unique business model and profile. my written statement details the many actions the fdic has taken independently and in cooperation with our regulatory partners to assure that we're appropriately addressing risks to the system and are not imposing unnecessary regulatory burdens, that might impede safe and security banking activities. and also contains an update on the progress we've made in
economic growth. regulatory relief and consumer protection act. in addition to our supervisory role, the fdic is tasked with resolving failed banks and called on large banking holding companies and other systematically important financial institutions. the fdic reviews bankruptcy planning and holding companies and the resolution plans filed by larger ensured depository institutions. this week along with other measures improved our readiness for these resolutions and helped ensure that market participants, not taxpayers bear the risk of lost in the event of large bank failure. most of my professional life has been focused on the industry. i understood how important our banks were to the economy. unless i had real conversations with bain bankers, their customers and supervisors on the state tour how our
community banks are in the fabric of the communities and customers' life. across the country the bank helped to fund a grocery store, barbershop, restaurants, local libraries and small businesses. in rural communities and urban settings our banks provide a critical lifeline for lower income customers and structural services. it's the fdic that provides the consumer with the confidence to trust those banks with their deposits. i would be remiss if i did not mission the 6,000 dedicated fdic employees who go to work every day, laser focused on protecting the stability of 0 our financial systems and we fulfill our mission and regulatory mandates to promote confidence in the u.s. financial system. thank you again for the opportunity to discuss that today and i look forward to your questions. >> thank you, ms. mcwilliams. mr. hood. >> chairman crapo, ranking
member brown and members of the committee. thank you for the opportunity to testify today about the state of america's federally insured credit unions and the efforts to maintain a safe and sound credit union system. federally insured credit unions are vital to the economic stability across america. more than one third of u.s. households are members of credit unions. in 2018 the credit union system continued to perform well. by year's end credit union membership grew to more than 116 million members. 1.45 trillion dollars. the credit union system was well capitalized with a ratio of 11.3%. well above the 7% statutory requirement. the share insurance fund is strong. so strong, in fact, that we have been able to issue nearly 900 million dollars in share insurance fund dividends over the last two years.
and capability of people of modest means and strengthen communities across the country. my priority is to strengthen the value of the credit union industry to bolster more in the underserved communities. in rural areas, persons with disabilities and low to moderate income households. to that end, i am working closely with the agency senior leadership, especially the offices of minority women inclusion and credit resources and expansion, to ensure that ncua is doing everything we can to assist small and low income designated credit unions, including encouraging the denove denovo depository institutions. navigate the process for becoming communities development financial institutions. we're also providing grants to low income designated credit unions through our community development resolving loan fund. last year ncua awarded over $2 million in technical assistance
and urgent needs grants to 211 credit unions to help them develop new products and services, recover from natural disasters, and offer financial services to banks and populations. just last month we entered into a partisanship with the small business administration to help credit unions better utilize sba's programs. i further intend to leverage my experience as a former rural housing administrator at the u.s. department of agriculture in order to seek additional opportunities to connect credit unions in the rural areas to existing public sector lending programs and next week, i have the honor of presenting a new federal credit union charter that will serve the native american community. this low designated credit union will provide much-needed services to one of our nation's most underserved areas. on the regulatory front we're
constantly monitoring our regulatory so that the rules are effective, but not excessive. we're in the process of credit unions allowing them to safely extend safely small dollar loan options. wherever we have the authority to improve the system and provide for credit unions, we are doing our level best to do so. while the credit union is strong and mission, i remain focused on the various risks posed by the rapidly changing financial services landscape. frankly, one of them, cyber security, keeps me up at night. cyber attacks pose an enormous threat to the entire financial system including credit unions. the credit union system is especially vulnerable to this risk because, the lack of legal authority to identify and address systemic risk within the system. however, strengthening our cyber defenses is one of the
authorities -- how best to address the challenges. as chairman i intend it employ the to battle the cyber security threats for the agency and its members. i want it close by highlighting an area that would help credit union better serve their members especially those of modest means. amending the federal credit union act to add underserved areas for field of membership and promote financial inclusion and shared prosperity and underserved communities. i look forward to working on these and other legislative issues. thank you for the opportunity to testify today, i look forward to your questions. >> thank you very much, mr. hood. and to each of you, i appreciate the attention that you've shown in your written testimony as well as your comments today toward
implementing senator bill 2155 as it was intended and i appreciate your efforts. i had a lot of questions that i was going it ask on that, i'll probably submit these to you because i'd like to go into sort of a broader issue that continues to get raised. i noted in my introductory comments that as a result as i think senate bill 2155 and of the regulatory activities we're seeing you engaged in, that we've seen a very strong performance of the financial industry, the financial sector in the united states. and i noted that that had caused the banking system to expand its loans by nearly 30% over the last five years. the attack that is being made seems to imply that that is just benefitting the wealthy, that the loans have been called-- this increase in the ability of our system to provide this-- these loans is putting shady loans on folks in the united
states, who are not of such wealth that they can access higher quality credit, and the list goes on. i'd just like to ask-- i don't want long answers because i want to go further. but who are the beneficiaries of this successful financial industry activity? is it big, wealthy donors or do they have access already to credit? who are those in our society who are benefitted by this increase in a strong, stable banking system? anybody can jump in on that, mr. quarles? >> well, i think that a dynamic economy benefits everyone. i think we see that currently in the strength of the labor market. we've been bringing people back into the labor market. our labor participation force has been increasing. the unemployment rate lowest as
half a century and all of that benefits broad populous and reflects we have a strong economy supported by a dynamic financial sector. >> and as small businesses, credit unions members and-- >> ms. mcwilliams. >> just from my businesses in the midwest in particular, it's the farmers able to get access to credit and small businesses, as well as the consumers to both refinance their mortgages at better terms and for their kids, school, et cetera, et cetera. we have been very pleased with the economic activity and the ability of banks to lend credit and from my personal experience i could barely refinance my loan in 2008, the better terms that they're able to refinance their home mortgages. >> mr. hood. >> yes, senator crapo, the members are benefitting. 160 million members that i mentioned a good 40% of those would be classified at low or
moderate income. they're getting loans for autos, for their mortgages and seeing an increase member business lender thanks to senate bill 2155 so thank you. >> this can be a quick answer by any of you who wants to, but are these shady loans? >> they're well underwritten loans, sir, with strong underwriting criteria. >> that's what i thought. >> so, senator crapo, i'd like to comment. i think it's across the economy, however, there are certain segments, like the small ticket, small business and small lending that banks were kind of forced out of we've been working the last year and a half to bring banks back into the space. it's abouten served predominantlily by on-line lenders and things we're doing with cra to open up things in economic areas that are distressed will be helpful, but i think that chairman hood's point these are strong, well underwritten loans with good loan to values, good dti's done in the market today.
>> well, thank you. and this question is, i guess for you, mr. quarles, a letter sent out the last day or two from former fed members and ben bernanke and janet yellen, want that referencing an f-soc rule? >> yes, it was for the proposal of activities based approach to stability regulation. >> and with regard to the-- other than the activities-based focus, which i think is a risk-based focus, rather than just a numbers focus, does that letter refer to any other implementation much senator bill 2155? >> no, it's focused entirely on that one measure. >> that's what i also thought and my question is this, and en engo-- i'd like-- actually i'm down to seconds,
and i'm going to follow my own five minute rule and move on to senator brown. >> thanks, mr. chair. i appreciate that. mr. otting if a car manufacturer cut corners and sold unsafe cars that harmed millions of american families, would you recommend that the government respond by recommending a car machine literacy so they can decide for themselves if the car is safe? yes or no? >> i don't think it's a yes or no answer. i think you'd have to understand-- >> well, kind of. >> i don't view it as a yes or no answer. >> i'll try another. mr. hood, if a drug company cut corners and sold tainted sprin prescriptions that hurt millions of americans, would you say there should be a pharmacy literacy so that the drugs are safe?
>> i'd need more information on that and likely i would need-- >> common sense would be the information that would come to mind. >> okay. >> i guess the question, obviously, begs the question why can't we protect americans from dangerous financial products like we do in every other industry. i can't imagine any citizens stuck in traffic or not that would come here and ask that question, of course, they'd say consumer should have consumer protections for autos. of course they'd say government should have consumer protections for pharmaceuticals and of course, governments should have consumer protections for financial products. let me flip to a moment to mr. quarles. i'd like you to just -- i want to ask you a couple of questions, mr. quarles ch: i want to read you a couple of your quotes, questions, and in answer to these, precise and
concise. i want to read a couple of your quotes and tell me if you said these quotes in 2006 before the subprime mortgage crisis and one of your earlier jobs or if you said it earlier this month about leverage lending? and i notice leverage lending got a bit short shrift on the testimony today even though we have a number of written letters to each of you about the importance of it and you're on verge of a major decision. if you said these, in 2006, direct quotes or said more recently, for the most part banks that are originating these loans are not keeping them on the books. did you say that in 2006 or earlier this month. >> i believe i said-- [inaudible] thank you, that's true. >> and if there were to be a sudden repricing i wouldn't expect that would be financially stabilizing did you say that leading up to the
subprime crisis in 2006 or earlier this month? >> i said it earlier this month. >> good, correct. regarding an economic down turn, you said i have to say this is an unlikely scenario. i have to say this is an unlikely scenario was that recently or back in 2006? >> that was in 2006. >> man with a good memory. dismissing news reports regarding risk to the economy, you said, earth must be getting hit by a meteor. was that earlier this month or back in 2006? >> i used that phrase a lot, but i refer to the earth getting hit by an asteroid or not getting hit by an asteroid about a week ago. >> thank you. many financial experts and regulators agree that leverage lending is a serious concern. i'm not-- i was not impressed, first, at the cursory mention and testimony today about the importance of leveraged lending. and the risk. i wasn't impressed by the
response we got from secretary mnuchin on a couple of approaches from him. given that the subprime crisis took you, mr. quarles and frankly all the regulators by surprise back in the bush years, how should i know about the actions and comments about leverage lending, how should i know whether the economy is safe or you're bad at making economic predictions. why should the american public feel safe with your actions here? >> so there's not a lot of time left and we have done a lot with respect to leveraged lending. let me try very concisely to go through some of this and i'll be glad to expand later or if qfr if you'd like. there's a question of risk to financial stability. there's a question of a potential change in the pricing of these assets, given the volume of them that has increased, to perhaps amplify
an economic downturn in the future. there's an important difference between the two of them, two different questions. we've done a very careful analysis of whether a sudden repricing of that asset class could have amplifying effects, as opposed to amplifying a future business down tturn, we don't think it will. we are concerned and appropriately so about what is the right regulatory response to developments in the underwriting of leveraged loans that could affect a business downturn in the future and in the last shared credit exam, which the banking agencies jointly look at the largest credit in the country and we looked at leveraged underwrith practices and identified some, a number where we felt there needed to be improvement and we
examined the banks-- and we made clear to the banks that those improvements would be appropriate. so we have a-- at the financial stability board we have been looking on a global basis. one of the first thing i did was begin a process to look at where exposure to the clo structures in which most of the leveraged loans are held is held around the globe so we've looked at it in the united states, but not sure where it's held around the globe and since we're in an interrelated financial system, it's important that we understand that and we expect by later this fall or by the end of this year to have a much more granular and better understanding where that risk may lie and whether there may be appropriate responses to it. so there's been a lot of activity, a lot of careful analysis. i think it's important with respect to the comments you made, important to draw a difference between the point i was making that i don't think that there is a risk to the financial system, to the financial stability versus the
question of are there issues we ought to be thinking about, you know, the business cycle and the way that the leveraged lending and the volume of leverage lending and underwriting standards might take into account. i'm sorry i went over. >> i'm sorry, mr. chairman, and it's important though to look at history and listen to your predecessors who warned very stern languages to fed chairs and bush appointed fed chair. >> thank you very much for our panel for being here. i was involved when this committee passed legislation to reform, alter dodd-frank, it occurred on a straight party line, every republican voting yes, every democrat voting no. it became here that the opportunity to make some substantive changes in the regulatory environment for lenders would not occur, there weren't 60 votes on the floor
of the united states senate to accomplish that. we then spent two years trying to figure out among republicans and democrats on this committee what we could accomplish. the end result was 21-55. i was pleased for what i thought would be the outcome of 2155 and consequences on those who lend money, more importantly the lenders, those who are the recipient of the credit. unfortunately, when i talked to kansas lenders today, and ask what was the consequence of 2155, it's a bit of a shrug of shoulders, hope that something's going to happen. we haven't seen much relief, i was also pleased to see that republicans and democrats, i want the united states senate. i want this committee to function. i was pleased to see we could find common ground and pass important legislation on topics that affect the country and if the end result of what i've seen to today on 2155 is the
final result, then in my view we've failed. i don't know who we is. congress, the regulators. there is simply not enough consequence to the passage of 2155 out in the real world. as chairwoman mcwilliams, i very much appreciate you seeing, listening, learning, travelling the country. it's those bankers and particularly their customers that i'm the most concerned about. i'm particularly concerned about agriculture today when commodity prices are what they are, when weather has been what it's been. the survival of our family farms, our agriculture communities in rural america is at stake and i'm of the view that in the absence of a relationship bank, let me say that differently, a relationship between the banker and the lender, the ability for agriculture's future is minimized significantly. and i've used these hearings as an opportunity from time to
time to provide examples of that, but the reality is, when times are tough and agriculture, the survival of agriculture is dependent upon a relationship between the lenders and the borrower, often times that's generational. family owned financial institution, family-owned farm going back to grandparents, great grandparents and in the absence of a bank's ability, a financial lender's ability to take into account things that are important, such as character, past history, the ability for the communities that i represent in rural america, is very, very bleak. so i'm trying to figure out what it is that either congress hasn't done or the regulators have not pursued under 2155 to make the difference that i had hoped would be there. the idea that the cblr that the chairman mentioned is the best
we can do is amazing to me. the call reports that we would have slightly less reporting, a few pages less after all the effort that went in to trying to figure out how to do this better, regulations have their place and, but i would indicate that there is little systemic risk to the kind of relationship bank that i wanted to see improvement for. and again, i point this out to bankers and to credit union management. i'm not so much about you and your success. i'm about what you consequences are if you don't have that success. and rural america is at a point in time in which the struggles are significant and great. it's been true throughout the history of our country, but these are among the most difficult times there are, and access to credit is key. i saw this last year when we had grass fires in a county in kansas in which 80% of the
grass was burned and therefore, the collateral of a cattleman or woman's, their operation. there was no collateral left. no kalt, no fences, no grass, and yet the financial institutions in that community said we know these people. they will pay their bills. if this becomes always about crossing every t and dotting every i, if it's about looking for more dust then we'll have failed our economy and states like kansas will be significantly-- their future significantly diminished. my question is, can i expect more? is it a matter of timing? is there a conflict within your agencies, within the regulatory community as to what can be done? is it divisive? it seems to me there are a number of issues in which the agreement ought to be easily reached and yet, the results don't appear. what is missing? what more needs to be done by either me as a senator or what can i expect more to happen
from regulators, for as long as i've been in the senate, on the banking committee, regulators have said the right things to me. we have an advisory committee, we're studying the issues, we're working on this, but if you ask a banker, has there been any consequence, unfortunately, in almost every circumstance, the answer is no, or at least not much. what can i do differently? what can you do differently? >> and if you could keep your responses brief and maybe supplement. >> yeah, senator moran, i appreciate your concerns and i think if you-- i was a banker, also, so i do interact with a lot of bankers across america and my family still owns my original grandfather and mother's farm in iowa. i'm tied closely into the farming communities what's going on. if you look at the list of 2155 activities, the 20 interagencies among us, i would tell you there's great agreement, great interaction. the rule reading process is
something i've been exposed to in washington and it's complex. if we're here on september 30th you'll see the vast majority are across the finish line with a few that moves into the fourth quarter and i would say there's no conflict, and randy yellen and i meet monthly or have a phone call every week and the topic what are the issues on 2155. i know for me and other agencies occ we have more resources dedicated to that cause so i would say be a little patient with us, we're going to get these across the finish line and there's no issues amongst us we have not been able to move out. >> if we could let that be the answer for the group and the others supplemented in writing, i'd appreciate that. [laughter] >> yes, but it was interesting. [laughter] >> senator. >> thank you, mr. chairman. thank you to all of you for being here.
mr. quarles, when you responded to my letter about the financial risks around climate change you said the current supervisory work takes into account work from severe weather shocks. climate change is accelerating in frequency and severity and it's getting worse. if you're relying on trends, you're underestimating risk. are you relying on historical trend or using data from the national climate assessment. we're not relying on historic trends. our requirements is that they have a risk management program. >> but are you using the national climate assessment? are you using any of the data that the government generates outside of your agency? >> we require them to take all relevant data into account. >> are you using the data? the question-- i personally am not. >> here is the question, the
frequency and severity of severe weather events is going up. if you're using historical data then you in your supervisory capacity are underestimating climate risk. >> we do know the do that. we don't provide purely on historical data. >> are you using the national climate assessment. dod data, going to the national weather service? how are you getting your data to assess the increased risk around climate change? >> we require banks to an i cess their risks and we require a broad range of data. >> for you to understand the risk in your supervisory capacity, you have to actually know whether they're booking it properly and there's tons of evidence they're not doing it so i understand that the burden is on them, but then the burden is on you to say whether it's odd adequate and i'll take that as a no. have you attempted to quantify the financial risks from changes in the climate itself, in other words, not the episodic severe weather events,
but fundamental changes like high temperatures throughout and sea level rising? >> we have not. well, i should, i should be careful there, the federal reserve does a lot of research and we have done research on climate change and how it affects the financial sector... sen. schatz: when uss banks loan quality and adequacy doing times of stress, how do you ask banks to qualify the risks -- quantify the risk of climate change? mr. quarles: we require them to did into account of their exposure to severe weather events. sen. schatz: you understand the difference between severe weather and climate? mr. quarles: i do. climate is a long-term change and severe weather are specific events you sen. schatz: what i am >> what i'm saying is what's the relationship between climate change and severe weather? >> i'm not a meteorologist or climate scientist and speedy and yet you have to measure these
risks. you rely on meteorologist or climate scientists in evaluating whether or not these financial institutions are adequately booking the risk? >> we require the banks to take those information into account but we evaluate the risk management system, not their particular conclusion. >> but the risk profile goes up, it seems tort me both the banks and the institution and supervisors of the bake needs to somehow load that into the supervisory process. i am not, i'm listening carefully but i'm not satisfied that you done anything to change your process. as you know i think there are 36 or 30 central banks and regulators from around the world that are puzzling through this difficult problem. the united states is not participating in that process. you commit to participate in that process?ar >> we are looking closely at it. i am actively encouraging we examine it. >> what you commit to hiring a
consulting with climate economist who can translate the physical risks of climate change into economic and financial risks? >> we do that work currently. with people on the staff who do that sort of research as i said earlier. so take that as a no. you are satisfied you are doing this adequately? i guess that's to get at their country to drill down with specific questions but the basic question is are you satisfied you doing enough to measure climate risk or do you think that you should be doing more, learning more, working with other central banks, working with economists to constantly update the way you if i went risk? >> that i hold agreeag with you on. we should definitely be engaged in learning more about risk to the financial sector and that includes climate change your insurance companies are very focused on that issue. >> what you commit to engaging
with federal scientific agencies about their assessment of the physical risks of climate change?? >> i don't know in what context i would do that but we are constantly seeking to inform ourselves about potential risk. >> you don't know what country in what context you would consult with the federal agencies about the physical risk of climate change? you're not sure about what context that would be an? >> well, i -- yes. yes, i'm not entirely sure what you're e asking me to do. >> i'm asking you to make sure that to the extent that the whole of the federal government understands, predicts, measures risks related to climate change, that you make sure you all of those data sets, give access to all that expertise, and that it informs your process. do you commit to that? >> we look at a broad range of information with respect to the rest of the financial sector. >> i'm hearing you did not commitat to getting the national climate assessment, to getting the quadrennial defense review,
to working with the national weather service and nasa to working with usda and figure out whether any of that information may be useful in your supervisory role. >> we do look at all that information, senator. >> thank you. >> senator toomey. >> thank you, mr. chairman. i want to thank the witnesses for joining us today. let me go back to financial stability which we discussed a little bit earlier. vice-chairman corals, first of all i appreciate the work that went into the recent financial stability report and just as an aside, i think i read it a week or little over that now so i may have got this one but i seem to remember that one of the conclusions by the fed economist in that report was that individual american, american families, consumer balance sheet are actually in quite good shape, that the savings rate is up, total loan amounts relative to theo incomes is down.
that the consumers are in better shape than they have been in fourar years. on a broad, general basis, including consumers of modest means. and i remember that correctly or do ing have that wrong? >> you are. household borrowing is at low levels. >> in addition to all the data that we see in the headlines about literally record low unemployment rates, this tremendous growth in work force participation, the fact that there are more job openings than there arere people looking for work, the fact that wages are now going faster thanfa they put in a long time. in addition to all that and, of course, related to all that, we see that families and individuals balance sheets this in better shape than it's been in many, many years.. i would say that generally really good news for an awful lot of americans, , right? >> i agree. >> let's talk about the leveraged loans. there's no question there's been a big increase and told matt that leverage loans, but easy to that a large majority of
leverage loans whether they are through cfos orlo otherwise, they are actually not on the balance sheets of banks, is that you? >> that is critically about 12% of loans originated with me on the posted the links for a large majority are some of it at a banquet sheets. when you are in thinking about systemic risk of our financial system and youri think about a g hypothetical future down price draft an asset class like this, do you generally think it tends to be a less of a risk to the find you stability of those assets are held by and investors who are not leveraged themselves, or would you rather they be on the balance sheets of financial intermediaries like banks that fund themselves with deposit? >> no. excluding financial stability enhancing for them to be held
either by end-users or intermediate vehicles that have liabilities that are longer than the maturity of the underlying assets which is how most of these loans are held. >> exactly. the short versionon is, the fact that these are held off the balance sheets of banks and by investors other than banks is a significant reduction in the risk that we would otherwise have in the financial system. >> yes. the one addition i i would mako that is that it is key that the holders of exposure to those stable holding pickles, principally clos, are themselves not writable institutions. >> right, right. >> and that domestically with a good handle on i believe but globally we could do with more information and a significant amount of this exposure that is sold abroad so that is what the fsb is doing is can handle on exactly what the international exposure is. >> right. >> let me move on.
one for vice chairman quarles, and that is, foreign banks as you know very well as a very substantial, very constructive role in americanro banking syst. that conflict over 200,000 americans. they make a very significant percentage of all the commercial industrial loans. you know all this.s. in pennsylvania we happen to have a number of foreign owned banks that operate hundreds and hundreds of branches, employee thousands of pennsylvanians and provide competition so that my constituents have many choices in banking services. want of my concerns is that two otherwise very similar banks, similar in size, , similar in te role they play, one of through a domestic holding company, another own two and i each seat by virtue foreign ownership might be subject to different regulatory regimes and unconcerned about creating an unlevel playing field that would ultimately diminish competition which i think is very good for my constituents. could you comment briefly on
your thoughts on how we create a level playing field for this regulatory apartment? >> absolutely. your absolute right that the participation of foreign banks in our domestic financial system, they've always been about 20, 25% for all of our lives. it's important that the beat on a level playing field. that we give them a level playing field, and we are obliged by law to consider national treatment, , giving thm a level playing field as we construct our regulatory positions. the proposals that we have for the foreign banks track very closely the domestic tailoring proposals. there are a couple of differences and probably the largest is whether weth look ony at the ihc with the console did use operations in determining the base size of the operation. we have proposal to get consolidated u.s. operations but
we will carefully consider comment as to whether we should adjust that. i think that is certainly the right starting place and probably the right place, but we will carefully considered comments otherwise. >> thank you, mr. chairman. >> thank you. smith. >> thankor you, chairman crapo d ranking member i want to thank all of our panelists for being here today. mr. corals, thanks much for taking the time to come and see media the bit in my office. i want to start out by talk about the kennedy reinvestment act. senator toomey is talking about the growth in wages and well in the united states but let me just how i want to hone in one thing. isn't it true that wealth, for african-american families, for example, wealth, that they've is a fraction of what we see national amongst the broad population? >> yes, absolutely. >> so it we can expand access to credit in underserved areas, we
can approve these communities and his family stability and the growth and the s wealth, and we know the path to doing that is homeownership and the opportunities for small businesses to grow. this is true in rural communities and in tribal communities and in communities of color. just last week i was in minneapolis talking with an african-american small business owner who told me that all of the african-american owned businesses that he knows, not a single one of them was able to get a business loan without help from some nonprofit to augment their credit. so the community reinvestment act is supposed to help us to ensure that banks are serving all americans. let me just ask you, to mr. otting and mr. quarles and ms. mcwilliams come as a think what updating the cra ruled, wille you commit to not supporting changes to the cra rules that would reduce
oversight over discriminatory lending practices and that make it more difficult for people, for borrowers to access credit? >> so probably i am the appropriate person to take the cra question on because the occ has been an initiative of the rewrite and have partnered with both the ftse and the fed to do this. we have been an automatic 15 mh journey to try to elicit feedback. the occ also has gotten 1000 people that come in and talk tok us about the cra and we also got 1500 comments. there are four areas where most focus on in the cra kind of rewrite is, is what qualifies and historical statue limited small business revenue to $1 million. so a lot of businesses are restricted by that but also that small business could be utilized on a broader scale. so what qualifies. second, is where does it
qualify? part of the issues when a bank chooses its assessment area, though cra activities only count in a small area and so we're looking atll ways to broaden the assessment areas. on one side of the street for particular bank it may qualify, and for the other side of the street it doesn't but it still in their community. the third which is a forms how do wel measure cra? today it somewhat ambiguous amongst the three agencies and threat geographics suppertime to come up with a way that all of us could understand cra. i often say if we're going to examine you for your capital and credit we wouldn't say what the criteria is until after the exam. exam. you would think we were nuts. that's somewhat what gets done with syria today just as important, is we do not have a mechanism to count the aggregates your activity being done in america today and we think we can do that via this rewrite. we will be able to come evian talking about where the growth in cra has been across the nation. >> i look forward to continue this conversation with you that
you can commit to not changing supporters to the cra is rules that would reduce oversight of discriminatory practices? >> i absolutely can commit to that. >> okay.y. on monday treasury secretary geithner and law and former thatcher bernanke and galvin wrote a letter raisinged significant concerns about recent decisions by the financial stability oversight council. during the systemically important designation from several large nonbanks come finish execution and what to ask about this a little bit. they raised concerns over fsoc's approach to try to target risk activities rather than to the cathedral institutions. one of the things that argued is the revised approach that's been suggested could take years or more to move through. i want to ask, would you agree that that's the case? and then how would that work given that somebody can change in six years?
aig quadrupled in size between 2005 -- next tuesday, 2002-2005. >> so we just received the letter, and we are looking at it. the conclusion that the designation process would take six years was highly dependent on a note for a contingent assumptions. >> based on their experience. >> well, they didn't have experience with an activity-based approach. they were making some assumptions. i don't think that those assumptions are likely to abstain. i don't think it would take that long, but wee are still examinig their analysis. >> mr. chairman, i know i'm out of time. i'd like to request that b introduced into the record and i'll i have further questions on the record on theer letter for the rest of you following up. >> without objection. and thank you.
senator mc sally. >> thank you, mr. chairman. i represent arizona and over the last several years there've been significant challenges with those businesses in the gallas and douglas, legitimate basis, family-owned businesses that it had the accounts close because of the anti-money-laundering and bank secrecy act and how the event inflicted. we that several roundtables and discussions with many of your agency's about this. this has would hurt our community. while we have to stop the cartels and illegal cross-border money-laundering for sure, we need to make sure these small businesses are protected to a doingl legitimate commerce. that includes cross-border at the request of cindy mccain and senator flake, the gao did a study of this which was released last year, and comptroller mr. otting and vice chairman corals and chairwoman mc williams, each of to that by saying you're
going to collaborate more with each other to make sure that these rules for anti-money-laundering would be more tailored to make sure that it's impacting the obviously illegitimate activities without hurting and closing legitimate businesses. can you give an update on what you've done since the gao report and what more 30s to do? this is really impacting my state. >> i can appreciate from being in california and having similar transits, the one thing that i would advise you is this particular group meets once a month collectively together and our staffs meet together once a week and we have a list of items we haven't focus on to try to bring clarity and where kelly was appropriate. the big guy with a lever to that will be later this year, we plan to reintroduce examination manual. that i think will be, looking more to move towards a risk-based approach on that process. i wouldwh assure you it has our attention, not only from the standpoint of the we would
execute on a e-mail psl today but with the future could look like and how technology will play a roled in that. >> when you silly this you can giving a timeline? these businesses are waiting anxiously for some relief. >> it's an enormous underwriting and i can tell there's fully dedicate resources and i would just have second did you like a particular data. be happy to keep her office of price as a go through the process but i would tell you it does have our attention. >> it just seemed for the trans, a lot of larger banks, the derisking activity, just not been willing to engage in these accounts but some of smaller banks are coming ines to help ts committee. they have less resources for compliance. as we continue down the line your competitive anything else to add, provide some clarity to even those trends ofe what else can be done. >> i think comptroller otting said quite correctly were all
very engaged together since doingption of what we're is joint activity. a significant part of this of course will be folks who are not at the table and others are responsible for regulation. we are responsible for supervising and examining against those regulations and we're working with them as r we. to try to reduce the burden associate with this an increased sufficiency. i think in the modern day of data analysis and manipulation of got to be able to be more effective in addition to less costly. >> if i can just add to that. in the past this disconnect has been the regulations will be promulgated by vincent and all fact and will be on the receiving end of those regulations for our grand theft implement. as i mentioned in california and heard about some issues can we actually engage the first timee we've broadened for the drafting table is look at the examination
manual because every ten years we go through the process we get comments on these regulations, especially in the border regions. we hear them complain about the difficulties to do with the need to do without cutting lawful access and at the same time our hands are tied because we can't amend regulation. by bringing them to the table and engaging with them more practically we believe they can to that outcome soon. hope the person to understand the urgency of thisto issue. >> thanks. anything toe add? >> we're continuing to be more effective. we're also part of the working group that comptroller otting mentioned it was would not havy of our credit union members experience some of the closing of accounts you've referenced with the financial service provider. >> thanks. >> i i would add one think i should about this topic one thing we did earlier this year is used to be each in the slavic of the own resources and we agreed to allow the banks to share that resource the smaller
banks into those huge relief because of six pence for that type of health. >> thank you. i'm out of time. >> senator cortez masto. >> thank you. thank you for this evening. let me circle back to the community reinvestment act. this is something i've been concerned about, and mr. otting i know this is something you're dealing with right now. i have been trying to ensure that we protections in place and they stay robustly in place to ensure that a financial institutions areov providing credit in low income, moderate income communities, right? and it is the role of the occ to ensure that that occurs, correct? >> yes, it is. >> so i know and we for statistics our nation is the largest gap between white homeownership and african american ownership since we cann recording it. whites more than 70% and african-americans slightly above
41%. you in in the process of reforg the cra but wouldn't you agree that any changes you make to the cra should not make that get worse? >> i agree with that. >> and to make those changes you just said earlier, you are receiving public, to help as you maneuver through this to ensure that that capped as i i get woe and are taking those public comments into consideration, correct?g >> correct. >> summa that you may not agree with but you will take all of into consideration. >> most of it i get. >> but that's an each other. you get public comments, you agree with some and some you don't but you're in for the law and protecting against redlining. >> yes. >> what i don't understand why when you see public, this is a first time i've seen a regulatory body do this, you are trying to silencede public. you sent a letter to california reinvestment coalition trying to quite thin. you did an op-ed under deputy control of judgment affairs document how some of the public, you receive you felt was not
constructive and you were scolding them. i'm not quite sure what purpose that serves and why and how that -- >> we felt that fact should be i could get elected and that particular organization was dispelling false information. >> i don't understand what the false information is. >> i'd bet happy to share that with you. >> let me say this, if they had concerns and they are a community organization -- let me put it this with kosovo got about five minutes. while appreciative come in talking about it, let me approach it this way. two ensure that these financial institutions are complying with the cra, don't you need to get input fromne the community and public, to ensure -- >> that's what we met with the thousand separate operations, got 50 that comment. the complete the impure will put it back out for additional comment. >> even when you're not doing the public,, once the cra is in place don't you need community -- in fact, -- let me ask --
>> people do outreach on consistent basis. >> perfect. isn't it true that the bankk wants federal rates of approval for deal like a merger and when that goes through inli a communy regulate regulars consider the banks compliance with the cra, at that moment in time for the banks promises for future compliance measures, so when that happens and mergers occur you are going out into that community getting input, isn't that true? >> there's an open comment where people able to offer this,. >> it provides a basis for community groups to say whether or not they think those financial institutions have complied within their community, correct? >> correct. >> i i guess what i'm confused is why then is the occ instructing examiners to investigate some of the claims separately rather than addressinger them within te merger approval process? >> i think there's confusion on this topic and it may be originated by the same group who we wrote the letter about, is that what we've done is we've
taken issues and weve provided into the examiners. that is generally done parallel with the licensing process to allow them to be able to evaluate the validity of any claims, whether they are fair lending for speedy what does it matter whether it's an individual or committee group? why are you trying to limit -- >> that an inaccurate statement that we are doing. any limitin. >> can ask you this, there's a statement that been made that's penetrated to you and to quote this. this as you think this guy with a very typical time with some cumin to groups that didn't support our community when you are with one west trying to merge with cit bank merger, and you claim you didn't support our community, who came, and each committee groups came at the bottom of the ninth inning to try to change the direction of a merger. so i think very strong viewpoint. you also stated part of your margins nation plan is to commit community groups of all vaulting and and holding baker's hostage. that's what you trying to
prevent these community groups and able to provide under the cra there is look up is that true? >> that's not true. this comet are accurate however, the speedy those comment are accurate? >> a reflect what i said. the reason was because we had overwhelming support in our community for the merger and groups came from outside the community that had no input, no data, were not the me with our organization and try to stop the merger. they have an open voice although i would never try to -- i i jut want to be an active process. >> you're telling me now the comments that were made that you just talked about individuals outside the committee came in, so the california reinvestment coalition anybody in california they were not within that community? >> theyey were not there in northern-based northern-based organization and we were seven california-based bank. >> i noticed my time is up and d was met rest of my question for the record. thank you very much. >> senator tillis. >> thank you, mr. chairman. thank you all for being here and
chair holick, i can't help but noticen' that carolyn blue tie during willing. that can't be by accident. thank you for being here. maybe we could start on bank merger discussions. it's important to me and that's the suntrust merger. mr. mr. quarles when they talk e were talking about trying to compress the regulatory approval timeframe from a year to about 120 can one of 17 days. now what i'm hearing, i'm wondering what those calendar days or legislative days? what's the current status? we've done to make earrings in the field. i'd be interested in what more we are going to be doing and in what the time horizon looks like for anybody else who wants to join in kickstarting with you. >> thank you. we just completed the second of the two public hearings on may the third. at the same time we had extended the comment period for public comment also to may 3.
we received about 800 comments. we are in the process of both developing those and then looking at the proposed merger in terms of both the statutory factors that we are required to consider and time frames in which we are required to consider them. we will proceed with the analysis, i can see exactly how long it will take but we are proceeding with the time frames in mind and the statutory time frames in w mind. >> i know that's in your lane. i think folks on the other side of the hill seem to be making comments that they would want to delay the merger. i just hope that we move expeditiously come at ati trust you all to go through the proper process. >> i would add that there is a very clear framework that has been imposed on us by congress. congress has said what it is that we are to consider in connection withon a merger and e time frames that we were to consider it in.
we will follow that congressional instruction. >> thank you. we had a hearing a n. couple weeks ago on guidance, and it's something that i think that chairman williams, you've done a great job of taking a look at guidance in your lane and removing the ones that something didn't make sense or should've actually gone through the administrative procedures act. can you argue against lincoln w since this i think is your first hearing, chairman hood, good and the like toio get a quick updat. >> yes, sir. in my one month on gelatin meeting with agency leadership and staff to ensure that we're looking at guidance and not having it misinterpreted as roles. >> we have been able to retire close to 60% 60% of our financl institution letter simply because they were outdated or duplicative. the agency did not in the past archive old guidances and now we do. and then also think generally take a look at guidance in its proper role in a row making
process. supposed restate the law or introduce new interpretation of the law. >> so you disagree with some supervisor who appear at saint guidance can override the statute? >> i don't, i cannot, a fellow supervisors but i willl tell you at the fdic we've taken this job very seriously because we need to stay within our lanes in terms of our legal interpretation. >> as you're going down going i wanted to bring up in refill margin. to fill in t stuff for the reco. >> on guidance we issued a comprehensive guidance on guidance so that we have in writing for all ofin our examination and supervisory staff a very clear expectation that guidance is not supposed to be used as a basis for enforcement actions, that it is guidance and not a rule. i amm going around to each of te reserve banks having town halls with all of the supervisors, discussing the current supervisor practices in general, chewing supervisory practices
online with our regulatory decisions in washington. i won't chew up more of your time with this but i do think, it's really important question drawingg this line and chairman crapo refer to some comment i made on earlier. i think it's incumbent upon us that the fit at all of us to think carefully in a way that hasn't been done in decades about where we are drawing the line between what can be accomplished through supervision and what types of things have to be accomplished through regulation if we're going to duemplish them and the process requirements that apply to regulation under the administrative procedures act. we have done a very good job without over the course of the last decade either at the fed or the banking regulators generally. apologies, but i think some issues you and others on the committee have been raising have really thrown this question into relief and we are making it a high at the fed to think about
that ing a comprehensive intellectual way in addition to dealing with some of the specific items questions. >> mr. churkin if you let mr. otting response. >> i would echo ranges, spirit we spent endless amount of time with examiners, issued guidance on guidance. we've had lots of training hui o reinforce what guidance truly is. i do see limited guidance being issued in the future. >> that's good news. thank you all for it would be silly question for the record to all of you. >> thankk you. senator menendez. >> thank you, mr. chairman. thank you all. let me ask comptroller otting and vice-chairman quarrels with a simple yes or no if you can answer it. if any congressional committees sickened youco for information n such anf bank or capital one wod you comply? >> i would have to talk with our borders. we would obvious, we work well with the committee for the past. i realize this isn't a yes, sir but if it's legal of course we complex.co
>> i would echo that. we would have to consult our counsel. >> to financial institutions have to consult with you before comply with congressional subpoenas? >> i believe, looking biker general counsel rick don't limit patient on the ability of financial decision to share information with anyone. i would expect i don't know if there legally required that i would expect they would put jones watches talk with us t before sharing. >> what about a nonconfidential supervisory information? >> i don't think that what we require them to talk to us before sharing information that wasn't csi. >> same answer. non-csi. >> aside from stepsns to predict confidential supervisor information, does not comply with congressional spins create legal risksks for banks? >> it's been $.20 a practice as a lawyer but but i would think that they ought to think about that question, yes. >> i agree.
>> i agree with the answer. >> okay. the reason i ask you is because last month the house financial services and intelligence committees sickened both of these entities for records relating a to president trump's businesses asds part of their congressional duty to conduct oversight and a basket potential money-laundering and foreign influence inei u.s. political processes. the courts are being used to try to stop the banks from complying with the subpoena. i want to make it very clear from my perspective, having served in both houses, there should be no doubt about this. banks and regulators have no excuse not to comply with the congressional subpoena. protecting subpoena power is critical so that congress can't exercise its constitutional responsibility of oversight so we can learn the truth and ultimately a take policy choics to safeguard our economy and our country. i hope that's the way, if you are called upon, that you
appropriately. comptroller otting from a hearing last year you refuse to get a straight yes or no answer when asked if you believe discrimination exists in america today. so nowha that you have read the public comments on your cra proposal, including those by the naacp, state the phillies like new jersey citizen action, do you not believe that discrimination exists in america. >> so, senator menendez, that was not my response. >> no, , your response -- >> i did not personally observed that. i also speedy you don't have to absorb it too but that the discrimination exists. i'll answer the question again. does discrimination exists in america. >> the answer i gave was, my in-laws are all first-generation hispanics in this community. of the friends of mine who are from the black community will tell me it exists and they have
experienced it. andd so yes, i do believe it exists in america. >> thank you very much. i'm glad eer we've gotten that . chair mcwilliams and vice chair. quarles, because the committee reinvestment act is at its core a civil rights law, when you commit to getting the support of the civil rights community before issuing a final rulemaking on the cra? >> i'll take that first. the process that we are undergoing is to ensure that we have input from the civil rights community, and they been very supportive of our looking at making this regulation more effective. >> i can attest that as i travel to different states i try to meet with the consumer groups,, especially in places with every
active to solicit their feedback on any of the community needs as well as what needs to be done for the cra purposes. i have met with a number to make sure, that the input is heard. >> i appreciate both angers but could you envision passing a rule with the civil rights community in unity was against the rule? >> if there were unity of the affected communities in opposition to ogle i think it would be surprising for us to approve the rule. >> but if it happened could you envision adopting such a rule? >> i have worked on some of the religious in the past and i have come it's almost never in unity that one part of the industry or consumer community response. the hypothetical but i would imagine there's strong opposition would they commenced to the rule.
>> i hope you'll come up with a rule that ultimately has the support of theth civil rights committee, if not, i would be looking to engage with you. >> thank you, mr. chairman. over the past few years we've learned about one illegal scheme after another at wells fargo. the bank has scanned customers opening millions of fake accounts. it is unlawfully repossessed tens of thousands of cars, including cars that long to deployed service members. it has cheated thousands of their own employees out of their hours and kicked hundreds of families out of their homes in unlawful foreclosures. regulators including your agency's have sued wells fargo over and over again to force it to stop scamming its customers. as understand the occ alone right now has at least three open enforcement actions against the bank. so comptroller otting let me ask
him on april 3 you wrote me that the occ was, quote, disappointed with wells fargo bank proposal under our consenthe orders, clod court. has the oh cc position change in the last five weeks? >> it is not. >> so you're not alone in being disappointed the wells fargo's progress. chairman powell andse cfpb director manager have also made it clear that wells fargo is not cleaned up its act. but one bigig thing has changed. tim sullivan, tim sloan was finally kicked out. so wells needs a new ceo. in a lot of was passed in the wake of the savings and loan crisis in the 1980s, congress gave the occ the authority to examine the quote confidence, character, experience or integrity, end quote, of candidates for senior positions in a, quote, troubled like, close quote, like wells fargo. in other words, the occ can
effectively veto candidates who don't pass muster. comptroller otting ivories what you a letter as to why the occ waived its right to a troubled bank review. in recent settlement with wells fargo and you responded yesterday that the agency was committed to conducting a review of the candidates for wells fargo ceo. will this review be exactly a review that congress did you the authority to conduct? i just want to be clear. >> i understand. first of all wells is not a troubled bank by the definition speech i just want to know if you're going tot conduct the be according to the authority that's been given to you. >> yes with a. >> you will, glad. because when you the occ waived the examination in your 2015 205 order settling claims that wells fargo broke anti-money-laundering laws, and when you waived examination in
your 2016 fake accounts scandal settlement, the result was that tim sloan, a bank insider, implicit in the fake accounts scandal became ceo without a peep from the occ. you also told in your letter that you've decided you would treat the of the review as confidential supervisory information,n, which means this review will be done in secret behind closed doors and never discussed publicly. comptroller otting, under the occ regulations you have the discretion to disclose this confidential supervisory information when it's, quote, necessaryis and appropriate, end quote. will you commit to publicly disclosing the occ use evaluation of the, or, confidence, experience, character or integrity, end quote, of the next wells ceo? >> i will not. >> why not?
>> it will be confidential supervisory information. >> its confidential if you make a confidential. the point is just the legal authority to speak i do not have plans to release that information publicly. >> what is the reason you don'te have plans? >> as you indicated is my prerogative. >> okay. and our job is oversight year. i'd like to know why you want to exercise your prerogative to keep speedy i haven't exercised it yet but i plan to. >> that the occ is that repeatedly. >> no one has been more tougher on wells fargo and myself that no one has been more -- >> you mean as he occ? that's handlebar. >> i find that insulting you would make that comment. >> good. people all across this country were scanned and squeezed by wells fargo. their houses were taken away. their cars were stolen. because the banks executives more concern about making mountains of money than about following the law. in the occ never uttered a peep
about their executives who were leading this. blew it once by letting tim sloan take over. this time you need to show your work and make your supervision public. that way consumers and congress can hold you accountable, to. >> i appreciate the request. >> thank you. senator jones. >> thank you, mr. chairman. thank you all for being here today. i would like to follow up on the moment was something that senator moran center i would be charitable to them and call it the question. like my print on the other side of the outcome also very concern about the future of rural america and agriculture in this country. times as he set our top. the future is bleak and i think he said struggles in role america are great and they are because of agriculturist being so victimized by nature and fluctuating markets. i would also add a couple of things.
number one, it's not just natural disasters. its congressional disasters when we can't find congressional aide, supplemental aid of these people, and we can't put the congress, the administration cannot put the politics asidenoo get some aid to the farmers and folks who need it desperately. the other thing is the market that are leaving because of the chinese tariffs. that is huge problem and we can of wonderful relationship with bankers but that's not going to be good if we don't have cropped andt we don't have commodities evident at markets to sell those commodities and those relationships will get strained mightily if that baker city at a witness table at a bankruptcy hearing ass a chief editor for the farmers. there's a lot of reasons and i agree with senator moran about the relationship banking. i'm a big, big proponent of that. so now that i've got through with my question on that as senator moran did, i would like to ask a couple of little bit easiersi once.
cecl, the credit them you know, current expected credit loss model that is being considered, senator tillis and not about 15 colleagues in a letter expressing concern about that i know you're looking at that issue. i'mm concerned about how credit will be available in downturns of the economy and what i see in congress and through regulation is that it's the and attended consequences that are not adequately looked at. i'd like to ask chairman quarles, chairwoman mcwilliams if you could just briefly talk to me about that and making sure that's on your radar and the fact you are reaching out to institutions to get their concerns. >> yes, senator, very much. cecl is very much on their radar. we have received a broad range of estimates of what the potential effect of cecl would w be, both its so-called day one
effect potential increasing reserves immediately upon its theementation, and what potential procyclical effect might be. and again from the industry large and small, from the accountants come from academics, from our own staff, the assessments in each of thosees areas has been widely varying. what weel have done given that e don't actually control either the content of the accounting standard or the time of its implementation because that's controlled by fast become we control a phase-in process so that essentially we will hold the effect of this will be phased in over time because of the way we will treat our capitals and any potential increase present under the capitals. and to us exactly what the are given these widely varying estimates that been made of them. if we see some of these adverse
consequences that have been proposed, we have the tools to be able to address them by adjusting other aspects of the regularly system. >> thank you. ms. mcwilliams, briefly. >> sure. i have to tell you that's number one question i hear from community banks as a travel around thehe country. i'm come tom alabama in august and i suspect that will be the first question they asked me. the issue is expected versus possible loss and understand has changed. as vice chairman quarles said, fasb is in charge of the rule. we've met collectively with fasb chairman and departments to talk about our concerns with implementation and we are actively working with banks to make sure they understand how to comply and whatever is done within the purview so long as banks have to follow the gaap standards. >> thank you. i want to follow up with you, chairwoman mr. mcwilliams will quick on issue that's important i think it's getting a lot
of bipartisan support. we've got a problem in this country right now where based on something happened in the 1950s. so many people are getting excluded from being able to work at banks because of misdemeanor convictions, criminal convictions that really have no relevance to today'sve world. one bank that they had to fire an employee, a customer service representative they found she had a shoplifting misdemeanor from 1972. i think there's something fundamentally wrong with institutions being forced to let people go, much less keeping people out of that market at a time when we need to be invited people to join. is this something you're you ae looking at? is that something that any of your looking at but particularly mr. hood, i see you ready to answer, looking at so we can kind of get more people into this and get rid of this just arcane law. >> is yes, senator. >> go have.
>> it something we are examining. in fact, within my first month one of the first vote i was able to cast was for a person at one of these convictions monusco but she has now for the past four years been able to operate safe and sound and she now has the authority an opportunity to work in a federally insured credit union with the opportunity presents itself. the process does work. she served her time and paper debt to society and we're happy to join our workforce and a. >> i want to follow up though and ms. mcwilliams, i'm a follow-up in writing because when lookingng at is what we can to streamline the process. you can get waivers but that's a cumbersome process and that, waiver process alone is sometime as the as a chilling effect on people applying so i will follow up with both of you on that said some way overtime like senator moran what. >> ninety. there are a couple with as for second round sun like by 11:30 if we can siebel proceed. senator brown. >> we may only have one request.
thanks again for your patience, all four that you and glad to get tushman -- logica to say sg is true after all this. it's not always an advantage to be able to talk at these hearings. americans i increasingly are concerned or alarmed, or worse,, about what's happening in industry after industry. i think if you ask the flying public about airline consolidation, airline mergers when a city, two in ohio, cleveland and cincinnati can were victimized is probably the right word by airline mergers, it hurts employees. it hurts the flying public. it hurts the communities. it's good for the executives typically. and they can't we know the increasing problems about data and privacy. senator crapo and i want to work on this issue together. we knowo what happens with mega-farms as we know it happens
environmentally with the problems in lake erie because of mega-farms and now that pushes some small farmers too often off the land. my colleague in minnesota and in wisconsin, senator baldwin has pointed out how many dairy farms have gone out of business just in less coverages. i think the trumpcare's are part of it but more of that, there's so much else. i question to interview, are you in favor of the consolidation of the banking industry that will inevitably leave us with a few large banks and fewer community banks? mr. otting? >> it's a long-term trend. what you tried to do on the start of sight of that is be very openbe to having my nordic deposit institution trying to gather more speakers it's hard to imagine startups will compensate for these megamergers. mr. quarles, as briefly as you can. >> i think the competition in banking institution is good as
competition is anywhere and i so as you look at consolidation we try to ensure we maintaining a competitive, maintaining a competitive system. >> with all the advantages the big news brings. ms. mcwilliams. >> the consulate -- consolidation has been happening for decades now. when looking for ways to enable smaller banks to compete so that the effects of consolidation on the industry and the marketplace and the communities they serve is not felt as hard as it could be otherwise. >> mr. hood. >> i would be working diligently with our agency and senior leaders to see what we can do to reduce the burden of w some of r smaller credit unions. while there's been consolidation the ones that we make we want to make sure they can grow, thrive and serve their members. i'm pleased to announce that i will be working on credit unions. i'm presenting a credit union charter to a native tribe of indians next weekend. i look forward to seeing more of them. >> thank you.
mr. vice chair, while we are debating to 55 chair powell and others at the fed assured me the law we changerm treatment of domestic regional banks but not require changes to the fed treats foreign banks come forward and make a banks with u.s. operations, especially non-globally systemic banks. lastst month you announced your proposal and said quote this proposal should look familiar because it shares the same basic framework as the domestic proposal. i realize you noted domestic foreign banks will not be treated identically i think was your word that isn't true under your proposal foreign megabanks will see see a reduced regulatf the u.s. operations, including use operations of some globally systemic banks? >> there will be changes in the regulation but there would be some significant increases as well. the liquidity requirements on use operations of foreign banks as a result of our proposal are measurably higher, almost 4% higher by our estimates as as a
result of this proposal. >> are not foreign banks of hundreds of billions in global assets you plan on applying enhanced prudential standards and categories basin assets in the u.s.? as if that foreign bank was comparable to say huntington in columbus with assets of more than 100 million. the risk ofoking at the u.s. operations to the risk to the u.s. economy. i think that's our obligation as regulators, but we don't ignore the fact that those operations are part of the global institution and we engage with the foreignop regulators of come in the home country for the home jurisdiction. there are certain aspects of the proposal that take into account the branch operations which are part of the global, which are part of the global bank, the branch operations and the united states in a way that would be done for a domestic institution.
>> the 2155 require you to make those changes for foreign banks? >> no. >> so perley you and chair powell wanted to do whatever public policy reasons some kind of favor for the fourth megabanks. last question, mr. otting. do not many of us are concerned about your plans for the community reinvestment act? anybody who feels where we can see here ise either misinformed or is economically advantaged by the current structure. does that mean you're saying the communities that a been the victim of redlining and other discriminations are not smart enough to understand the benefit of recording banks to lend in their community is? >> two separate issue. people document guiding and reducing banks have to do. i can assure you all of the city at the table feel banks should do more and we need to give them a measurement and criteria to be able to do that. that's what that quote was in regards to. >> okay. i'll leave it at that.
thank you, all four of you. >> thank you. that concludes the questions. my time for a second round just to make an observation on a different issue.ti and that is a joint effort that senator brown and come has reference he and i are engaged in for data privacy and trying to resolve some of the issues of big dated in the country right now. the banking committee held its understand theo european unions general data protection regulation and howta individuals can be given real control over the data. that is used in ways that has an immense impact on their financial lives. earlier this month the "wall street journal" reported that facebook is recording dozens of financial firms and the merchants to lodge a cryptocracy basedd payment system which coms after facebook last year asked u.s. banks to share detailed financial information about their customers. last week senator brown and i
wrote a letter to facebook asking questions about their new crypto currency-based system including questions related to privacy and consumer protections under this new payment system. consumer information collected and election and sharing and use as well as protection, and a facebook ensures that it is not using the consumer information in violation of the fair credit reporting act. given facebook's reached to billions of active users, access to vast amounts of consumer information, engagement in financial services like activities, and work with numerous financial service firms it seems appropriate that federal financial regulations would be appropriate and that our federal financial regulators would understand the nature of the need to understand the nature of facebook's financial services activities and engage to ensure that it falls all applicable laws andle regulatio. so i just bring the issue
detention at each of you as our regulars. this doesn't apply just to facebook. the explosion of data collection sharing, management and use that is going on right now, that impacts specifically consumers and users of credit and people engaging in our financial sector is becoming ever larger, and i appreciate the fact that senator brown is working with me together on this issue. it's a joint effort to address how we need to deal with this issue. so i encourage you as our regulators to pay attention to this issue as well. we have gramm-leach-bliley and the fair credit reporting act and other statutes that i think importantly necessarily raise questions about how we approach the appropriate oversight of what iat will call big data and individual privacy. with that our questioning and
commenting is concluded. and for senators who wish to submit questions for the record, those questions are due to the committee by wednesday, may 22. we ask the witnesses as host response as quickly as you can. again, i thankon you all for yor time and your efforts and attention to these issues. and this hearing is adjourned. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]