[House Hearing, 119 Congress]
[From the U.S. Government Publishing Office]


                  MAKING COMMUNITY BANKING GREAT AGAIN
=======================================================================

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES
                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED NINETEENTH CONGRESS

                             FIRST SESSION

                               __________

                            FEBRUARY 5, 2025

                               __________

                            Serial No. 119-1

       Printed for the use of the Committee on Financial Services
       
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]       


                            www.govinfo.gov
                            
                                 __________

                   U.S. GOVERNMENT PUBLISHING OFFICE                    
59-597 PDF                  WASHINGTON : 2025                  
          
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    FRENCH HILL, Arkansas, Chairman

BILL HUIZENGA, Michigan, Vice        MAXINE WATERS, California, Ranking 
    Chairman                             Member
FRANK D. LUCAS, Oklahoma             SYLVIA R. GARCIA, Texas, Vice 
PETE SESSIONS, Texas                     Ranking Member
ANN WAGNER, Missouri                 NYDIA M. VELAZQUEZ, New York
ANDY BARR, Kentucky                  BRAD SHERMAN, California
ROGER WILLIAMS, Texas                GREGORY W. MEEKS, New York
TOM EMMER, Minnesota                 DAVID SCOTT, Georgia
BARRY LOUDERMILK, Georgia            STEPHEN F. LYNCH, Massachusetts
WARREN DAVIDSON, Ohio                AL GREEN, Texas
JOHN W. ROSE, Tennessee              EMANUEL CLEAVER, Missouri
BRYAN STEIL, Wisconsin               JAMES A. HIMES, Connecticut
WILLIAM R. TIMMONS, IV, South        BILL FOSTER, Illinois
    Carolina                         JOYCE BEATTY, Ohio
MARLIN STUTZMAN, Indiana             JUAN VARGAS, California
RALPH NORMAN, South Carolina         JOSH GOTTHEIMER, New Jersey
DANIEL MEUSER, Pennsylvania          VICENTE GONZALEZ, Texas
YOUNG KIM, California                SEAN CASTEN, Illinois
BYRON DONALDS, Florida               AYANNA PRESSLEY, Massachusetts
ANDREW R. GARBARINO, New York        RASHIDA TLAIB, Michigan
SCOTT FITZGERALD, Wisconsin          RITCHIE TORRES, New York
MIKE FLOOD, Nebraska                 NIKEMA WILLIAMS, Georgia
MICHAEL LAWLER, New York             BRITTANY PETTERSEN, Colorado
MONICA DE LA CRUZ, Texas             CLEO FIELDS, Louisiana
ANDREW OGLES, Tennessee              JANELLE BYNUM, Oregon
ZACHARY NUNN, Iowa                   SAM LICCARDO, California
LISA McCLAIN, Michigan
MARIA SALAZAR, Florida
TROY DOWNING, Montana
MIKE HARIDOPOLOS, Florida
TIM MOORE, North Carolina

                      Ben Johnson, Staff Director
                         
                         C  O  N  T  E  N  T  S

                              ----------                              

                      Wednesday, February 5, 2025
                           OPENING STATEMENTS

                                                                   Page
Hon. French Hill, Chairman of the Committee on Financial 
  Services, a U.S. Representative from Arkansas..................     1
Hon. Maxine Waters, Ranking Member of the Committee on Financial 
  Services, a U.S. Representative from California................     4

                               STATEMENTS

Hon. Andy Barr, Chairman of the Subcommittee on Financial 
  Institutions, a U.S. Representative from Kentucky..............     5
Hon. Bill Foster, Ranking Member of the Subcommittee on Financial 
  Institutions, a U.S. Representative from Illinois..............     5

                               WITNESSES

Mr. Patrick J. Kennedy, Jr., Founding Partner, Kennedy 
  Sutherland, LLP................................................     6
    Prepared Statement...........................................     8
Ms. Susannah Marshall, Bank Commissioner, Arkansas Bank 
  Department.....................................................    11
    Prepared Statement...........................................    13
Ms. Cathy Owen, Executive Chairman, Eagle Bank & Trust Company...    29
    Prepared Statement...........................................    31
Ms. Rebeca Romero Rainey, President & CEO, Independent Community 
  Bankers of America.............................................    39
    Prepared Statement...........................................    41
Ms. Mitria Spotser, Vice President of Federal Policy, Center for 
  Responsible Lending............................................    56
    Prepared Statement...........................................    58

                                APPENDIX

              ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Hon. Nikema Williams:
    Equipment Leasing and Finance Association (ELFA).............   136
    Defense Credit Union Council (DCUC)..........................   138
Hon. Barry Loudermilk:
    Government Accountability Office (GAO) December 2024 Report..   140
Hon. William R. Timmons, IV:
    CID notice to Ms. Martinez...................................   251
Hon. Maxine Waters:
    Letter of documents that are Submitted for the Record........   252
    201 Consumer, Civil Rights, Labor, Legal Services, Community 
      Organizations and Academics................................   254
    Americans for Financial Reform (AFR).........................   262
    National Association for Latino Community Asset Builders 
      (NALCAB)...................................................   268
    Rise Economy.................................................   270
    HEAL Food Alliance...........................................   275
    Small Business Majority......................................   278
    National Community Reinvestment Coalition (NCRC).............   281
    The Leadership Conference on Civil and Human Rights..........   285
    Responsible Business Lending Coalition (RBLC)................   287
    Free Speech Coalition........................................   290
    inclusiv.....................................................   295
    The National Bankers Association (NBA).......................   304
    National Association of Consumer Advocates (NACA)............   307
Hon. Zachary Nunn:
    Iowa Bankers Association Priorities..........................   309
    Iowa Credit Union League Priorities (ICUL)...................   312
    Iowa Community Bankers Priorities (ICBA).....................   314

                 RESPONSES TO QUESTIONS FOR THE RECORD

Written responses to questions for the record from Representative 
  Maxine Waters
    Mr. Patrick Kennedy, Jr......................................   323
    Ms. Susannah Marshall........................................   325
    Ms. Rebeca Romero Rainey.....................................   326
    Ms. Mitria Spotser...........................................   327
Written responses to questions for the record from Representative 
  Mike Flood
    Mr. Patrick Kennedy, Jr......................................   328
    Ms. Rebeca Rainey Romero.....................................   329
Written responses to questions for the record from Representative 
  Gregory Meeks
    Ms. Cathy Owen...............................................   331
    Ms. Rebeca Romero Rainey.....................................   335
Written responses to questions for the record from Representative 
  Sean Casten
    Ms. Susannah Marshall........................................   338

                              LEGISLATION

H.J.Res. ------, a resolution of disapproval on CFPB's overdraft 
  rule...........................................................   339
H.R. ------, the Promoting New Bank Formation Act................   340
H.R. ------, the Small Lenders Exempt from New Data Excessive 
  Reporting (LENDER) Act.........................................   346
H.R. ------, the 1071 Repeal to Protect Small Business Lending 
  Act............................................................   349
H.R. ------, the Bank Loan Privacy Act...........................   352
H.R. ------, the Fair Audits and Inspection for Regulators' Exam 
  (FAIR) Act.....................................................   354
H.R. ------, the Small Bank Holding Company Relief Act...........   368

 
                  MAKING COMMUNITY BANKING GREAT AGAIN

                              ----------                              


                      Wednesday, February 5, 2025

                     U.S. House of Representatives,
                           Committee on Financial Services,
                                                   Washington, D.C.

    The committee met, pursuant to notice, at 10:04 a.m., in 
room 2128, Rayburn House Office Building, Hon. French Hill 
[chairman of the committee] presiding.
    Members Present: Representatives Hill, Lucas, Huizenga, 
Wagner, Barr, Williams of Texas, Loudermilk, Davidson, Rose, 
Steil, Timmons, Stutzman, Norman, Meuser, Kim, Donalds, 
Garbarino, Fitzgerald, Flood, Lawler, De La Cruz, Ogles, Nunn, 
Salazar, Downing, Haridopolos, Moore, Waters, Velazquez, 
Sherman, Scott, Lynch, Green, Cleaver, Himes, Foster, Beatty, 
Vargas, Gottheimer, Gonzalez, Casten, Tlaib, Torres, Garcia, 
Williams of Georgia, Fields, Bynum, and Liccardo.
    Chairman Hill. The committee will come to order.
    Without objection, the chair is authorized to declare a 
recess of the committee at any time. This hearing is entitled 
``Making Community Banking Great Again.''
    Without objection, all members will have 5 legislative days 
within which to submit extraneous materials to the chair for 
inclusion in the record.
    I now recognize myself for a 4 minute opening statement.

    OPENING STATEMENT OF HON. FRENCH HILL, CHAIRMAN OF THE 
  COMMITTEE ON FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM 
                            ARKANSAS

    Chairman Hill. Welcome to the House Financial Services 
Committee's first hearing for the 119th Congress. I am 
delighted to serve as chair, and I look forward to working with 
my subcommittee chairs, Ranking Member Waters, and all the 
members of the committee to bring common sense back to 
financial and economic policy that will both foster prosperity 
and growth for all of our citizens. That is the change that 
President Trump ran on, and that is what we are going to do in 
this committee.
    It has been nearly 100 years since the House Financial 
Services Committee was chaired by somebody who had financial 
experience before their time in Congress. Many of you know that 
I was a community banker before being elected to Congress, and 
I want to bring being a banker and business vision to the 
committee, and one of the key pillars of that vision is indeed 
to try to make community banking great again. It is no 
coincidence that this is the theme for my first hearing of the 
chairmanship.
    Most countries have just a handful of large national banks, 
but the United States has a large and diverse banking system 
with thousands of banks, from small and regional institutions 
to global money center banks that all coexist and work together 
with each other to meet the capital access needs and depository 
needs of our Americans. It is one of our great competitive 
advantages.
    Alexander Hamilton, our first Treasury Secretary, himself 
said banks are the nurseries of the national wealth. When faced 
with unprecedented uncertainty during the time of the pandemic, 
it was our community banks that made an outsized share of the 
paycheck protection loans to small businesses keeping millions 
of Americans employed.
    Community banks know their communities best, and research 
shows that when they close their doors, Americans suffer. Right 
now our community banks are disappearing across the country. 
Back in 1999, when I first founded my Arkansas-based company 
Delta Trust and Banking Corp, the United States had over 8,500 
Federal Deposit Insurance Corporation (FDIC)-insured banks, 
including 190 new charters that year.
    Fast forward to today, the United States has 4,000 banks 
while only 82 de novo charters have been issued since 2010. 
Small community banks and credit unions have suffered immensely 
under the regulatory requirements forcing them to devote more 
and more resources to lawyers and check-the-box compliance 
programs instead of serving their customers.
    Back in 1995, Arkansas had 251 banks. Today it has 77. 
However, our local community banks and credit unions did not 
contribute to the financial crisis. They have continued to 
serve the critical engines for local economies despite being 
subjected to much of the same regulatory burden and regime as 
the largest, most complex institutions. To form a new bank 
today, Americans must submit a multiyear high-cost endeavor 
with several different Federal agencies just before they can be 
considered to open their doors. Initial capital requirements 
can be as high as $30 million in practice, making it nearly 
impossible to get started as an entrepreneur banker today. One 
founder in Texas told me that regulators were asking him to 
propose $50 million in paid-in capital before he could open his 
doors.
    Over the last year, I have met with bankers from across 
America, including in Arkansas, Texas, Ohio, Florida, Oklahoma, 
Louisiana, and elsewhere. These visits have reinforced my view 
that we are not doing enough to ensure that banks of all sizes 
remain competitive both in their business model and in their 
ability to attract growth capital. That is why, last November, 
I released my principles that we are starting to talk about 
today, making community banking great again: 30-plus reform 
ideas to enhance the ability for financial institutions to 
serve their customers, attract investment, adopt and deploy 
technology, and grow their communities. I look forward to 
working with all my colleagues to, in fact, bring that to 
fruition.
    I would like to first have the ranking member and I visit 
about a point of personal privilege. I want to acknowledge two 
staffers for their service on our committee. First, from the 
majority, Kim Betz and Larry Seyfried have done so much work to 
make this committee strong and outstanding over the past few 
years. Both are moving on. Friday will be their last day with 
the committee.
    Kim has been a key staffer here for the past 6 years. She 
has been General Counsel, Policy Director, Deputy Staff 
Director, and Staff Director. Chairman Cole and Subcommittee 
Chairman Joyce have enticed her over to the House 
Appropriations Committee, so she will not be going far. I 
consider her a world-class double agent in appropriations 
absolutely watching out for those of us on the authorizing 
committee.
    Larry has served as Director of Member Services and 
Coalitions during the 118th Congress, Deputy Director of 
Coalitions in this Congress. He has worked to make sure our 
members, and their offices get what they need to be successful 
and has been integral to the success of our committee in the 
last Congress and this one. We have benefited mightily from Kim 
and Larry's leadership and hard work, and I want to thank you 
for your service to our committee very much. [Applause.]
    Now I would like to recognize my friend the ranking member 
of the committee, the gentlewoman from California, for a point 
of personal privilege.
    Ms. Waters. Thank you very much, Mr. Chairman.
    I would like to acknowledge Esther Kahng, the Democrat's 
Chief Counsel, who will be departing Congress at the end of 
this week. Esther has served ably on my staff for 11 years. She 
first joined the committee in 2014 as a fellow fresh out of law 
school. She quickly distinguished herself with her sharp 
thinking and keen sense of public policy and was soon hired 
full time on to the committee staff.
    As a staffer covering housing issues, Esther worked on a 
variety of issues, including the reauthorization of the Native 
American Housing and Self-Determination Act, the enactment of 
the Housing Opportunity Through Modernization Act, and the 
reforms to the National Flood Insurance Program. Later, she 
became a Director of Housing Policy leading a team of housing 
professionals and shepherding the committee's response to the 
housing challenges caused by the coronavirus disease (COVID)-
2019 pandemic through the House and into law.
    In 2020, Esther was promoted to be the committee's Chief 
Counsel, and in that role, she has refined the committee's 
processes and procedures, expanded our member services 
operation, worked across the aisle on bipartisan legislation, 
and given the Republicans a hard time every now and then. When 
it comes to enforcing the rules, Esther is driven, determined, 
and hardworking, but also very kind, thoughtful, and a mentor 
to current and former staff, many of whom are now her close 
friends outside the office.
    She is a proud wife to her husband Corey, who is a teacher 
in a D.C. school, and she is an even prouder godmother to 
Josiah, who we see and hear in the office from time to time. We 
all are going to miss Esther, and I will miss her smile, her 
laugh, and her no nonsense attitude. All of us are incredibly 
proud of her and wish her the best as she embarks on this next 
phase of her life and thank her for her service. [Applause.]
    Thank you, Mr. Chairman, and I yield back.
    Chairman Hill. I thank the ranking member. I could not 
agree with her more on the incredible wonderful staff we have 
on both sides of the aisle and how we are grateful for their 
service to the committee and on behalf of the American people.
    I now recognize the ranking member for 4 minutes for an 
opening statement.

OPENING STATEMENT OF HON. MAXINE WATERS, RANKING MEMBER OF THE 
  COMMITTEE ON FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM 
                           CALIFORNIA

    Ms. Waters. Good morning, everyone. Today we are here to 
discuss how to strengthen community banks and credit unions, 
vital institutions that are lifelines for families and small 
businesses all across the country, particularly in underserved 
communities. This committee has a long bipartisan track record 
of supporting all of these community lenders, including during 
the pandemic by allocating $60 billion for them to deploy 
emergency loans to small businesses and investigate--investing, 
rather, $12 billion to grow minority depository institutions 
and community development financial institutions, many of which 
are small banks and credit unions. If it were any other day, I 
would say that I hope we can build on these efforts, including 
by passing my bill to expand depository insurance to protect 
the payrolls of small businesses and their employees who want 
to keep their money at their banks, but I cannot do so as an 
unelected billionaire, Elon Musk, seizes control of the 
American people's money.
    While President Trump unlawfully blocks sending money 
rightfully owed to Americans, imposes new import taxes on 
Americans and businesses buying everyday goods, and fires the 
Federal cops that go after everyone from Wall Street executives 
to violent insurrectionist criminals. Each of Trump's and co-
President Musk's actions are designed to cut taxes for 
billionaires and give corporations free reign to rip off 
working class families. If the community banks are listening 
today, if they are listening, they should be worried about what 
is happening to their customers and small business clients and 
what they should be doing.
    Trump is waging a trade war by threatening to tax Americans 
whenever they buy fruit, vegetables, gas, and even housing, and 
our small businesses will indeed feel the pain when they buy 
and sell their products. Even The Wall Street Journal has 
called Trump's import taxes the dumbest trade war in history, 
and, frankly, I agree.
    Mr. Chairman, I do not have to tell you who these 
hardworking people prefer to bank with them. That is right, 
community banks and credit unions. I know Republicans have 
noticed several so-called reform bills for bank exam appeals, 
reporting requirements, and even capital levels. Completely 
misses the point when community banks' customers are being 
fleeced. Trump and his team are firing hundreds of Federal 
regulators hired in the last 2 years. This was after Trump 
imposed a hiring freeze, gutted their hiring initiatives 
mandated by law, and suspended all enforcement of consumer laws 
so the big banks like Wells Fargo can go right back to their 
old tricks.
    I know that you are sincere, and I know that you have done 
a lot for community banks, and you want to continue to do. We 
want to work with you, but it is difficult when the President 
of the United States is offering initiatives and executive 
orders that really undermine community banks.
    Chairman Hill. The gentlewoman yields back. I now recognize 
the Chairman of the Financial Institutions Subcommittee for Mr. 
Barr of Kentucky for 1 minute.

 STATEMENT OF HON. ANDY BARR, CHAIRMAN OF THE SUBCOMMITTEE ON 
  FINANCIAL INSTITUTIONS, A U.S. REPRESENTATIVE FROM KENTUCKY

    Mr. Barr. Thank you, Mr. Chairman.
    I am pleased the first full committee hearing of the 119th 
Congress is focused on issues I have long cared about, and it 
is a credit to our chairman for focusing and prioritizing 
issues related to community banks. Today we are going to 
discuss how we can unbridle those community banks from the 
regulatory burden of the Biden and the Dodd-Frank Act and allow 
them to focus on what they do best, serving American families, 
farmers, and small businesses.
    Throughout my time in Congress, I have pushed for changes 
to the regulatory landscape that promote competition, ensure 
right sizing, and hold regulators accountable. I was proud to 
reintroduce H.R. 478, a bill to reduce burdensome initial 
capital requirements and lending restrictions that have made de 
novo bank formation all but nonexistent over the last decade.
    In addition to promoting new bank formation, we need to 
repeal the disastrous 1071 rulemaking and implement an 
independent appeals process to curtail regulatory overreach. I 
look forward to continuing to lead the Financial Institutions 
Subcommittee and getting to work.
    Chairman Hill. The gentleman yields back.
    The chair recognizes the Ranking Member of the Subcommittee 
for Financial Institutions, Mr. Foster of Illinois, for 1 
minute.

     STATEMENT OF HON. BILL FOSTER, RANKING MEMBER OF THE 
 SUBCOMMITTEE ON FINANCIAL INSTITUTIONS, A U.S. REPRESENTATIVE 
                         FROM ILLINOIS

    Mr. Foster. Thank you, Chairman Hill, and to our witnesses.
    The State of Illinois is home to more than 500 community 
banks and credit unions, employing over 41,000 Illinois 
residents. When I was starting a business with my brother years 
ago, I learned the value of having many banks, large and small, 
competing for our business. It allowed us to shop around for 
the interest rates and lending terms that were the best fit for 
our situation.
    Today, community banks and credit unions face many 
challenges. They do not have the skill to compete with mega 
banks for large accounts, and they often do not have the 
technology or the consumer data to compete with online banks 
and financial technologies (fintechs), for smaller accounts. 
Now they are faced with a specter of competing against online 
payment systems like X Money at the same time that X owner's, 
Elon Musk, has been given unprecedented access to private 
payment data on every American business and every American.
    Small bank customers were hit hard during the tariff wars 
of the first Trump, which threw us into a manufacturing 
recession a full year before COVID hit, and retaliatory tariffs 
devastated farm export markets in small towns across America 
requiring a $20 billion tax bailout simply to keep U.S. farmers 
afloat.
    Small banks matter, and I look forward to working with the 
chair and this committee to address many of these issues.
    I yield back.
    Chairman Hill. The gentleman's time is expired.
    Today we welcome the testimony of Mr. Pat Kennedy, Jr., 
founding partner of the law firm Kennedy Sutherland, San 
Antonio; Ms. Susannah Marshall, who is the Bank Commissioner 
from the Arkansas State Bank Department; Cathy Owen, Executive 
Chairman of Eagle Bank and Trust, located in Little Rock, 
Arkansas; Rebeca Romero Rainey, President and CEO of the 
Independent Community Bankers of America; and Mitria Spotser, 
Vice President of Federal policy for the Center for Responsible 
Lending.
    We welcome all of you. Each of you will be recognized for 5 
minutes to give an oral presentation of your testimony.
    Without objection, your written testimony will be made part 
of the record.
    Mr. Kennedy, we start with you. You are recognized for 5 
minutes.

STATEMENT OF PATRICK J. KENNEDY JR., FOUNDING PARTNER, KENNEDY 
                        SUTHERLAND, LLP

    Mr. Kennedy. Thank you, Mr. Chairman, Ranking Member 
Waters, and members of the committee. Thank you very much for 
inviting me to attend this hearing and submit written 
testimony.
    I have been a practicing Lawyer representing community 
banks for 45 years, their shareholders, directors, and officers 
and related entities, on a wide range of matters so I have had 
a lot of exposure to the industry. I am also the principal 
shareholder of a Texas State savings bank with roots in rural 
West Texas, which in the last 5 years during the Paycheck 
Protection Program (PPP) as Ranking Member Waters had 
commented, this little, small bank did over 10,000 PPP loans, 
average size of about 11,000. We ended up as a little small 
community bank being the 10th largest Main Street lender in the 
country. A firm called Wells Fargo was number seven.
    When I last had the opportunity to testify before this 
committee's Subcommittee on Financial Institutions at the 
invitation of Congressman Luetkemeyer in 2017, there were 6,300 
banks in the United States. As of last September, 30 percent of 
those are gone, and we have about 4,500 banks today. This loss 
is extremely unfortunate and is a trend that I strongly 
encourage Congress to reverse.
    In my professional career, I have witnessed the value of 
having locally owned and operated banks, particularly in rural 
communities. No other country in the world has anything like 
this historic population. It is a unique element of the 
American economy and, unfortunately, in the last 15 years, 
particularly since the enactment of Dodd-Frank, has undergone 
significant stress, and that is the reason for the continual 
decline.
    Prior to 2008, there were approximately, as the chairman 
noted, 200 new charters annually over the prior 20 years. 
Today, that number has dwindled to something like 7 per year. 
During that same period, capital ratios and the Basel 
Committee, the European-based Basel Committee initiatives have 
been forced--designed, really, for the largest banks in the 
world but have been trickled down and forced on every community 
bank, even the smallest community banks, and placed enormous 
burdens on this unique set of an important group of banks.
    Despite the laudable attempts of Congress during the first 
term to--during President Trump's first term to lessen that 
burden by the establishment of the community bank leverage 
ratio concept of getting away from the Basel at 9 percent, that 
still is a higher number and really continues to put pressure 
on profitability of community banks and I think discourages 
entrance into the business.
    Twenty seven years ago, I was involved, and, thankfully, 
Congress adopted an amendment to the Internal Revenue Code that 
permitted banks for the first time to elect Subchapter S tax 
treatment, and that has been credited as one of the most 
important pieces of legislation unknowingly that has affected 
positively community banks in the last 50 years. About a third 
of the banks in the United States--at that time, there were 
13,000, I think, and today, as we said 4,500--about a third of 
the banks in the United States are--maintain a Subchapter S 
election, and that was continued in the Tax Act of 2017, in 
section 199A. That expires this year, and so I call that to the 
attention of the committee. I know it is in the purview of the 
Ways and Means Committee, but it is extremely important that we 
make that provision permanent for the benefit of some 1,500 
community banks, most of them rural based.
    While there are many other laudable initiatives identified 
by the chairman in his initiatives, I want to underscore the 
importance of encouraging and allowing responsible innovation 
by community banks. Financial technology has and will continue 
to create substantial value for the industry through efficiency 
and reduction of costs. It is important that we have a 
regulatory framework that allows that innovation.
    I would also point out that it is really important that we 
have open and timely discussion of material supervisory 
determinations. Public enforcement actions should, in my view, 
be reserved really for the most egregious situations, and 
cooperative and open dialog should be the word for the future.
    Finally, I believe that the appropriate pricing of 
examination and application fees may need to be adjusted so 
that the industry is self-funding and the regulatory burden 
that is on community banks is lessened. Thank you very much.

    [the prepared statement of Mr. Kennedy follows:]
  [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
  
    Chairman Hill. Thank you, Mr. Kennedy.
    Commissioner Marshall, you are recognized for 5 minutes.

  STATEMENT OF SUSANNAH MARSHALL, BANK COMMISSIONER, ARKANSAS 
                     STATE BANK DEPARTMENT

    Ms. Marshall. Good morning, Chairman Hill, Ranking Member 
Waters, and members of the Financial Services Committee. My 
name is Susannah Marshall, and I am the Commissioner of the 
Arkansas State Bank Department. I also serve as the Arkansas 
Securities Commissioner and on the Executive Committee of the 
Conference of State Bank Supervisors. I have dedicated my 
entire career to the banking and regulatory industry, starting 
as a commercial bank examiner in 1995.
    As Commissioner, I regularly travel across Arkansas and 
spend time at our banks talking with bankers about their issues 
and working to understand the challenges facing the 
institutions, our economy, and consumers. The dual banking 
system and our State supervisors are a fundamental part of our 
U.S. financial services market that supports varied business 
models and brings together differing regulatory perspectives to 
produce better outcomes for our consumers and our local 
economies.
    States charter and are the primary regulator of 79 percent 
of the Nation's banks, most of which are community banks. In 
general, these banks have assets under $10 billion, traditional 
business models, limited geographic footprints, and less 
complex risk profiles. They pose minimal financial stability 
risk.
    The 70 banks my department oversees are all community banks 
in the truest sense, regardless of any regulatory or 
supervisory definition. Community banks are the economic 
bedrock of their communities and a solid foundation for the 
overall U.S. economy. Yet, over the last decade, we have lost 
nearly 2,000 community banks, one-third of their members in 
2014, and only 62 de novo community banks formed over that same 
period.
    Like many of my State supervisor colleagues, my department 
has a mandate for safety and soundness, consumer protection, 
and economic growth. We are accountable to the local 
communities and local institutions. A healthy economy means 
that all consumers, no matter where they live, have access to a 
broad array of financial services.
    Community banks are central to this mission. They are a 
core component of a vibrant economy, especially in rural areas. 
In one quarter of U.S. counties, a community bank is the only 
physical banking presence and nearly 2/3 of all rural deposits 
are held by community banks. When community banks close, their 
neighborhoods suffer. Low income households are often the 
hardest hit. Our Nation's institutions simply do not reach the 
areas that depend on community banks for economic support. 
Those largest institutions do not reach those areas. The 
business models are not an adequate substitute for the 
relationship lending models so crucial to local small 
businesses and entrepreneurs. That is why State supervisors 
care so deeply about the health, vitality, and future of the 
community banking business model.
    Unfortunately, this model is under tremendous pressure from 
a multitude of forces, from increased competition and funding 
challenges to high technology and personnel costs. In addition 
to these headwinds, a heavy blanket of ever increasing Federal 
regulatory and compliance cost is smothering an already 
severely stressed community banking sector. To preserve 
community banking and support the communities that rely on 
these institutions, we must act now. Regulations for community 
banks should be tailored to limit their risk profiles. We must 
focus Federal supervision on core safety and soundness risk and 
avoid imposing a process tax on banks. This supervisory 
approach often distracts bankers from financial issues that 
could actually pose significant risk to their institutions.
    One such area in need of funding reform is the Bank Secrecy 
Act (BSA) and Anti-Money Laundering (AML) supervision. No one 
in our financial system wants it to be used by criminals or 
terrorists, but the current BSA/AML regime is burdensome; its 
effectiveness is often unclear, and the associated compliance 
costs are strangling smaller institutions.
    Static regulatory thresholds that penalize banks for 
growing alongside the economy should be indexed or discarded 
for rules that focus on the relative complexity and business 
models and risk of the institution. Community banks must also 
continue to innovate. The next generation of customers is 
demanding more convenient access to services and new and 
innovative financial products.
    Federal regulators, however, have responded with vague 
guidance in ever-increasing supervisory expectations that can 
stifle new business models. A culture shift among our Federal 
counterparts and meaningful coordination with State regulators 
can help harness the benefits of new technologies and protect 
consumers. Changes to the regulatory framework and the process 
for approaching de novo applications should encourage new 
market entrance.
    Healthy merger applications, particular local to local 
mergers that preserve community banks, must be considered in a 
timely, transparent, and fair process. Today's hearing comes at 
a crucial time for the community banking industry, and I 
applaud the chairman and the members of the committee for your 
focus on this crucial sector. Without collective action from 
Congress and Federal banking agencies, we will continue to lose 
community banks at an alarming rate, and the communities that 
depend on their financial services will struggle to find simple 
alternatives. Working together, we can establish a regulatory 
and supervisory environment that allows the cornerstone of this 
industry to not just survive but thrive. Thank you.

    [The prepared statement of Ms. Marshall follows:]
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    Chairman Hill. Thank you, Commissioner.
    Ms. Owen, you are recognized for 5 minutes.

STATEMENT OF CATHY OWEN, EXECUTIVE CHAIRMAN, EAGLE BANK & TRUST 
                 COMPANY, LITTLE ROCK, ARKANSAS

    Ms. Owen. Chairman Hill, Ranking Member Waters, and members 
of the committee, thank you for this opportunity to testify at 
today's hearing, ``Making Community Banking Great Again.'' 
First, I want to thank Chairman French Hill. Not only is he a 
dedicated husband, father, and public servant, but he is also a 
dear friend. I have known him for over 50 years. His deep 
understanding of financial services and tenured bank experience 
is invaluable as he leads the committee.
    I also want to thank each of you for serving on the House 
Financial Services Committee as you have an exceptionally 
important job ahead of you.
    I fear community banking has never been more difficult than 
it is today. Just as so many community bankers are striving to 
serve their customers and communities, many are also struggling 
to survive. We desperately need your help to address the 
overwhelming regulatory burden we face. I know you are the 
people we need to get the job done and offer my thanks in 
advance for your support of the chairman as he works to make 
community banks great again.
    My name is Cathy Owen. I am Chair, President, and CEO of 
State Holding Company and Executive Chair of the Eagle Bank and 
Trust Company, a $490 million community bank in Central 
Arkansas with a rich 100-plus year history of serving its 
customers and communities. Last year, I celebrated 50 years in 
banking, having started my career as a shred clerk when I was a 
teenager.
    In addition to running our bank, I am currently Vice Chair 
of the American Bankers Association (ABA). I have chaired the 
ABA's Government Relations Council and the American Bankers--
excuse me, the Arkansas Bankers Association, and I am also very 
involved in advocacy efforts on behalf of America's banks. I am 
also a mother, a wife, and a grandmother.
    In preparing for this hearing, I asked our compliance team 
to provide real-world examples of unnecessary and 
counterproductive regulatory red tape. Although well-intended, 
the Consumer Financial Protection Bureau's (CFPB's) final rule 
on section 1071 presents both a tremendous compliance burden on 
lenders and privacy concerns for small business loan 
applicants, and we strongly support congressional action to 
overturn it.
    The lack of transparency and accountability at the CFPB is 
taking a heavy toll on America's banking industry and the 
millions of customers we serve. Replacing the sole director 
with a five-member bipartisan commission and placing the CFPB 
under the congressional appropriations process would introduce 
sorely needed accountability to the Bureau. We want to comply 
with the Community Reinvestment Act (CRA) and serve our 
communities, but there are vast gray areas left up to 
interpretation by both regulators and bankers. CRA should be 
reformed to clearly tell us what we need to do and what format 
and documentation is required.
    Just before the end of 2024, our bank grew suddenly to over 
$500 million in assets. Regulators have informed us to comply 
with the new FDIC Improvement Act requirements by year end. 
Meaning, we only had 2 weeks to comply, which was impossible. 
Instead, we chose to shrink the bank by moving deposits of 
customers out of the bank.
    If asset thresholds are imposed on the industry, they 
should be indexed to inflation. Borrowers constantly complain 
about the required waiting periods for receiving the closing 
disclosures in the Truth in Lending Act's trade rules when 
waiting an additional 3 to 6 days for actually closing and 
receiving their funds. This unnecessary red tape should be 
eliminated.
    In my written testimony, I mentioned several bills that we 
support. One of those bills that I think is important is the 
Promoting New Bank Formation Act. This will promote increased 
availability of banking and financial services for local 
communities by helping to create new de novo banks.
    Finally, combating fraud is a critical issue for our banks 
and customers. Congress and the regulatory agencies should 
pursue an all-of-government approach to combating fraud to 
reduce the number of Americans who fall victims to scams.
    In conclusion, at Eagle Bank and Trust, we have a long 
history of service to our local communities in Arkansas, and 
our commitment to community development loans and investments 
is shared by the thousands of community banks across the 
country. Many of these banks are under pressure to survive due 
to regulatory overreach and unfair competition.
    We support your ambitious agenda to provide needed 
regulatory relief for community banks and hope you will 
consider the many ideas presented in this testimony and ABA's 
blueprint for growth. Thank you once again.

    [The prepared statement of Ms. Owen follows:]
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    Chairman Hill. Thank you, Ms. Owen.
    Ms. Rainey, you are recognized for 5 minutes.

STATEMENT OF REBECA ROMERO RAINEY, PRESIDENT & CEO, INDEPENDENT 
                  COMMUNITY BANKERS OF AMERICA

    Ms. Rainey. Chairman Hill, Ranking Member Waters, and 
members of the committee, my name is Rebeca Romero Rainey, and 
I am President and CEO of the Independent Community Bankers of 
America (ICBA). I testify today on behalf of thousands of 
community banks across the country in rural, urban, and 
suburban markets.
    Before joining ICBA, I was Chairman and CEO of Sentinel 
Bank, a $415 million bank and Minority Depository Institution 
(MDI) headquartered in Taos, New Mexico. I am a proud third 
generation community banker. Sentinel was founded by my 
grandfather, Eliu Romero, in 1969. Years earlier he had been 
denied a loan to finance a new law practice. That experience 
led him to start a bank that would provide credit for all in 
his community, and I am proud to carry on his legacy, first at 
Sentinel and now at ICBA.
    Thank you so much for convening today's hearing on making 
community banking great again. I am delighted that we share a 
commitment to a future of great community banks to promote 
American prosperity, and I would like to say a few words about 
what makes community banks great. We have deep roots in the 
communities we serve. More than a thousand community banks are 
more than 100 years old and have survived historic systemic 
shocks, standing with our customers in catastrophic times. 
Others are de novo charters poised for growth, and we need more 
of those.
    In a community bank, local deposits are reinvested back 
into local credit. The business model is the purest form of 
economic development that there is. We often serve communities 
overlooked by larger out-of-market institutions and offer 
customized products and personalized services to seat the 
unique--suit the unique needs of our customers.
    Community banks are responsible for a disproportionate 
number of main street small business loans, especially in 
smaller communities, and some 70 percent of bank agricultural 
loans. In one in three U.S. counties, community banks are the 
only on-the-ground banking option. Whether historic or de novo, 
community banks are modernizing and embracing innovation and 
new technologies to reach more customers and small businesses. 
Responsible innovation is our motto.
    I want to thank Chairman Hill for crafting a set of banking 
principles to guide policymaking in the new Congress. There is 
strong overlap between those principles and ICBA's agenda for 
the new Congress, which has been endorsed by all 44 of our 
State affiliates and is attached to my written testimony.
    As we enter 2025, top of mind for community bankers and 
small business borrowers is the impending implementation of 
section 1071 of the Dodd-Frank Act. The intrusive data 
collection required under 1071 will compromise the privacy of 
small business applicants and effectively commoditize small 
business lending and increase the cost of credit. ICBA strongly 
supports Congressman Roger Williams' 1071 Repeal to Protect 
Small Business Lending Act. Short of full statutory repeal, the 
law will be significantly improved by Chairman Hill's Small 
Lender Act, which would provide community banks and small 
businesses with critical relief to support ongoing credit and 
community growth.
    To enhance the future of community banking, we need more de 
novo formation. Congressman Barr's Promoting New Bank Formation 
Act would promote the creation of de novos, especially in rural 
areas by providing more regulatory capital and lending 
flexibility to those banks. Chairman Hill's principles also 
include changes to resolution policy that would help ensure 
that failing banks are not purchased by the largest banks, 
thereby exacerbating industry consolidation, and waiver of the 
least cost resolution if the FDIC finds that a transaction 
would increase competition and facilitate economic growth, an 
examination reform that would create independent review and 
better transparency and accountability. The exam cycle would 
also be increased from 12 to 18 months for more well-rated 
highly capitalized community banks.
    In addition, ICBA's agenda calls for measures to promote 
and strengthen our Community Development Financial Institutions 
(CDFI) and MDI members, curb the sale of trigger leads that 
compromise consumer privacy, create a flood of unwanted 
solicitations and confusion for customers, and address the 
surging problem of check fraud, among other provisions. I urge 
you to review my written statement for our full agenda for a 
more detailed discussion of these and other important 
provisions.
    Let me close by again invoking my grandfather, Eliu. I 
seriously doubt he could have formed Sentinel in today's 
excessive regulatory and de novo environment. In fact, it would 
have been impossible. This should serve as a historical 
benchmark for the reforms we need to make community banking 
even greater.

    [The prepared statement of Ms. Rainey follows:]
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    Chairman Hill. The gentlewoman yields.
    Ms. Spotser, you are recognized for 5 minutes, and welcome.

STATEMENT OF MITRIA SPOTSER, VICE PRESIDENT OF FEDERAL POLICY, 
                 CENTER FOR RESPONSIBLE LENDING

    Ms. Spotser. Thank you so much.
    Good morning, Chairman Hill, Ranking Member Waters, and 
members of the committee.
    Over the weekend, I had a moment to really think about the 
title of this hearing and ultimately what we were talking about 
in making community banking great again. It occurred to me that 
the way to make community banking great again, if it is not 
already great, is to put communities first.
    What I would like to talk to you about today in this short 
amount of time that I have are policies that put communities 
first and relationship banking and the people that financial 
institutions serve and policies that undermine the 
relationships that community bankers are designed to reinforce 
and build.
    Let us start with community relationships or community 
policies that actually help banking and help people. Those are 
policies that level the playing field between banking 
depository institutions and nondepository institutions because 
one of the biggest challenges that banks are facing right now 
is the encouragement of other lenders who are not abiding by 
the same regulatory obligations. By stepping in and holding 
those institutions accountable, making them abide by 
disclosures to consumers and allowing consumers the information 
to make informed decisions about what is the best product, we 
can elevate community banks and help consumers make strong 
financial decisions that keep them financially secure.
    Another way that we can actually put communities first by 
developing a community banking agenda is by actually increasing 
the amount of funding that we allocate to the institutions who 
are doing that work, and that includes CDFIs. Enforcing the 
work that they do as well as the technical assistance that they 
provide to so many small businesses across the United States is 
essential for us reinforcing the notion that our lending 
relationships as community bankers drives small business.
    Finally, another thing that we can do to stimulate 
community banking and put communities first in the process is 
seriously consider proposals that are designed to increase 
resources for small businesses by raising their deposit 
insurance cap and making those institutions feel more 
comfortable.
    I would encourage us as a group to actually think about 
those types of policies and their direct benefit in not only 
helping and assisting community financial institutions but also 
assisting the consumers that they serve.
    Now, there are a number of other policies, and 
unfortunately, some of them are being considered in connection 
with this hearing, that I do not think actually put communities 
first. One of those policies I have to be very clear about is 
the overemphasis on deregulation. It was not that long ago that 
we can all remember the 2008 financial crisis, but what we 
sometimes do not talk about in the midst of talking about 
regulatory burden is what led to that crisis. The reality is 
that it was a series of deregulation, a lack of emphasis on 
oversight that--particularly as it relates to larger financial 
institutions--that led to the financial crisis, and community 
banks, even though they engaged in sound banking practices, 
were forced to feel the consequences due to the economic 
downturn and impact that it had on consumers. Deregulation is 
the type of policy and practice that leads to harm on a long-
term basis for community banks.
    The other thing that leads to harm here is policies that 
undermine the independence and the effectiveness of the 
regulator that is charged with ensuring that there is a level 
and fair playing field for financial institutions and 
consumers, and that regulator is the Consumer Financial 
Protection Bureau. There has been a lot of conversation about 
what is going to happen with the CFPB, and certainly there have 
been changes in the leadership.
    I think it is true that reasonable minds can disagree as to 
the full impact or specific provisions with respect to the 
Bureau, but what reasonable minds cannot disagree with is the 
reality that ensuring that consumers are protected in the 
financial marketplace, stamping out predatory financial 
products, making sure that consumers have accurate information 
are all things that are essential for our financial marketplace 
to function effectively.
    For those reasons, we need to pursue an agenda, a 
regulatory agenda and a legislative agenda, that puts 
communities first by ensuring that we have appropriate rules 
and regulations governing the financial marketplace. Thank you 
so much.

    [The prepared statement of Ms. Spotser follows:]
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    Chairman Hill. The gentlewoman yields. Thank you so much.
    I recognize myself for 5 minutes for questions. 
Commissioner Marshall, it is so good to see you.
    I told her when she walked in, I trembled a little bit 
because she used to be my regulator when I was a banker. She 
still makes me nervous being in the same room.
    You served our State for over 30 years, and we have a 
vibrant banking sector. We have some of the Nation's most 
competitive financial institutions and successful, and I will 
say, big, small investment, money management, credit union, 
commercial banking. Congratulations on doing a good job both as 
Securities Commissioner and Banking Commissioner of the State, 
big responsibility.
    Ms. Spotser, in her testimony, I saw on page 13, asserts 
that there is no--there is a lack of data about small business 
lending in the United States and hints for a strong support for 
section 1071 in Dodd-Frank's implementation, this rulemaking 
that we have been talking about for the last few years.
    Are you familiar with the call report data on small 
business lending, Commissioner?
    Ms. Marshall. Thank you for your comments, Mr. Chairman. 
When we look at 1071, I can assure you that, as a regulator, I 
am as concerned about that as the banks are. I believe that 
CFPB took an outsized approach to their implementation of this 
rule, and I applaud this group and others that--and Congress as 
you are going to look at 1071 and the future of it. The amount 
of data that is going to be required to be collected by the 
banks and the reporting of that data will increase and provide 
a significant burden on our institutions.
    Chairman Hill. Could you see it driving small business 
lending out of the depository institution sector to the biggest 
banks in the country and some automated credit box or, even 
more so, out of the regulated financial sector into the online 
small business lending sector? Is that possible, do you think?
    Ms. Marshall. I agree, Mr. Chairman, because the consumer 
already struggles with providing the amount of information that 
banks are required to collect from them. They do not understand 
that. The banks are struggling to collect that information and 
in a small business setting, no two small business loans are 
alike. There is nothing that is going to make a great 
comparison when looking at one small business loan to the 
other. I grew up in a family with two small businesses, and I 
can assure you they were very different, but our community bank 
served us well.
    Chairman Hill. I think that is a good point, but on this 
point about data, I believe we collect for--every depository 
institution in the country reports on their financial 
statements' loans under $100,000 and loans between 100 and 
$250,000. Is that right?
    Ms. Marshall. Off the top of my head, Mr. Chairman, I do 
not--I cannot confirm that, but I can assure you the call 
report data is expansive. It is growing every day, and the 
burden that those institutions are required for even additional 
documentation is significant.
    Chairman Hill. Because I have access to chat generative 
pre-trained transformer (ChatGPT), I can report to you that RD-
C, part 2 of the call report, requires banks to report all 
loans under $100,000 and all loans between 100 and $250,000. 
Clearly, that is data, and it is indicative of small 
businesses.
    Cathy Owen, sometimes I think the regulators are not all on 
the same page, and the bigger the company, the more likely they 
are not on the same page. In your experience, are the Federal 
Reserve System (Fed), the FDIC, and the State all on the same 
page on community reinvestment or whether or not you can have a 
fintech partnership or how they coordinate their exams?
    Ms. Owen. We are a Fed State bank, so I can only comment on 
the Federal Reserve and the State Bank Department. For the 
large part, we are very fortunate in that our Fed region and 
our State Bank Department do work very closely together and 
coordinate closely.
    Chairman Hill. Thank you.
    Ms. Rainey, what do you think about that? What do you hear 
from your members on that? Exam coordination and are they on 
exactly the same page about reviewing a fintech investment or 
how the CRA should operate, the Community Reinvestment Act, 
operate or any other--and coordinating exams, particularly for 
your members that are larger and maybe subject to direct 
examination by the CFPB, for example?
    Ms. Rainey. This is something we hear a lot about, and I 
can tell you that there is not a lot of direct coordination and 
a lot of confusion in terms of what one entity might require 
and another to what extent they may examine, best practices, 
how they get rolled down to community banks. There is not a lot 
of coordination today.
    Chairman Hill. Mr. Kennedy, thinking about the--I hear a 
lot of comments, and I noted them about how bank CEOs and 
boards of directors are thinking about the Capital Adequacy, 
Asset Quality, Management, Earnings, Liquidity and Sensitivity 
to Market Risk (CAMELS) rating, the transparency of it, and 
some bankers have asserted anecdotally that it is not a fair 
process. As a bank director, founder, lawyer, can you comment 
on how the CAMELS process might be reformed.
    Mr. Kennedy. As a lawyer, not specifically in reference to 
our bank, but just in my 40-plus years of representing banks 
and seeing the application of CAMELS, I think your suggestions 
about focusing in on following the definitions and making those 
definitions clear. In my comments, I commented on the idea that 
instead of doing an exam on a point in time with a snapshot, 
think more about a dynamic trend for the bank in terms of how 
they apply, how the regulators would apply that CAMELS rating. 
It is very important. Those ratings can lead to a whole lot of 
positive or negative things, so I think that is a very 
important matter to cover.
    Chairman Hill. Thank you very much. Thank the panel.
    I now recognize the ranking member, the gentlewoman from 
California, for 5 minutes of questions.
    Ms. Waters. Thank you very much, Mr. Chairman.
    Ms. Spotser, welcome back. It is so nice to have a former 
staffer testify before our committee. Good to see you.
    Ms. Spotser. Thank you, ma'am.
    Ms. Waters. Today Democrats would offer the types of bills 
our committee should be considering. If we are going to do 
reform, it is just not about getting rid of regulations. We 
should be considering bills that lower costs for families and 
small businesses and protect community banks and credit unions.
    For example, I have a bill that will halt all Trump import 
tax increases and his dumb trade war until we know that small 
businesses and the community banks will not be harmed. I have 
another bill that rejects co-President Musk's efforts to end 
deposit insurance and the FDIC. These bills will ensure there 
is a future for community banks. Ms. Spotser, as I explained in 
my opening statement, I am deeply troubled by Trump's and the 
unelected billionaire Musk's early actions, including the 
effort to pause all kinds of Federal financial assistance. 
Would you discuss--you have done that somewhat, but would you 
continue to discuss how these efforts would hurt individuals 
and small banks and how they would undermine the community 
lenders they prefer to bank with. For example, if loans backed 
by the Federal Housing Administration and Small Businesses 
Administration were no longer available, would that make it 
harder for banks and credit unions to provide mortgage and 
small business lending?
    Ms. Spotser. It certainly would, and one of the things that 
I would like to point out is, not too long ago, I actually 
received a telephone call from one of our colleagues at another 
organization who had received a message basically indicating 
that they would no longer be able to actively work in providing 
technical assistance to small businesses as a result of the 
funding freeze and a series of the executive orders. I think 
these types of policies directly impact our ability to do what 
we do best as community bankers, right, which is first, small 
businesses. Give them the resources that they need to scale, 
and so, as we go forward, we have to think about making a 
conscious decision to pursue policies that empower businesses 
rather than hurt them.
    Ms. Waters. Thank you. The Trump Administration even 
included interest payments on our national debt and a list of 
programs they maybe paused before a court blocked their freeze. 
If we were to default on our debt, would that not trigger a 
broad economic crisis that would harm community banks, credit 
unions, and their customers?
    Ms. Spotser. It certainly sounds like it would, yes, ma'am.
    Ms. Waters. Thank you. What will happen when Trump's new 
import taxes are imposed on a bank? This can happen in a month. 
Will that raise the cost of groceries and gas for consumers? 
What about farmers who export their crops? Will they be harmed 
when our neighbors respond by taxing American exports? Will all 
of this make it harder for community bank customers to repay 
their loans?
    Ms. Spotser. Yes, ma'am. I think the broader question here 
is exactly what you are saying. All of these decisions have an 
impact on the wallets of Americans. As a result of that, it 
creates pressure for them to actually continue to pay their 
debts, and that has an implication for every financial 
institution.
    Ms. Waters. Thank you. Now, if we care about community 
banks and credit unions, Congress must not turn a blind eye to 
all the harm Trump is trying to inflict on working families, 
small businesses, community financial institutions, and our 
economy. Again, Mr. Chairman, and members, we support community 
banks, and both sides of the aisle do, but it is not going to 
be simply getting rid of regulations that we have worked so 
hard to put in place so that we could protect our community 
banks. I think it is important for us to look at some of these 
executive orders and what they are doing and the possible harm 
that they may cause our community banks, and so that is what 
our members are going to do today. We are just going to be very 
open about what we understand is being done, because we all 
want to protect our community banks. We do not want to 
undermine them at this important time in the history of the 
changes that are being made in this country.
    I yield back the balance of my time.
    Mr. Huizenga [presiding]. The gentlelady's time has 
expired.
    I now recognize myself for 5 minutes.
    Ms. Romero Rainey, you testified this morning that, when 
banks fail, a speedy resolution is critical, which I fully 
agree with, and you had said that the FDIC should not ``pick 
winners and losers.'' I would contend, and many of us over here 
who lived through what happened with Silicon Valley Bank (SVB) 
and a few other recent bank failures is that they were lacking 
in that area. They did, in fact, pick winners and losers, and 
we saw that scenario play out. Not only was former FDIC Chair 
Marty Gruenberg slow to react to the failures of Silicon Valley 
Bank, we heard that--as chair of the Oversight and 
Investigations Committee-- but we also heard that time and time 
and time again from people who were involved in it, both 
Silicon Valley Bank and Signature Bank.
    When it came to First Republic, he allowed their assets to 
be purchased by a large U.S. bank rather than eroding--rather 
than putting it out for bid and really having a reinforcement 
of the competitive nature of the banking landscape.
    I want to know, are there ways that you think the FDIC 
specifically could improve the bidding process that would 
include everybody in that failed bank assets when those 
unfortunately occurred--occurrences happened?
    Ms. Rainey. Yes, and I appreciate the question. I think 
there are many ways for us to examine what is required under 
least cost resolution that, in time of a failure, would ensure 
that: one, we are not simply allowing the largest banks in this 
country to grow even larger; that we are taking into account 
the unique needs of the communities and the customers they 
serve; and looking at the concept of least cost resolution to 
be defined over a period of time, not in just that singular 
moment. This is something we would welcome engagement with the 
committee on.
    Mr. Huizenga. Do you believe community banks have the 
ability, and are they in a position to absorb the assets of 
banks like this?
    Ms. Rainey. Absolutely, and I think, as we reflect on these 
situations, there were many examples of smaller banks that were 
willing to bid that, again, if there were more flexibility and 
the willingness to look at these costs over, again, an extended 
period of time. Multiple banks with unique ties to those 
communities could have stepped up to the plate and ensured a 
better resolution for those customers.
    Mr. Huizenga. In 2018, this committee passed on a 
bipartisan basis actually, some relief to those community 
banks. Yet, we still have some who are saying that we need to 
regulate you all as we would a large city bank or other large 
banks. Can you help the committee understand how Congress can 
build on the tailoring requirements that were, as part of 
Senate bill 2155 back 6, 7 years ago, and how it helped 
revitalize the banking sector.
    Ms. Rainey. Tailoring is critical for a viable future where 
community banks thrive.
    Mr. Huizenga. That is because they are just different risk 
profiles?
    Ms. Rainey [continuing]. different risk profiles, and the 
concept one size fits all is not what we need when it comes to 
bank regulation. The risk model that is a community bank is 
succinctly different from those of the larger banks.
    Mr. Huizenga. Some would want to call that rolling back. 
Others would call that maybe commonsense application, right? If 
you have a different type of animal that we are dealing with, 
is it appropriate to then have different regulations on them, 
correct?
    Ms. Rainey. That is correct. For a smaller community bank 
that is focused on ensuring the success of that community 
thrives, that risk profile is going to look completely 
different, again, from the larger institutions.
    Mr. Huizenga. Ms. Marshall, I want to turn to you here. In 
a recently released survey of the Conference of State Banking 
Supervisors, community banks listed regulations as one of their 
chief external risks. Is that what you are seeing in Arkansas 
and among your other colleagues?
    Ms. Marshall. Yes, sir, absolutely, and I appreciate the 
point to the sentiment index survey that--and in our community 
bank survey where regulatory burden is highlighted as one of 
the number one risks facing institutions. When I go out and 
visit with my banks, whether it is in Western Arkansas or 
Eastern Arkansas or my colleagues across this country, I can 
assure you that it is top of mind for them.
    Mr. Huizenga. I think I know the answer to this, but you 
would not say that Senate bill 2155 actually caused these 
previously mentioned banks to fail.
    Ms. Marshall. No, sir.
    Mr. Huizenga. I did not think so. I just wanted to make 
sure we were on the same page here.
    Ms. Marshall, Ms. Owen, I want to follow up on comments 
from Chair Hill about de novo banking. My home State of 
Michigan, we currently have 79 chartered banks, which is down 
from 86 just a year ago. That represents nearly 2,000 branches, 
50,000 employees, and $314 billion in customer deposits.
    Ms. Marshall, your testimony highlighted just how hard it 
is to form a new bank. I am hearing that same message from back 
home. What can we do as the consequences--what are going to be 
the consequences? My time is expiring, but very quickly.
    Ms. Marshall. I think the message I am tailoring is 
appropriate and getting away from process-driven examinations.
    Mr. Huizenga. Great. Thank you. I know we have a title of 
``Making Community Banking Great Again,'' but ultimately it is 
all of our goal to make sure that credit is available, and 
through access, whether it is credit unions. Those are those 
communities that really are where the rubber hits the road.
    With that, I recognize the gentleman from California, Mr. 
Sherman, who is recognized for 5 minutes and 30 seconds.
    Mr. Sherman. Thank you.
    I want to thank the ranking member for focusing on how 
disruption disrupts our entire economy and hurts every private 
sector decision-maker. The ranking member points out that this 
administration was toying with the idea of maybe we just will 
not make payments on our national debt. How is somebody 
supposed to do business and take all the risks involved in 
being in the private sector?
    We have a 25 percent tariff on Canada. Then we do not. Then 
we might. Then it depends on whether their Prime Minister says 
something nice about how our President looks.
    How is a community bank--and this is just a rhetorical 
question--supposed to decide whether to make a loan to a 
business when they do not know whether they are going to lose 
all their Canadian and Mexican sales next month? It is just 
throwing a wrecking ball at everything in our economy. Gets 
good ratings. Dominates the news cycle. I think it would be--it 
is hard to say that being a community banker is great when you 
have to deal with that.
    We have to make banking great, not just for the bankers and 
the community bankers, but for the consumers. For God's sakes, 
we cannot abolish the CFPB. They produce $21 billion for 
consumers. We are going to save $6.1 billion on overdraft fees. 
The way to make banking great is not to leave consumers without 
protection.
    Another thing that was not so great about banking a couple 
years ago was the collapse of several banks, including 
Signature Bank, where we are told that one of the factors was 
that the FDIC was understaffed. Now we are told that they are 
still understaffed. They do not have enough bank examiners, but 
200 bank examiners who had offers are now seeing those offers 
pulled. Now, those barely qualified might wait around to see, 
but the ones with the most qualifications, the ones that are 
wanted by the private sector, will have 10 other jobs by the 
end of next week. They are gone.
    We also see the FDIC being told, if you work for the FDIC, 
hey, you can get 8 months' pay for quitting your job. Who is 
going to quit? The people who can easily get an even better job 
in the private sector, we lose our best and our brightest.
    I will ask Ms. Spotser. If the FDIC is unable to prevent 
future bank failures, is that bad for the image of community 
banks and their ability to attract depositors?
    Ms. Spotser. It certainly is.
    Mr. Sherman. I thought that was an easy question.
    Community banks make mortgage loans. They cannot afford to 
maintain--to hold those loans on their balance sheet. They sell 
them to Fannie and Freddie. If we abolish Fannie and Freddie, 
is that good for community banks?
    Ms. Spotser. No, not at all.
    Mr. Sherman. Okay. We have a law in Florida--which I hope 
this committee would see fit to preempt--that says anytime you 
are turned down for a loan in Florida, you can say that it is 
because of my political beliefs, and you start a State 
investigation. Is that good for community banks?
    Ms. Spotser. I am not familiar with the law, sir, but it 
does not sound like it is good.
    Mr. Sherman. It creates a circumstance where the Federal 
law says that you better not reveal the fact that you filed a 
suspicious activity report, but the Florida law says you have 
to explain why you did not want to do business with somebody 
who was suspicious. You are in a conundrum where you are forced 
to do something by State law, prohibited doing something for 
Federal law. Does that make community banking great?
    Ms. Spotser. It certainly creates compliance challenges.
    Mr. Sherman. Okay. Then we have rules that apply--let us 
just say we still have a CFPB. There are those who say we will 
impose those rules on loans made in dollars, but we will exempt 
crypto. Since banks have their deal with dollars--all of them I 
know--if they are at a competitive disadvantage for the crypto 
industry, does that make community banking great?
    Ms. Spotser. No, sir.
    Mr. Sherman. I yield back.
    Mr. Huizenga [presiding]. The gentleman has 6 seconds. The 
gentleman yields back.
    With that, the gentleman from Oklahoma, Mr. Lucas, is now 
recognized for 5 minutes.
    Mr. Lucas. Thank you, Mr. Chairman, and thank you to all of 
our witnesses for testifying today.
    Community banks are the heartbeat of local communities. In 
my district, it is agriculture, it is energy, it is Main 
Street, and community bankers uniquely address the needs of 
those capital-intensive industries like the ones in my home 
State.
    Ms. Owen, before I start my first question to you, I would 
just like to offer an observation. My first banker was an older 
banker at the time. He had been my father's banker, he had been 
both of my grandfather's banker, and as a very young banker, he 
banked 2 of my great-grandfathers, so community banking and 
those relationships are important to me having lived it 
firsthand.
    Ms. Owen, what does it mean--and I know--just simply say 
this is a hearing about stressing the importance. What does it 
mean for the local community when community banks are able to 
thrive in communities like mine and in many across the country?
    Ms. Owen. It is huge for the communities, the customers. If 
a community bank cannot thrive, then we cannot serve that 
community. We cannot buy school uniforms. We cannot supply food 
for the food pantries. We cannot provide financial education. 
We cannot make the loans that are necessary for those 
communities.
    Mr. Lucas. Turning to you, Ms. Romero Rainey. The chairman 
and the vice chairman have discussed how, in 2018, Congress 
rolled back some regulatory burdens placed on community banks. 
Could you expand, from your perspective, what other areas of 
focus does Congress need to consider building on that progress?
    Ms. Rainey. Certainly. I think as we build on that progress 
of creating, again, not a one-size-fits-all path to regulation, 
whether we are talking about the exam environment in which 
community banks operate and how we allow for more flexibility 
for well-capitalized and well-managed institutions. I think 
another significant opportunity is how we think about de novo 
banking.
    Again, the one-size-fits-all charter for a community in 
Oklahoma does not look the same as it does in downtown New York 
City, and we need to think about it differently in terms of 
what regulation should be required and how we appropriately 
give flexibility. That is really what we are looking for. As we 
serve unique communities of all shapes and sizes across this 
country, we need that flexibility. It is not about--it is about 
enforcing and creating added approach to safety and soundness 
but giving us the flexibility to manage within that.
    Mr. Lucas. Ms. Marshall, we have seen a dramatic decrease 
in the number of new banks created in the last 20 years, as my 
colleagues have noted. I have listened personally to investors 
talk about, at different times in the last 20 years, where the 
regulators were so focused on making people take problem banks 
that they would not allow--would not encourage new charters, de 
novos, until that was taken care of.
    What are some of the challenges that you see in entering 
the market, and what should the government do to consider 
incentivizing new bank formation?
    Ms. Marshall. Yes, sir, and Arkansas is no different. We 
have only seen 20--pardon me. In 20 years, we have not seen a 
new de novo bank application, and that is a trend I would like 
to see change, not just for my State, but across the country.
    I believe we need to focus on ensuring those interested 
parties that our industry is open for business. We need to 
focus on reminding them that the regulatory burden is 
manageable, and we can do that through tailoring, as I have 
mentioned before. We need to spend this time and take this 
opportunity to review static thresholds that have, quite 
frankly, not been indexed or reviewed in quite some time, 
because $10 billion today is not what it was when some of those 
thresholds were put into place. I allude to the Bank Secrecy 
Act or other thresholds within the regulatory environment.
    We also need to ensure that we have healthy entrance into 
the marketplace, and we also have that opportunity for exits 
through mergers and acquisitions (M&A) activity and no barriers 
to that for local-to-local bank mergers.
    Mr. Lucas. I just want to say that access to capital is a 
hugely important topic in districts with the kind of industries 
I have back in Oklahoma, and I look forward to working with my 
colleagues on the committee and the new administration to 
address these issues that we highlighted today.
    I think of my first old banker who was a multigeneration 
banker and he had his institution open for 5 and a half days a 
week. On Saturday afternoon, when he closed at noon, he would 
get in his pickup and he would drive around the county looking 
at your farm, looking at your field, looking at your business, 
doing a personal eye assessment of what was going on. He 
survived the Great Depression. He survived the drought of the 
`50s. He survived the meltdown of the 1980s. I have the 
greatest of respect for that kind of community banker.
    I yield back.
    Mr. Huizenga. The gentleman's time has expired.
    With that, the gentleman from Georgia, Mr. Scott, is now 
recognized for 5 minutes.
    Mr. Scott. Thank you, Chairman.
    Ms. Spotser, thank you for your excellent and well-
delivered testimony. I learned a lot. Most importantly, put 
communities first. You are absolutely right. Our banking system 
is much like a heart in the body. It pumps blood throughout. 
Our banks do the same thing. That is what pumps our money, our 
lending out. It is the basis.
    Now, Ms. Spotser, yesterday, the former CEO of Silicon 
Valley Bank, Mr. Ken Wilcox, warned that President Trump's 
deregulation agenda could lead to more bank failures similar to 
those experienced by Silicon Valley and others in 2023. Worst 
of all, Mr. Wilcox said this. He said that ``We could 
potentially see failures like those seen during the 2008 
financial crisis because of loosened regulatory enforcement.''
    Now, tell us, do you agree with Mr. Wilcox's statement, and 
where do you see President Trump's banking deregulation agenda 
causing the most damage?
    Ms. Spotser. Thank you for that question, sir.
    One of the most fascinating things is that we are at a time 
where Americans across the country are already facing financial 
hardship. We see that because we see that people are more 
likely to pay just the minimum statement--minimum due on their 
credit cards. We see that when we hear consumers talk about the 
fact that they are struggling to buy groceries.
    Any act that makes it more expensive to access credit and 
any act that does that by virtue of, quite candidly, a policy 
that pursues deregulation but allows as a result of 
deregulation for consumers to experience paying more what we 
have called in the past junk fees is a policy that actually 
will, in the long-term basis, hurt us all.
    Mr. Scott. Going to your point about putting the 
communities first--excuse me. I have a slight cold.
    Ms. Spotser, in your opinion, what happens when the people 
in the community who are advocating for caution, who are 
advocating for soundness, are not even involved in the decision 
making process about such a critical area?
    Ms. Spotser. I think we all suffer, and I think that we 
have heard from all of the witnesses on the panel. The thing 
that makes community banking so important and relevant is that 
it is relationship-based. It involves people actually listening 
or institutions actually listening to their customers and 
hearing their concerns as well as their desires to build. If it 
is relationship-based banking and that is what makes it 
important, then, obviously, it is critical to pay attention to 
the concerns that are raised by communities.
    Mr. Scott. How is this environment exacerbated specifically 
speaking about community banks?
    Ms. Spotser. I think we have heard a bunch of conversations 
about the challenges. With larger financial institutions as 
well as nonbanking, nondepository institutions not being held 
accountable to the same standard, it creates a situation where 
community banks can be less competitive. That is one of the 
biggest challenges here.
    I think that the ways to increase the competitiveness of 
community banks have something to do with giving them 
opportunities to expand their competitiveness by, for example, 
increasing the amount of deposit cap that relates to small 
businesses, providing increased technical assistance and 
opportunities, allowing them more access to technology, as we 
talked about before, and making that affordable to them.
    It is not to say that we do not believe in the notion that 
regulation should be tailored. What we are saying is that we 
already acknowledge that regulations have been tailored and 
that many of the rules that people have pointed to as creating 
regulatory burden in fact do not apply to community banks in 
the United States.
    Mr. Scott. Thank you, Ms. Spotser. I appreciate that.
    Mr. Huizenga. The gentleman's time has expired.
    With that, the gentlewoman from Missouri, Mrs. Wagner, is 
now recognized for 5 minutes.
    Mrs. Wagner. I thank the vice chair, and I thank the 
chairman for organizing this inaugural hearing of the 119th 
Congress on community banks, local institutions that provide 
absolutely essential banking services for communities across my 
home State of Missouri and the Nation. Ninety percent of the 
banks in my district are community banks, and they are often 
the main source of funding for small businesses and farmers 
throughout Missouri's Second District.
    After the passage of Dodd-Frank, community banks were 
forced to contend with complex, overly prescriptive, and a 
burdensome suite of regulations--I do not think there are any 
junk fees. I think there are junk regulations imposed, if you 
want my humble opinion, but--that made basic financial services 
less accessible to small businesses and middle-income 
Americans.
    The bills we are examining today will give local banks 
much-needed relief from these one-size-fits-all regulations, 
allowing them to better serve and meet the needs of local 
businesses, which will lead to investments and economic growth 
in Missouri and across the country.
    Ms. Rainey, the vice chair and others have touched on this. 
You noted that, after Dodd-Frank passed, de novo charters, 
which allow for the formation of new banks--I do not know why 
we just do not say that. De novo. Whatever--dropped from an 
average of 170 per year to just a handful. This sharp drop in 
new banking opportunities is depriving communities of access to 
banking and local credit, especially in rural areas.
    Ms. Rainey, what reforms can Congress and/or regulators 
make to reverse this trend and encourage more de novo 
formation, new banks, new community banks?
    Ms. Rainey. Thank you for the question and, yes, as the 
chairman noted earlier, we have only had 82 new banks formed 
since 2010, and that is just----
    Mrs. Wagner. It is insane.
    Ms. Rainey. That is not enough. There is so much that can 
be done here.
    I really want to draw your attention to the minimum capital 
requirements, especially as you look at smaller, more rural 
areas. We need a proportionate connection to how much capital 
is required to what is the business that we are going to do, 
and we look at it more, again, from a one-size-fits-all period 
of time and--so base minimum capital requirements, and then a 
period of time for them to grow that capital to, again, allow 
for that flexibility and take into account the unique needs 
within that community.
    Mrs. Wagner. Thank you. I think there is that and minimum 
capital requirements and much more that need to be addressed.
    Ms. Rainey. Yes.
    Mrs. Wagner. In 2020, based on robust data collection and 
analysis and an extensive public comment period, the FDIC 
crafted a new rule governing brokered deposits that allowed 
financial institutions to access diverse funding sources and 
gave consumers more control over their financial decisions. 
Yet, late in the previous administration, Chairman Gruenberg 
attempted to rush through a rule returning brokered deposit 
governance to the pre-2020 status quo without conducting 
analyses to justify the change and, in fact, seeking to collect 
data from banks on the characteristics of their brokered 
deposits--are you ready for this--after the proposed rule.
    After many of my colleagues and I joined Financial 
Institutions Subcommittee, Chair Barr--Andy Barr--in urging the 
FDIC to reverse course. I was glad to see FDIC Acting Chairman 
Travis Hill withdraw this very poorly crafted rule on January 
21st.
    Ms. Marshall, can you discuss how community banks use 
brokered deposits to access funding, which allows them to make 
more loans to small businesses and to families?
    Ms. Marshall. Yes, ma'am. Thank you for the question.
    Deposit competition is greater now for our community banks 
than ever before. They are being forced to look at all of the 
tools and resources that are available and have a broad 
playbook of funding sources to be able to meet those demands 
and needs for their customers and those loan opportunities.
    You need to be able, for a community bank, to use brokered 
deposits, allow core funding, have access and utilization of 
wholesale activities, such as the Federal Home Loan Bank System 
or the Federal Reserve discount window. All of those things in 
measure with appropriate parameters make for a holistic and 
appropriate funding structure for community banks to operate 
under. Community banks have used brokered deposits successfully 
for a long time, and they need to be able to continue to do so.
    Mrs. Wagner. Yes. My time is expiring here, but, Mr. 
Kennedy, I do have 2 questions for you, and I am going to 
submit them for the record.
    I yield back to the chair.
    Mr. Huizenga. Great, that is a good reminder to all the 
members. If you have questions that you are not able to get to 
for the panelists, please direct the inquiry through the chair, 
which we will get to the panelists, and then we would request 
that you would, in very short order, reply to those. We 
appreciate that.
    Sticking with our Missouri theme, we are going to go now to 
the gentleman from Missouri, Mr. Cleaver, for 5 minutes.
    Mr. Cleaver. Thank you very much, Mr. Chairman.
    Ms. Rainey, thank you for being here. Thank all of you for 
coming today.
    There is a great deal of discussion--maybe even 
accusations--as it relates to diversity, equity, and inclusion 
for small banks and community banks, particularly in rural 
areas.
    Is it important to have balloon notes on a mortgage?
    Ms. Rainey. Is it important to have balloon notes? Is that 
what I heard? I am sorry. Yes.
    Balloon notes provide some level of flexibility for those 
community banks that desire to keep that mortgage loan on their 
balance sheet but are unable to take the interest rate risk 
over a 30-year period of time. Yes, in some cases, that is part 
of their model to do balloon notes.
    Mr. Cleaver. If we, Congress, unconsciously halt balloon 
notes, would that be like intentionally trying to hurt small 
banks, community banks?
    Ms. Rainey. Yes. By removing the ability for community 
banks to offer balloon notes, that would hamper their ability 
to serve the customers and to provide that level of service in 
their community.
    Mr. Cleaver. I agree with you 100 percent, but the issue 
is, if members of this committee approve some legislation that 
would, in fact, eliminate it, would it mean that the members 
here are just mean people discriminating against small 
community banks?
    Ms. Rainey. No, I do not believe that is what it would 
mean.
    Mr. Cleaver. I agree with you.
    Ms. Rainey. I think it is just a limitation of the 
services.
    Mr. Cleaver. Yes. I agree with you.
    If people make decisions even unconsciously that exclude 
people, should they not be addressed, or to exclude people or 
communities?
    Ms. Rainey. Yes. If groups are excluded, that should be 
addressed. That is one of the things I love about community 
banks. They are so close to the community, they are able to 
understand what those unique needs and those relationships 
allow them to serve. It is why our bank was founded as trying 
to serve everyone in the community.
    Mr. Cleaver. I do not disagree with you. The point I am 
making is that sometimes people are exclusionary in their 
practices, things they do, unconsciously. There is no 
intentionality, we just do something.
    For example, I had a little town in my congressional 
district, and they wanted to apply for some Community 
Development Block Grant moneys. They cannot do it because you 
have to have 50,000 people to get what is called an entitlement 
grant, and the little, small communities cannot get it. They 
have to compete with 200 other little towns.
    Then this little town I am talking about, the mayor's 
office was in the grocery store. They have no grant writers. If 
that is required--and it is right now--are we trying to 
discriminate against them? Anybody?
    Yes. We are discriminating. We are hurting little towns. I 
am saying that it can be done unconsciously, which is why 
diversity, equity, and inclusion is important to try to cancel 
that out. I am not saying people just sit up and say, let us 
discriminate against people of color and women, but if you 
design things unconsciously, you can hurt them. What you need 
to do is try to figure out what we can do to stop that, hurt 
that may even be unintentional. Diversity, equity, and 
inclusion are trying to do that, and we are saying, no, let us 
forget that.
    What happened to a little town like Orrick, Missouri, who 
had a tornado come through, you have to have a special kind of 
process to go after--to get Federal Emergency Management Agency 
(FEMA) money in a little town. Do you think people sat up in 
here and said, let us try to figure out how to hurt little 
towns after a devastating tornado?
    My time is running out. I hope you got my point.
    I yield back, Mr. Chairman.
    Mr. Williams of Texas [presiding]. The gentleman yields 
back.
    The gentleman from Kentucky, Mr. Barr, is now recognized 
for 5 minutes.
    Mr. Barr. Thank you, Mr. Chairman.
    A major problem that has prevented new bank formation in 
our country over the last few decades is burdensome initial 
capital requirements. Often as high as $30 million when all is 
said and done. These requirements leave the organizers of a new 
financial institution with a razor-thin margin of error in 
executing its business strategy and generating a profit. That 
is why we have seen a dearth of new banks and de novo charters 
in our country over the last decade or so. That is why I have 
reintroduced my Promoting New Bank Formation Act, which would 
establish a 3-year phase-in period for new banks to comply with 
Federal capital requirements in the community bank leverage 
ratio.
    Ms. Romero Rainey, can you discuss how giving startup banks 
more time and flexibility to meet these initial regulatory 
requirements could foster de novo bank formation in rural and 
urban communities throughout the country? I would ask you to 
direct your testimony to my colleagues on the other side of the 
aisle, including Mr. Vargas and Ranking Member Waters, who have 
expressed interest in working with me on this issue.
    Ms. Rainey. Thank you. I appreciate your long work and 
engagement in this issue.
    When we think about new charter formation, as we have 
discussed here today, the first step is that capital 
requirement. As I mentioned in my opening statement, my 
grandfather started a bank with $300,000. There is no way that 
would happen today, and that is what I am advocating for.
    Those base-level capital requirements need to be reflective 
of the size of the community and the business model that bank 
would represent, not only those opening business requirements 
and capital requirements, but also the business plan over time 
to allow that flexibility to engage in the business of banking 
to retain that local community capital so they can be deployed 
in the form of loans and create that source of economic 
development that is so lacking in so many of our rural 
communities.
    Mr. Barr. Thank you for that and let me ask a question 
about 1071 also.
    The Kentucky Bankers Association created a simple 
questionnaire explaining the statutory requirement for 
financial institutions to collect data pursuant to Section 1071 
small business data collection rule. This questionnaire would 
allow the customer to fully understand why the data is being 
collected, removing any uncertainty from the client and easing 
the potential litigation on the bank.
    I know there are concerns about another mandate in the 
final rule that a bank's low response rate may indicate 
noncompliance, but, generally, Ms. Owen, do you think a 
questionnaire like this would provide more certainty for your 
clients and could it ease liability concerns for your 
institution?
    Ms. Owen. The questionnaire could certainly help explain 
more, better define the information that is being requested to 
the customer.
    I really cannot respond to the liability concerns because I 
do not know how the regulators will look at it when they 
analyze the information and if the customers choose not to 
disclose and there are few responses. If we will be forced 
still to go ahead and comply.
    Mr. Barr. The data collection requirement under the final 
rule is pretty burdensome. Would you agree with that?
    Ms. Owen. Very burdensome.
    Mr. Barr. Yes. Burdensome, and I worry that it would force 
many small banks to exit small business lending altogether. 
That does not help minority-owned small businesses, does it?
    Ms. Owen. Not at all. Most of them have a very difficult 
time gathering the information that is needed to comply with 
various regulations.
    Mr. Barr. One thing that I will recall from our 
conversations and debates with the ranking member and other 
members on the other side of the aisle on 1071 was that they, 
in addition to Director Chopra, said that this was voluntary. 
If it is voluntary--if it is truly voluntary for these small 
businesses to provide this data, we want a questionnaire so 
that they can actually choose whether or not it would be 
burdensome for them to supply the information or not.
    Mr. Kennedy, let me shift back to brokered deposits, 
following up from Congresswoman Wagner's good line of 
questioning. How did the uncertainty generated by Chair 
Gruenberg's push to overturn the 2020 brokered deposits rule 
harm your institutions and customers?
    Mr. Kennedy. If you ask me the bigger question, really get 
to it is that, frankly, I think that the term ``brokered 
deposits'' should just go away. It was really instituted in 
1989 to address an ill where banks were buying brokered 
deposits, and we just simply do not have that anymore. We have 
responsible deposit networks that community banks like ours and 
many of our clients use to provide better deposit insurance to 
customers and institutions in those communities.
    Mr. Barr. My time is expiring, but bottom line, Mr. 
Kennedy, did the 2020 rule--the previous rule--did it improve 
community banks' access to diverse funding streams?
    Mr. Kennedy. Yes, it did.
    Mr. Barr. Great.
    I yield back. Thank you so much.
    Mr. Williams of Texas. The gentleman yields back.
    I now call on the gentleman from the great State of 
Illinois. Mr. Foster is now recognized for 5 minutes.
    Mr. Foster. Thank you, Mr. Chair.
    I had mentioned my very positive experience with banks of 
all sizes during the time our business was growing. I would 
like to focus the work of this committee on what we can 
actually do to help, and we have to--the starting point of that 
has to have a clear-eyed view of what the real situation is.
    There is an interesting set of articles in The Wall Street 
Journal from the last couple of years that looked at the stress 
of small community banks, and much of it is simply the result 
of fundamental economic forces that we have to recognize. If we 
need to subsidize the existence of small banks, we may have to 
do it explicitly because these are real forces. It is simply 
the lack of economies of scale, which is very important in the 
increasing digital economy we have.
    The brutal fact is, in dying rural towns there are not many 
profitable opportunities for loans, that is just the fact. In 
The Wall Street Journal, they talked about banks whose survival 
strategy was to keep branches in the tiny towns that they 
started in, then establish branches simply to get deposits in 
those small towns, and then do their actual loans in the nearby 
bigger city. You understand the fundamental forces there, and 
we just have to understand that as well. However, we have to be 
careful of this narrative that all we have to do is get 
government out of the way and everything will be fine.
    Mr. Kennedy, you look like you and I have enough gray hair 
that we remember the savings and loan crisis or at least its 
aftermath. For those members who are not familiar with it--most 
of the members of this committee were not in Congress during 
the Wall Street crisis of 2008, and I think none of us were 
there during the savings and loan crisis, but it was a much 
bigger deal.
    In the end, during the 2008 crisis when we had to pass 
Troubled Asset Relief Program (TARP), taxpayers eventually got 
paid back with interest on that. We made money on the TARP 
bailout. That was not the case for the savings and loan bailout 
where Congress had to vote on $150 billion, which corresponds 
to about three-quarters of a trillion dollars in Gross Domestic 
Product (GDP) terms today. Much of it, frankly, went into 
Texas, which caused a certain amount of stress inside Congress 
and probably was the result the Super Collider was killed, 
which is a separate discussion. This was a big deal.
    If you look at that--as I say, members should just spend a 
few minutes on the Wikipedia article or the Investopedia 
article, if you prefer that, on the savings and loan crisis. 
Understand this was the simultaneous failure of many, many 
smaller institutions caused by misguided deregulation, the 
elimination, in some cases, of capital requirements at all, 
causing these zombie thrifts to go and continue to get deeper 
in the hole. In the end, the government was--the taxpayer was 
on the hook for about 2.5 percent of GDP. As I said, just a 
huge amount of money and this can happen again if we do not 
maintain knowledge of what happened.
    Be careful of that, but what can we actually do to help? 
One of the things that actually, I guess, Ms. Marshall 
mentioned was the cost of Know Your Customer (KYC) compliance, 
and that is something where I think we can do some good.
    There is a--the tool at hand for that is the REAL ID-
compliant digital driver's license. It is completely feasible 
to onboard customers today by having them get out their cell 
phone, do their biometric log-in, present their REAL ID, 
National Institute of Standards and Technology (NIST)-
compliance digital driver's license, and have them prove they 
are who they say they are. Go hit Financial Crimes Enforcement 
Networks (FinCEN's) website or whatever to see is this person 
on the list of bad actors, and if they come back clear, you 
onboard them.
    I have actually discussed with the chair of the full 
committee the possibility of setting up a pilot program to see 
if this very lightweight onboarding could be a huge benefit 
both for lowering the cost of KYC compliance and dealing with 
the fraud problems, that is another huge cost for small banks. 
They do not have the same fraud prevention team as J.P. Morgan.
    I was just wondering if you have a reaction to that sort of 
proposal.
    Ms. Marshall. I appreciate any opportunity for Congress to 
look at the BSA/AML laws that have been in place for far too 
long without appropriate review. I think technology and 
innovation in the financial services sector are going to be 
able to yield big results for us as both regulators in the 
industry and in policymakers. I think we need to look at all 
those types of options that you described as potential 
enhancements to that burdensome regulation. It is appropriate 
because no one, again, wants the BSA/AML or the financial 
services sector to be used by criminals or for illicit 
activity, but that needs a fresh set of eyes after almost 50 
years.
    I will make an additional comment on your point of fraud. 
It is one of the top risks, along with the regulatory burden 
that I speak to my institutions about, as well as cyber risk, 
those three areas certainly need our attention.
    Mr. Foster. Thank you. I yield back.
    Mr. Williams of Texas. The gentleman yields back.
    I now recognize myself for 5 minutes from the great State 
of Texas.
    This past November, the American people have made their 
message very clear. American families, small businesses, 
community bankers, farmers, and ranchers are all tired of 
burdensome regulations that hinder the financial service 
industry.
    The previous Biden Administration continuously pushed 
policies that were out of touch and only led to higher 
compliance costs, and one policy in particular was the CFPB's 
famous Section 1071 small business data collection rule. I have 
been consistently hearing from small community bankers back in 
my district and across the country about how they are concerned 
with the complicated reporting requirements in this rule that 
will tie up loan officers and increase compliance costs and 
officers. Ultimately, forcing bankers to pass these costs down 
to their customers.
    Furthermore, lenders who worry this rule will push the 
industry toward a standardized small business loan product can 
kill relationship banking. This overly burdensome rule will 
limit the banks' lending abilities and make it harder for small 
businesses to access the capital they need.
    Yesterday, I proudly introduced the 1071 Repeal to Protect 
Small Business Lending Act, which repeals the 1071 small 
business loan data collection requirement to help eliminate 
costly regulatory burdens on financial institutions. Thanks to 
my colleagues who signed on to this legislation. I look forward 
to working with Chairman Hill and the Trump Administration to 
repeal this deeply flawed regulation.
    Ms. Owen, could you elaborate on the CFPB's 1071 rule, how 
it will negatively impact community banks and lead to a 
reduction in small business lending? Additionally, how will an 
increased compliance burden affect the ability of local lenders 
to provide relationship-based lending?
    Ms. Owen. Yes. Thank you very much for your question.
    No doubt, for community banks, it will be a 
disproportionate expense to them for the implementation and 
training to be able to implement all 81 of the data point 
fields that are required with 1071, which is of great concern. 
A concern that many community banks may not be able to afford 
that implementation, which then would limit and restrict their 
ability to loan to small businesses.
    I also have great concerns on the privacy issues of 1071 
since much of the information is to be released to the public. 
Although it will be anonymized, in a small community, it will 
not be difficult to know which small business, grocery store, 
gas station, factory, either was approved for a loan or 
declined a loan.
    Mr. Williams of Texas. Thank you, Ms. Owen.
    With that, I would like to submit 2 letters for the record 
from the Leasing and Finance Association and the Defense Credit 
Union Council supporting my legislation to repeal Section 1071.

    [The information referred to can be found in the appendix.]

    Another issue with the rulemaking agenda of the previous 
administration was the lack of regulatory tailoring and the 
one-size-fits-all approach to regulations. Because of the lack 
of regulatory tailoring, community banks were forced to comply 
with the same set of rules as our Nation's largest banks. This 
leads to hundreds of additional hours spent on compliance, 
forcing community banks to close their doors or merge to be 
able to meet the needs of their communities.
    Ms. Romero Rainey, could you discuss how one-size-fits-all 
mandates harm similar institutions and how this regulatory 
approach impacts the availability of credit for small 
businesses in rural communities?
    Ms. Rainey. Yes, sir. One of the things I appreciate most 
about community banking is the fact that their success depends 
on the success of the local community. When we think about 
regulatory burden, if it is not proportionate to the risk that 
a smaller institution represents, then it creates an undue 
burden that prevents their ability to offer those customized 
products to meet those needs of the community.
    It hampers the ability to create new banks. It also hampers 
the ability in terms of how they expand, how they compete 
competitively, and in terms of their technological offerings. 
We have to look beyond one-size-fits-all and ensure that we are 
proportionately managing the risks the institution represents.
    Mr. Williams of Texas. Okay. Thank you.
    I have a short amount of time, but, Ms. Marshall, can you 
explain how the decline in community banks and the lack of new 
bank formations are harming rural communities, and why is a 
more competitive banking environment ultimately beneficial not 
just for consumers but for the banks themselves?
    Ms. Marshall. Thank you, sir.
    Yes, no two banks are alike. No two community banks are 
alike, and the largest institutions are not focused on 
operating in rural parts of this country. It is imperative that 
we have institutions that have an appropriate-sized risk 
profile and business model to serve those smaller areas, or 
those individuals will not have access to the funding sources, 
the lending opportunities, and the deposit opportunities that 
they need.
    It is very important that we all recognize that not 
everyone lives in a large city. They may not all have access to 
broadband. They may not, quite frankly, not all use a cell 
phone. That local community bank with that neighborhood 
presence where those bankers go to church----
    Mr. Williams of Texas. My time is up. Thank you for that.
    Mr. Williams of Texas. Next, the gentlewoman from the great 
State of Ohio, Mrs. Beatty, is now recognized for 5 minutes.
    Mrs. Beatty. Thank you to our witnesses.
    We are here today to talk about making community banks 
great again, although I think our community banks have always 
been great. We all value our community banks. These vital 
institutions provide our constituents with access to credit and 
other critical financial services that create local jobs, 
extend mortgages, give loans to small businesses, and promote 
economic development in our communities.
    It is ridiculous to be having this conversation while the 
President of the United States is actively taking steps to hurt 
our community banks and our economy. When his proposed 25 
percent tariff on Mexico and Canada go into effect, this will 
have a disastrous knock-on effect for community banks.
    Make no mistakes here today. When you inflict financial 
harm on bank customers like hardworking families and small 
businesses, Mr. Chairman, you inflict harm on community banks. 
When a trade war causes small business supply costs to go up or 
increase the cost of exporting materials, this financial strain 
will make it harder for those businesses to repay the loans 
they receive from community banks. The same will be true for 
consumers paying more for gas, more for groceries, and more for 
a lot of other things, making it hard to keep up with their 
mortgage loan payments, again, to community banks.
    His illegal, ludicrous attempts to freeze nearly all 
government financial assistance programs will impact all kinds 
of bank customers. It will undermine small businesses' support 
programs like the State Small Business Credit Initiative. It 
will hinder CDFIs, including community banks and credit unions, 
from getting support from CDFI--the CDFI Fund to serve small 
businesses and underserved communities.
    His radical crusade against diversity, equity, and 
inclusion and now accessibility will do significant damage to 
our economy because diversity, equity, inclusion, and 
accessibility is good for business and, yes, it is good for 
banks. Already his sweeping, senseless executive orders are 
creating disastrous unintended consequences, causing Federal 
agencies to eliminate completely diversity, equity, inclusion, 
and accessibility-related web pages, materials, resources, and 
programs.
    Mr. Chairman, we now have an unelected, unaccountable 
billionaire with access to the entire Federal payment system 
that disburses trillions of dollars in government expenditures 
from Social Security payments to tax refunds, creating a data 
privacy violation of an unprecedented altitude. Mr. Chairman, I 
hope that all of our colleagues on your side of the aisle are 
as bothered by this as I am bothered.
    Finally, so while I appreciate our community banks as our 
chairman does, and I have prepared questions for our witnesses 
today, I simply cannot ignore the hypocrisy of having this 
discussion in the face of absolute chaos and havoc this 
administration is recklessly inflicting on our economy.
    With that said, Ms. Rainey, I would like to direct this 
question to you. As we all know, financial fraud is on the 
rise. Bad actors are finding new and more sophisticated ways to 
steal customers' hard-earned money. I know that community banks 
are on the front line of this fight through Know Your Customer, 
identity verification, financial literacy program, and more.
    What more can regulators do to help community banks combat 
fraud and protect our consumer funds?
    Ms. Rainey. Thank you for the question because it is a 
significant issue that we are seeing a dramatic increase in 
things as simple as I like to say back-to-the-future check 
fraud where we are seeing checks being stolen from the mail, 
washed, and then redeposited.
    What we are looking for here is greater coordination 
amongst the agencies as well as financial institutions. Also, 
working on things like coordination with the post office to 
make sure we can communicate and begin to tamper out fraud. I 
think this is an area where coordination is going to be very 
helpful.
    Mrs. Beatty. Thank you for that.
    Mr. Chairman, I yield back.
    Mr. Loudermilk [presiding]. The gentlewoman yields.
    I now recognize myself for 5 minutes.
    Mr. Loudermilk. First of all, I want to thank our chairman 
for choosing our first hearing to be about the community banks, 
which is so important to many of our communities, especially 
those in Georgia. That said, I think a great deal of what we 
discuss here can also apply to the credit unions as well--
especially in the line of questioning that I am going to have--
because they face many of the same problems at the national 
level in terms of regulation.
    First, let me start off by taking us a little back into 
history, back to 1970 when Congress passed the Bank Secrecy 
Act, which, among other things, required financial institutions 
to report unusually large transactions to Federal law 
enforcement. Congress did not specify what constituted 
unusually large at that time.
    Early privacy advocates challenged the law on the grounds 
that it violated the Fourth Amendment, protected privacy--that 
the Fourth Amendment protects privacy rights. When it reached 
the Supreme Court in 1974, the Court took an unprecedented step 
and considered the Treasury Department's rule impending the 
law, in their view, of the law itself. They found that the 
$10,000 threshold was high enough in that it would not capture 
everyday transactions. Consequently, the law was upheld. Yet, 
if adjusted for inflation--which it has not been--that $10,000 
back then would be around $80,000 today.
    Ms. Owen, I would like to open up with a question for you. 
Would you say that your bank frequently handles transactions 
greater than $10,000 in a single day?
    Ms. Owen. Absolutely.
    Mr. Loudermilk. Probably many times over, I can imagine.
    Ms. Owen. Yes.
    Mr. Loudermilk. Approximately, if you know this, 
approximately how much manpower goes into processing currency 
transaction reports at your bank?
    Ms. Owen. For our small bank, we have four BSA officers, 
not to mention the tellers that are completing these 
transactions and the others that are checking behind them 
before it goes to BSA.
    Mr. Loudermilk. The bulk portions of the reports, I can 
imagine, are Anti-Money Laundering and Combating the Financing 
of Terrorism (CFT) compliance. How much do you think your bank 
spends on compliance on those each year? If you do not know, 
just give me a guess or an estimation.
    Ms. Owen. I wish I could give you a guess or estimation. I 
have not written it down or put a pencil to it. It is kind of 
scary to think about it. No doubt, those are positions that are 
working on this but are not generating dollars or income for 
the bank.
    Mr. Loudermilk. Okay. Let me share a little something that 
the Government Accounting Office (GAO) found out. In previous 
hearings, I mentioned that law enforcement only issues a tiny 
fraction of the Currency Transaction Report (CTR) data--or uses 
only a tiny fraction. This time I would like to focus on what 
we can do about it.
    Without objection, I would like to insert a December 2024 
report from GAO on this. This 110-page report states that even 
a small adjustment to the filing threshold from $10,000 to 
$30,000 would reduce the reporting burden for banks for as much 
as 60 percent.

    [The information referred to can be found in the appendix.]

    Let me just quickly read the closing note from the report. 
It says, ``By taking steps to reduce the number of unused CTRs, 
such as though adjusting the reporting threshold and by 
eliminating rarely used fields and clarifying aggregation 
requirements, FinCEN could reduce unnecessary filer burden 
without affecting CTR's usefulness to law enforcement.'' That 
is what I think we want to do, and I actually have a bill to do 
that, and I think it is something we can bipartisan do.
    Ms. Owen, if you had a 60 percent reduction in regulatory 
burden, would your bank be able to pass those savings on to 
your customers?
    Ms. Owen. Absolutely. We would love to have that 
opportunity.
    Mr. Loudermilk. Last question for you and I am running out 
of time. As a banker, do you believe that FinCEN provides 
adequate feedback or follow up once your AML-compliant staff 
file, the CTR or Suspicious Activity Report (SAR)?
    Ms. Owen. Unfortunately, no, we do not receive any 
feedback.
    Mr. Loudermilk. That is what we are hearing from a lot of 
small--especially small institutions and large is that--
especially with suspicious activity reports, it is very 
generic, very broad in definition.
    Since you are not getting that, does that impact your 
assessment of customer risk?
    Ms. Owen. Absolutely. Even when we have made calls to them 
and tried to schedule appointments to make sure that we are 
submitting all the information they need on a particular item, 
communication would be hugely important, and I think hugely 
important in trying to resolve what they are trying to do.
    Mr. Loudermilk. Thank you. My time has expired, and I just 
want to thank you all for working with us as we try to make 
changes here.
    Mr. Loudermilk. I now recognize the gentleman from 
Connecticut, Mr. Himes, for 5 minutes.
    Mr. Himes. Thank you, Mr. Chairman and thanks to the panel 
for being here. Very important topic.
    I watched very carefully during the pandemic the remarkable 
work that community banks did with the PPP. They really were 
lifesaving for a lot of businesses and very conscious of the 
power of relationship banking, but I have two concerns.
    I arrived here in January 2009 as the wreckage of the 
mortgage crisis smoked around us, and so I am super conscious 
of efforts that are sort of ongoing and always deregulatory. 
The Congress obviously has always been amenable to having 
tailored regulation for community and smaller banks, but I fear 
that the pressures associated with economies of scale on the 
community banks are so intense that it will be very hard 
without creating risk in the system of doing a whole lot more 
deregulation. That is a whole other conversation because I 
actually want to take the conversation a slightly different but 
related direction, which is housing.
    We have just shocking housing supply crisis in this 
country, certainly where I come from. The multifamily business 
at the Government Sponsored Enterprises (GSEs), has been 
resilient and helpful to the construction in particular of 
multifamily housing, but there is only a small number--30, I 
think--of lenders that are authorized to access the program.
    My question--and maybe I can start with Ms. Rainey, but if 
we have time, we will go to others. Would really emphasizing 
and incentivizing community banks to be--or other small lenders 
to get multifamily licenses and to access that program, would 
that be both an additional source of business for our community 
banks and maybe actually help with our housing crisis?
    Ms. Rainey. Yes. I think, as we think about solving for the 
housing crisis, it is about creating as many opportunities and 
solutions as we can. Multiple points of access and various 
partners to work with are a tremendous part of the solution.
    Mr. Himes. Why have historically--I was trying to figure 
this out earlier. Why do these 25 Delegated Underwriting 
Servicing (DUS) lenders tend to be the big guys? Why is that 
true? How can we make it easier for community banks to be as 
involved as the big guys are in multifamily housing?
    Ms. Rainey. I am not specifically experienced with the 
program, but my experience would tell you that when we look at 
the size of transactions that we are dealing with multifamily, 
that may limit when you think about whether it is lending 
limits or concentration limits that community banks have to 
manage. Again, this is an area where a solution to this problem 
is how do we facilitate partnership and ability for community 
banks to work together to provide that single credit in 
coordination with the entity.
    Mr. Himes. Any other thoughts on the--again, I come at this 
thinking that we could just deregulate ourselves into 
catastrophe in the very noble pursuit of trying to keep the 
independent community banks alive. My mind does go to what 
other sources of business are there for the smaller banks.
    Any other thoughts on multifamily lending from the panel?
    I guess not. Okay. All right. Thank you.
    Mr. Kennedy. I think there is plenty----
    Mr. Himes. Go ahead, sir.
    Mr. Kennedy. I think there is plenty of opportunity. I am, 
frankly, not familiar with that program, and I made a note I am 
going to find out about it, but I do think there are plenty of 
opportunities for multifamily. Housing is a big issue. There 
are a lot of government guarantee programs that a lot of--
frankly, people just do not know about. As a lawyer advising 
community banks, that is one of the things we like to try to 
do.
    It is important that those kinds of programs and the 
agencies that are responsible for them to get that word out. It 
can be done on a local basis and, frankly, a national basis as 
well.
    Mr. Himes. Thank you. Thank you. I appreciate that, and I 
yield back.
    Chairman Hill [presiding]. The gentleman yields back.
    The gentleman from Tennessee, Mr. Rose, is recognized for 5 
minutes.
    Mr. Rose. Thank you, Chairman Hill, and I want to thank 
Ranking Member Waters for holding this hearing. Thank you to 
our witnesses for your time and commitment to being here today.
    I truly do believe that Chairman Hill's ``Making Community 
Banking Great Again'' agenda will do incredible things for 
banks and consumers and, frankly, the greater community 
financial system. I, like Chairman Hill, have experience with 
community banks in my State in Tennessee and serving with those 
banks and working with them, and they are very much in need of 
attention and relief. I commend the chairman for holding this 
hearing.
    Commissioner Marshall, in Tennessee, we are blessed to 
have, frankly, a phenomenal Banking Commissioner in Greg 
Gonzales, who is a dear friend and a fellow alum of Tennessee 
Tech University. I will put in a plug. This will be his 20th 
year as Banking Commissioner in our State in Tennessee, serving 
Governors of both parties, and I think it is just a testament 
to the work that he does.
    One idea that Commissioner Gonzales and I have been 
discussing is the concept of having State regulators, such as 
the Tennessee Department of Financial Institutions, conduct 
bank examinations for smaller community banks in place of the 
Federal Deposit Insurance Corporation, or FDIC. The idea here 
would be that for your smaller banks--then say 500 million--the 
State banking regulator could conduct the exam and make sure 
that it is sent to the FDIC.
    Commissioner Marshall, would you and do you believe that 
other State banking regulators would be willing to take part in 
such a proposal?
    Ms. Marshall. Thank you for the question, and yes, my dear 
friend, Commissioner Gonzales, is a great regulatory partner.
    I will agree with you that this is an area that we need to 
explore because if it was enacted and something that we wanted 
to find--that we found good benefit from, my State--not 
speaking from my legislature or our governing body, but that is 
something that I would be interested in engaging in. I think 
there are other State Commissioners that would be willing to do 
so as well because the smallest community banks have a very 
traditional risk profile. Like I said, they are often not 
engaging in outer-territory or new-market activities, but they 
have the ability to serve their customers.
    Our one-on-one relationship with them is boots on the 
ground with local representatives and understanding of those 
markets that they operate in. We have that perspective, and I 
think we could be able to oversee the smallest of the 
institutions independently but with good communication, 
coordination, and collaboration with our Federal partners in 
whatever fashion that means.
    Mr. Rose. Thank you. That is good to hear. I know that some 
may have concerns as to the rigor of these State banking 
regulator examinations. On that point, I have also considered 
potentially providing that staff can randomly attend certain 
examinations, FDIC staff that is, could randomly attend 
examinations conducted by State banking regulations--
regulators. Do you have any feedback on that portion of this 
proposal or idea?
    Ms. Marshall. If you do not mind, repeat exactly what you 
are----
    Mr. Rose. The idea that randomly FDIC could monitor or 
participate in these examinations where the State banking 
regulator was taking the lead.
    Ms. Marshall. I certainly think that, as the insurance 
agency for our institutions and that along with us is the 
chartering authority, there is a role for the Federal 
regulators to continue to play in that oversight. We do have 
some of that right now. On independent examinations, if there 
is a reason, a basis, or a need for the Federal regulatory 
partner to be in the room, we certainly work collaboratively 
with them to make that happen. I think that is a process that 
could be worked out with plenty of time to review the proposal, 
work together to ensure that we are on the same page, have good 
communication, a good framework around it, and explore those 
opportunities.
    Mr. Rose. Thank you.
    Shift gears, Ms. Owen, for smaller community banks like 
Eagle Bank and Trust, can it be difficult navigating the 
process of managing both Federal and State level banking 
examinations?
    Ms. Owen. We are very fortunate that we have a wonderful 
Federal Reserve region that we operate within as well as a 
wonderful Bank Commissioner, and they work very closely 
together. They collaborate together. If there is a need for 
both of them, it is not unusual that we will sit down and meet 
with both of them to get their opinions and thoughts. We are 
very fortunate. I have heard from other banks that it is not 
always the case, and it can be very difficult for other banks.
    Mr. Rose. This proposal of streamlining Federal and State 
banking examination is one that I think could ease the 
regulatory burden that community banks face. To all the 
witnesses here today, if you have any additional thoughts on 
this topic, please do not hesitate to reach to me--reach out to 
me and my office with feedback.
    My time has expired. I yield back.
    Chairman Hill. The gentleman yields back.
    The gentleman from Illinois is recognized for 5 minutes.
    Mr. Casten. Thank you, Mr. Hill.
    Thank you all for being here. Ms. Owen, Sheila Bair, the 
former Republican FDIC Chair, recently said that there is 
strong consumer confidence in the FDIC brand and that customers 
are ``comforted by the `FDIC insured' sign on their doors.'' 
Would your customers agree with that?
    Ms. Owen. I think it is very important to have it on our 
doors, yes.
    Mr. Casten. Excellent. She said that because--in direct 
response to reports that Trump's advisers and members of this 
so-called DOGE team are talking about ways to reform or 
completely eliminate the FDIC. Stay vigilant.
    Number two, when you get a customer who comes in who asks 
for a loan from your bank and you are evaluating whether or not 
you want to issue a loan, what interest rates are you going to 
charge, do you look at their payment history with their other 
vendors, dead and otherwise?
    Ms. Owen. Yes. We work up a cash-flow, because we want to 
know that they can adequately service the loan that they are--
--
    Mr. Casten. Okay. Just to be clear, if they have a history 
of nonpayment or late payment, that is going to be a negative 
impact on their credit score, right?
    Ms. Owen. Yes.
    Mr. Casten. Okay. Last week, I spent most of my time with 
mayors, with contractors, with businesses who had signed 
contracts with the Federal Government and were asking me 
whether the Federal Government was going to welch on that deal, 
whether they should demobilize construction crews that they 
expected to come through, whether they could count on money 
that was contractually obligated to them. I am assuming that 
our vendors are going to be just as diligent as your bank is 
and say, ``If you're defaulting on some of your creditors, why 
are not you going to default on me?'' At some point, that leads 
to an increase in Treasury rates. Would higher Treasury rates 
help or hurt the community banking industry?
    Ms. Owen. That is an excellent question. I would have to 
really think through it because we have short-term loans, and 
we have long-term loans.
    Mr. Casten. Sure, we just recently saw the FDIC bail out 
banks that all of a sudden had a squeeze because they had 
higher Treasury rates, right?
    Ms. Owen. Correct.
    Mr. Casten. This administration is not acting slowly to 
destroy the U.S. economy. They are acting very quickly to 
destroy the U.S. economy, right? Higher Treasury rates are not 
good.
    Last point, question for you, in response to--in your 
exchange with Mr. Williams, you mentioned you had some concerns 
about privacy issues and making sure that information provided 
to regulators does not leak out into the private. Would you 
have concerns if a bunch of teenagers who were unvetted by any 
security apparatus had full access to the Treasury payment 
system? From a privacy perspective, that is.
    Ms. Owen. I am always concerned about privacy and the 
protection of all of our customers and clients and all of our 
personal information. I am not familiar with what you are 
speaking to.
    Mr. Casten. Okay. This week, for clarity so that everybody 
understands, Elon Musk has put teenagers who have not been 
vetted, that had been recently identified who are controlling 
trillions of dollars of Treasury payments. This is confidential 
information, top secret information. They are going to decide 
who can go through and access this information. I have big 
privacy concerns about that. I would imagine that your 
customers might also have those concerns. I cannot believe that 
this is partisan.
    Look, this hearing is called ``Making Community Banks Great 
Again.'' I appreciate that, out of deference to the majority, 
you all made nice comments at the start about how you also want 
to make community banks great again, and I share your 
commitment to making community banks great. I find myself 
questioning, when we say ``great again,'' exactly when are we 
referring to? If I look back in history, and I say, when was 
there a point when we did not have an independent Fed? When was 
there a point when we did not have an FDIC protecting loan on 
the banks? When was there a point when the robber barons were 
in charge of our government? When was there a point where the 
Federal Government refused to enforce the 13th, 14th, and 15th 
Amendments to the Constitution passed under Reconstruction in 
order to make sure that we actually honor our protection--our 
constitutional obligation to equal protection? Let me go back 
to the 1890s. Oh, we also had really dumb tariff policies then. 
Any Ferris Bueller fans here? Bueller, Bueller? Tariffs, 
anyone? That was an era where we had a run on the banks, a 
recession darn near every 4 or 5 years. Of course, that led to 
the Great Depression afterwards. Is that the era we are going 
back to?
    I put this to all of you. You are all leaders in your own 
fields. The entire country right now is wondering whether we 
are going to stand up for the Constitution, for the rule of 
law, for making America greater than it is right now, or are we 
going to stand and sit in cowardice and complicity with those 
who are trying to destroy it? That is a question for all of us 
here. It is all of our obligation to move forward.
    I yield back.
    Chairman Hill. The gentleman's time has expired.
    The gentleman from Wisconsin, the Chair of the Financial 
Technology, Digital Assets, Artificial Intelligence 
Subcommittee, Mr. Steil of Wisconsin, is recognized for 5 
minutes.
    Mr. Steil. Thank you very much, Mr. Chairman. Before I dive 
into the conversation, I just want to respond to my colleague 
across the aisle. The Federal Reserve's high interest rates is 
a direct response to the horrific economic policies of the 
Biden Administration we finally escaped from. The massive 
spending, the aggressive regulatory state of the Biden 
Administration drove inflation up. The Federal Reserve 
responded to that. We are now working to actually bring down 
inflation through addressing the regulatory burdens of the 
Biden Administration, addressing spending. In part, I think 
this is an opportunity to have a conversation about making 
community banks great again in particular by right-sizing a lot 
of our regulations.
    Let us stage set in particular on fintechs, if I can. I am 
going to start with you, Ms. Owen, and I will come over to Ms. 
Marshall on this topic. As we know, a lot of banking is 
shifting into the palm of our hands. I have my iPhone here. I 
can jump on and do personal banking as probably almost anybody 
in this room could do with their smartphone. That is a great 
thing.
    We know some of our Nation's largest banks have the ability 
to invest millions and millions of dollars in capital 
expenditures (CapEx), to develop their own proprietary apps or 
other tools in the fintech space. Our community banks are often 
relying on partnerships with fintechs. In particular, if I can 
start with you, Ms. Owen. From the perspective of a community 
bank, how does that partnership with fintech work, and does 
that give you the ability to compete with some of our Nation's 
largest banks for tools that consumers need?
    Ms. Owen. An excellent question. Thank you very much. As a 
very small community bank, we have yet to partner with any 
fintechs. We have looked at several of them, but there is 
considerable amount of expense and work to make them work with 
our legacy systems, the legacy core banking systems that we 
have today, which also entails a lot of additional expense.
    Mr. Steil. As we look at this, this is going to be a lot 
about right-sizing the regulatory environments that you can 
engage, knowing that there is a real cost for you to do this.
    Let me come to you, Ms. Marshall. When you analyze the 
ability of, in particular, community banks that partner with 
fintechs, what are the roadblocks that you are seeing in that 
space?
    Ms. Marshall. Thank you for the question. Banks need to 
continue to innovate effectively. They need to be able to adopt 
technology in other forums to be able to compete and especially 
those that cannot do it themselves. That third-party 
relationship is critical and essential to that path going 
forward. One of the roadblocks is the fact that the guidance 
that has been put out thus far is not clear.
    Mr. Steil. --finish your sentence.
    Ms. Marshall. It is not clear. It is not concise, and it 
can be more appropriately directed with the bank adoption in 
mind.
    Mr. Steil. Do you think that some of the biggest and most 
important regulators, the Fed, the FDIC, and the Office of the 
Comptroller of the Currency (OCC), promulgated really one-size-
fits-all rules that were not scaled for community banks to be 
able to engage and that they were actually dissuading community 
banks from engaging with fintech providers?
    Ms. Marshall. I agree that their current proposal, the 
guidelines and guidance, out there is more of a one-size-fits-
all approach. I will take an extraordinary turn that I believe 
we need to stop using the word ``fintech'' because that could 
have such a broad application of areas where there is not high 
risk for a new technology that simply helps someone analyze a 
credit report, but if it is a technology that is going to focus 
in on core banking functions, such as deposit taking, lending, 
payments, or custody, that has a high-risk profile and needs a 
very tailored approach from a regulatory perspective.
    Mr. Steil. I agree. We have good debates on the 
nomenclature of fintech versus other terminology, but I 
completely agree with you on the importance of right-sizing the 
risk. I think the human mind is really good at identifying new 
risks when new technology comes online, actually not as good at 
identifying and determining what are the long-term benefits and 
ways that we can safeguard and right-size that risk. I think 
what you are saying is what I have seen is that we have seen a 
regulatory environment where it is a one-size-fits-all approach 
where they are not scaling this for our smaller community 
banks. As more and more consumers are asking our community 
banks to be able to have the ability to navigate whether or not 
it is on your phone or any other technological tool, we really 
need to be pushing our regulators to be able to right-size that 
risk so that our smaller community banks or Ms. Owen do not 
have the burden that she has. She can partner with fintech 
technology, fintech players in the space to be able to provide 
a service that her customers are looking for. This is really 
important in particular in rural America and other areas that 
do not have easy access to a brick-and-mortar facility.
    Appreciate you all for being here.
    Mr. Chairman, appreciate it.
    Chairman Hill. The gentleman yields back.
    The gentlewoman from Texas, Ms. Garcia, is recognized for 5 
minutes.
    Ms. Garcia. Thank you, Mr. Chairman, and thank you to all 
our witnesses here today.
    Ms. Spotser, I wanted to start with you. First, let me just 
say that I grew up in rural South Texas on a farm. When we went 
into town, whether it was just to go say hello to my uncle or 
to do business, we always worked with community banks. 
Obviously, there were only two. Now I represent Houston, where 
we have 33 and a lot of what you all would call big banks, but 
my heart is still with community banks, because they always had 
the little lollipops at the cashier desk for you to get. As a 
child, I enjoyed that.
    Banks have just changed a lot, have they not? Since the 
pandemic, the big banks are heavily embracing technology to 
make their service available to more customers. However, the 
community banks we have relied on for years are facing several 
cybersecurity risks and technology challenges as they compete 
with mega banks and big-tech firms. In turn, communities they 
represent are sometimes left behind.
    One of these challenges is providing services in languages 
other than English. According to data from the U.S. Census 
Bureau, over 20 percent of U.S. households speak a language 
other than English. What can we do to ensure that community 
banks can serve limited English proficiency individuals just as 
well as any other customer that works in the town?
    Ms. Spotser. One of the things that we can do as regulators 
when we have disclosures and those sorts of things, we can make 
sure that they are provided in languages other than English, so 
that can actually assist and help facilitate the banking 
institutions to be able to use those forms.
    Another thing that we can do is we can continue to invest 
in our minority depository institutions that are, in fact, 
often the institutions that are located in those communities 
and providing services. I think that in particular is one of 
the best approaches that we can have to address that concern.
    Ms. Garcia. I want to talk about a recent report from 
CDFIs, which states that women and employees of color still 
fall behind White men in being represented in several key jobs, 
including only 27 percent of economists were people of color, 
and only 34 percent of their examiners were women. I know we 
have at least one former examiner here in the room. It is kind 
of nice to hear that Mr. Hill gets nervous still.
    Do you think President Trump's recent actions to fire 
Director Chopra from the CFPB, impose a governmentwide hiring 
freeze, and nonsense attacks on diversity, equity, and 
inclusion and issues will aggravate the challenges at CDFIs as 
well as other agencies?
    Ms. Spotser. I think it will. I think we are looking at the 
reality that 8 out of 10 net new households created in the 
United States are households of color, and given that is the 
reality, it is imperative that we make progress in serving 
communities of color and customers of color. Increasing 
diversity, recognizing it as an advantage rather than a 
challenge or something to be looked down upon should be a 
critical priority.
    Ms. Garcia. Thank you. I want to focus on the outrageous 
overdraft fees that large banks charge to users. One of the--
third of working class people earning less than $65,000 a year 
pay overdraft fees each year. This is not once or twice. Many 
of them pay hundreds of dollars in overdraft fees and risk 
losing their bank accounts so they cannot afford those costs.
    The CFPB recently issued a rule that would cap the 
overdraft fees to $5 to help protect the hard-earned money of 
working class consumers. My colleagues on the other side of the 
aisle recently issued a Congressional Review Act, CRA, 
resolution, that would rescind the CFPB rule. How would you--
how would reversing the CFPB overdraft rule harm working class 
people?
    Ms. Spotser. For all the reasons that we have talked about 
during this hearing, now is a time when people are experiencing 
significant financial challenges. One of the things that we 
have to talk about when we talk about overdraft is a series of 
regulations that have taken place. It is not just that 
consumers are paying $35 right now for an overdraft of $2. It 
is also that it was ever true that financial institutions had 
the ability to kind of pick and choose how they would 
withdraw--hit--allow transactions to hit in order to amplify 
the amount of money that was being charged, and that is why it 
got the reputation of being a junk fee.
    If we repeal this regulation, which by the way does not 
apply to community financial institutions, which is one of the 
reasons why it is interesting, it is being considered in 
correlation with this hearing, but if we repeal this, then we 
are looking at the reality that consumers will continue to 
pay--
    Chairman Hill. The gentlewoman's time has expired.
    Ms. Garcia. It just applies to large institutions.
    Chairman Hill. The gentlewoman's time has expired.
    The gentleman from South Carolina, Mr. Timmons, is 
recognized for 5 minutes.
    Mr. Timmons. Thank you, Mr. Chairman, and I want to thank 
the witnesses for being here today. Many of us here could 
easily speak for hours about the CFPB under the Biden 
Administration and how its policies have expanded government 
overreach. We have stories from our districts, stories from 
constituents and small businesses negatively impacted by Mr. 
Chopra's actions over the last 4 years.
    We all believe in the mission of protecting consumers, but 
the extreme policies put in place by Director Chopra have done 
more to harm consumers than they have good. After the election, 
just weeks ago, Chairman Hill and Chairman Scott in the Senate 
sent letters to all government agencies in the jurisdiction of 
Senate Banking and House Financial Services encouraging those 
agencies to halt rulemaking and new enforcement actions until 
new leadership could be confirmed. Almost unanimously, those 
requests were well-received and the various government agencies 
proceeded accordingly.
    Not surprisingly, there was an exception. The CFPB. 
Director Chopra--we are going to get the records, but it seems 
that they just went on a flurry of enforcement actions, and one 
of them at the very last minute adversely impacted multiple 
businesses in my district. He--I guess the news was received 
Saturday morning, just a few days ago, and Friday--this is kind 
of crazy. Friday, at 5:55 p.m. and at 6:05 p.m., businesses in 
my district received Civil Investigative Demands (CIDs). For 
those of you listening, that is basically a subpoena to civil 
investigative demand. These, if you are publicly traded, have 
disclosure requirements. You have to tell the world that you 
are under investigation by the CFPB, and that has an adverse 
impact.
    How many people think that the CFPB has people working 
every Friday at 5:55 p.m.? I would bet that is the first time 
ever and I even think Director Chopra might have sent these 
CIDs out himself right before he submitted his resignation.
    Let me tell you what I spent my weekend doing. I got a call 
Saturday morning. These businesses are very concerned. They 
obviously know that there is a new direction because of the 
election. Again, I just want to clarify, the election results 
are exactly the response to this type of approach to 
government. We have been out of balance for the last 4 years, 
and we are going to find balance.
    I worked all weekend to notify committee staff, to notify 
Chairman Hill and Chairman of Financial Institutions 
Subcommittee Barr, and worked on a letter. I ended up sending 
this letter to who I thought--this is the best part; I thought 
that she was the Acting Director at the time, because I was 
unaware of the development that we heard about Monday, but I 
just asked who I thought was the Acting Director, Martinez, to 
basically not send the CIDs out.
    The email was sent notifying these businesses that they 
were going to send by certified mail Monday, which would 
trigger disclosure requirements on Wednesday. I sent this 
letter out. I emailed to her.
    Mr. Chairman, I would like to submit these for the record.
    Chairman Hill. Without objection.

    [The information referred to can be found in the appendix.]

    Mr. Timmons. Thank you. Obviously, I worked feverishly all 
weekend to try to get these businesses in my district relief. I 
guess, Ms. Rainey, do you believe that it is normal for the 
CFPB to send out CIDs on Friday after business hours?
    Ms. Rainey. Seems a bit extraordinary to me, but I am not 
familiar with after-hours practices.
    Mr. Timmons. Government workers use government hours. I can 
guarantee you that it is not normal, and we are going to get to 
the bottom of this. I think that Chairman Hill and Chairman 
Scott have requested a list of all the enforcement actions that 
they have engaged in. Obviously, I was very pleased when I 
found out that I had sent the letter to the wrong Acting 
Director on Monday morning.
    We had dinner with Secretary Bessent Monday night, and I 
thanked him for giving these businesses relief. This is crazy. 
Not only did they send out the CIDs late Friday night, but 
after the news broke on Monday--Bloomberg I think got it 
first--CFPB staff initially said that action does not apply to 
the CIDs that they sent. Obviously, they changed course a few 
hours later after additional questions, but this is not the way 
that businesses need to expect the government to interact. We 
have to protect consumers 100 percent. I am all in but when the 
CFPB goes rogue and starts acting in this manner, it is 
detrimental to the U.S. economy, and we have to put a stop to 
it.
    Chairman Hill. The gentleman's time has expired.
    Mr. Timmons. Thank you, Mr. Chair.
    Chairman Hill. The gentleman from Texas, Mr. Green, is 
recognized for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman, and I thank the ranking 
member as well.
    I am very much concerned about small banks. I understand 
that the definition of a ``community bank'' per the FDIC is a 
bank with less than $10 billion in assets. Small banks are 
important to me because, literally, I am here because of a 
small bank. I went into a bank in Houston, Texas, small bank, 
and I needed a loan when I was in law school. The president of 
the bank interviewed me for the loan. As a Member of Congress, 
I can walk into a bank today and probably not meet the 
president.
    Small banks get to know people. They put a lot of stock 
into what people can do based upon sometimes an interview. I 
hope you can understand why I pursue this line of questioning. 
Unfortunately, small Black banks suffer. They cannot get 
capitalized because, first of all, they service an area where 
you do not have a lot of billionaires, and they have 
regulations that require them to help certain people. I support 
this, but they do not get capitalized as quickly.
    Most banks in this country have assets under a billion 
dollars. There are thousands of banks, more than four--
probably, but when it comes to Black banks, less than 25. There 
is something wrong with this picture. We have to have more 
Black banks. I get a lot of heat because I support Black 
people. I would just hope that someone would understand that 
having grown up Black, having lived Black, having suffered 
Black, having benefited sometimes from being Black, that I am 
going to support Black people and Black banks. Please 
understand, what can we do to enhance the opportunity for us to 
have more Black banks?
    Ms. Owen, you have been banking for a long time. What is 
your bank capitalized at, assets?
    Ms. Owen. Our assets are $490 million.
    Mr. Green. 490 million, so you appreciate the smallness of 
banking.
    Ms. Owen. Yes.
    Mr. Green. I have a bank in my district that is small, less 
than a billion dollars. I have many banks, by the way, in my 
district, but you have a problem with technology. What can we 
do that can benefit you, which will probably benefit some of 
these Black banks that are trying to hold on? What can we do?
    Ms. Owen. First, I would like to say that both the American 
Bankers Association and I strongly support funding for MDIs as 
well as CDFIs. They fulfill a hugely needed niche for banking, 
and I believe in them strongly. Lessening regulations would be 
huge in helping us be able to expand our technology.
    Mr. Green. I will just comment on that. We tried this in 
the past. I have been here for a number of years now. The big 
banks always swoop in and say, ``We would like to have that 
too.'' Can the small banks stand up to the big banks such that 
we can do something for the small banks and not have to fight 
the big banks all the way and, in the end, not get it done 
because the big banks will not allow it? Can you stand up?
    Ms. Owen. I believe we do stand up and share and speak our 
minds when we come to D.C. with Congress and our senators. We 
do advocate for ourselves, but I also have to say that I 
believe big banks fill an entirely different niche than what 
community banks fill. There is a need for all of us, and we can 
work together.
    Mr. Green. Thank you, Mr. Chairman. I will yield back the 
balance of my time.
    Chairman Hill. The gentleman from Texas yields back.
    The gentleman from South Carolina, Mr. Norman, is 
recognized for 5 minutes.
    Mr. Norman. Thank you for being here. By hearing the 
conversation and the questions that are being asked, it shows 
you the dichotomy that we have.
    I like my good friend Al, but I do not know what a Black 
bank is, nor do I know what a White bank is. I know what an 
American bank is.
    Mr. Green. Will the gentleman yield? I can tell you what a 
Black bank is.
    Mr. Norman. Let me finish. I will get after with you. I do 
not know what a Black bank, a White bank. I know an American 
bank. You are all in a competitive business.
    Ms. Owen, I mentioned to you what we are battling up here, 
is just what my good friend Ms. Garcia said. Their answer is 
government regulations to everything you do, junk fees and 
taking credit reports that omit bad debt. I am sorry; you have 
to--you rank credit as it is, and all you have to go on is 
history, and so it is--that is why the American people chose--
77 million chose not to continue the last disastrous 4 years of 
government regulations that each one of you have talked about, 
and this diversity, equity and inclusion (DEI), thank God, 
President Trump has eliminated that. It is merit. Merit-based. 
Some of the most successful bankers I know have been of all 
races.
    When you get a bank loan, you do not look at--and I am sure 
my good friend realized that, if he goes to get a bank loan for 
a property, if one with I guess what he describes as a Black 
officer has a 5 percent higher rate on interest rates versus 
someone that is a different color, he is going to pick the 
lower rate because it is better for him.
    Anyway, my point is, and you, Ms. Owen, you all need to 
stay involved to fight this kind of thing because, as has been 
mentioned, the CFPB has been overregulating and an agency that 
should be abolished, which hopefully we will try to do. You 
have more power than you realize as far as your customer base, 
and you serve--you are in a competitive business with other 
banks. You get big because of good service, because of being 
competitive, not for making bad loans where you do not know 
what the credit score is and where you do not--where you are 
forced to hire somebody because anything other than merit, 
which I am glad this President is doing.
    Mr. Kennedy, in your testimony, you mentioned that serving 
as a bank board member or control investor should be rethought. 
You also said that appropriate pricing of examination 
application fees may be adjusted. I agree with both of those. 
Would you give me some, I guess, guardrails that you would 
recommend?
    Mr. Kennedy. It is difficult to do that. I do think the 
initial point is that we really--the industry should be self-
funding. We have the regulatory structures, but they need to be 
efficient as well. They need to be educated. We need to provide 
the funding for the regulatory agencies to understand what is 
going on and better understand what is going on in technology, 
artificial intelligence (AI), and what the future will bring; 
that is the key point in my view there.
    Director liability is an issue that has been in the law for 
a long, long time and it has gotten worse, and if you just step 
back and say, ``Why do not we have as many community banks,'' 
that is one of the key reasons. We have to rethink that. I do 
not have any immediate--I can provide some more detail about 
it, but it is a topic that keeps people from going into that 
business.
    Mr. Norman. I agree with you, and community banks, we all 
have been on bank boards. Pretty much everybody up here. It is 
regulations that keep bank boards back from showing profit on 
the bottom line. It is the reluctance of board members to get 
involved because most States need tort reform. South Carolina 
is one of them that indirectly and directly affect your banks. 
What can we do more to incentivize and help with what you are 
doing? Ms.--right now, I will start with you and go down the 
line.
    Ms. Rainey. These conversations are a great start, but I 
think as we have talked here today, de novo, and as Mr. Kennedy 
alluded to how we create new charters, how we ensure in 
regulation whether it is our ability to work with fintechs and 
create a community bank-fintech partnership is--and some clear 
rules of the road would be incredibly helpful. How we ensure 
that the examination environment is, again, proportionate to 
the risks that we represent--so, for well-capitalized, well-
managed institutions to extend the timeline between those 
examinations. As we reviewed here today, I think there are many 
pieces where again, let us think about it not as a one-size-
fits-all solution.
    Mr. Norman. Thank you all so much.
    Chairman Hill. The gentleman's time has expired.
    The Ranking Member for our Small Business Committee in the 
House, Ms. Velazquez of New York, is recognized for 5 minutes.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Ms. Spotser, I was not prepared to ask the question that I 
am going to make--be making now. I have another set of 
questions, but listening to the attacks to 1071 and 
[inaudible], I feel compelled to set the record straight. The 
ranking member and I have been long-time champions of section 
1071. We wrote it. Can you explain how section 1071 will 
increase lending to small businesses?
    Ms. Spotser. Section 1071 is a sunshine provision. It lets 
the light in on what is actually happening in small business 
lending across the country. The way in which it does that--it 
differs than just call report data. It requires reporting of 
the race of the applicants. It also requires reporting around 
denials. In doing that, it will help us make informed decisions 
about why people are not getting access to business loans in 
the United States.
    Ms. Velazquez. Can you explain how the majority of 
community banks are exempted from section 1071?
    Ms. Spotser. Yes. Actually, when the Consumer Financial 
Protection Bureau issued the regulation, they were very careful 
as part of that process to exclude a number of financial 
institutions making over--so that the actual regulation 
establishes a threshold of loans that have to be accomplished 
before the reporting requirement kicks in.
    Ms. Velazquez. Can you explain the other steps the CFPB 
took to make the reporting requirements less burdensome by 
giving them more time to comply?
    Ms. Spotser. Yes. One of the really interesting things here 
is that the provision, which has actually been on the books for 
15 years, was not actually, after the regulation was finalized, 
implemented immediately. It has a phase-in period, and it 
actually allows smaller financial institutions an extended 
period of time of compliance. Currently, the regulation's 
effective date has been suspended altogether.
    Ms. Velazquez. Is it not true that most banks are already 
collecting most of this information?
    Ms. Spotser. I would think that a financial institution 
would want to collect financial information relating to its 
business clients. It may not be true that they are collecting 
information directly about their race and those dynamics, but 
it is certainly true that they are collecting information about 
their business profile.
    Ms. Velazquez. Through Home Mortgage Disclosure Act (HMDA), 
can you explain how the CFPB was required by law and then a 
court order to write this rule, and this was not something that 
CFPB chose to do?
    Ms. Spotser. Yes. This--the small business lending 
provision was, as you acknowledged, a requirement of the Dodd-
Frank Act. It has been on the books for the past 15 years, and 
unfortunately, there was a lag in implementing it. During that 
time period, we have still had a lack of access to capital for 
minority small businesses in the United States.
    Ms. Velazquez. Thank you for setting the record straight.
    To everyone on this panel, I support community banks. I 
have already publicly said I want to work on FDIC insurance and 
deposit insurance reform in order to make them more 
competitive. Yet, President Trump and his Republican allies 
want to eliminate the FDIC altogether. Does anyone think 
eliminating the FDIC is a good idea? Does anyone think this 
will make them more competitive? Yes or no? Do you think it 
would make them more competitive?
    Ms. Rainey. We do not know enough to know that. We need 
deposit insurance in this country. The FDIC plays a very vital 
role.
    Ms. Velazquez. That is a good start. Ma'am?
    Ms. Marshall. The Federal banking agencies, the FDIC, the 
Federal Reserve, and the OCC, are our partners in supervision 
for the institutions. Just like the foundation of the dual 
banking system where banks have a charter of choice, whether 
they choose the State charter or the national charter. They 
should be able to choose whether they want a Federal charter, 
Federal supervision of the Fed or the FDIC, and the protection 
of the FDIC insurance fund is very important to the 
stabilization of our--
    Ms. Velazquez. Is that a yes or no, if you agree? Yes?
    Ms. Spotser. Yes. The FDIC plays a critically important 
role, and in its absence, it would be highly problematic for 
all financial institutions.
    Ms. Velazquez. Thank you. I yield back.
    Chairman Hill. The gentlewoman yields back.
    Mr. Meuser from Pennsylvania is recognized for 5 minutes.
    Mr. Meuser. Thank you very much, Mr. Chairman.
    Thank you all to our witnesses very much.
    Over the past 4 years, community banks have been a little 
bit under the gun from 1071 to CRAs to overdraft fees being 
eliminated. Credit card late fees and such have been reduced, I 
think, from $35 to $8, something of that nature. My guess is, 
if we reduced speeding tickets from $100 to $5 there would be a 
lot more people speeding, so my guess is you have a lot more 
community banks overdrafts taking place.
    I am hearing a lot from my community banks as well about 
the increased cost of compliance and regulatory burdens. In 
fact, I just heard a story not too long ago where CFPB came 
into a bank, community bank, and said, ``Hey, how we doing?'' 
They said, ``Well, not well, I have had to hire three new 
compliance officers to help,'' and the CFPB manager-
representative-stated, ``Well, that is wonderful; we are 
adding--we are creating three jobs.'' They really do not get 
it.
    The Pennsylvania Bankers Association obviously pays a lot 
of attention to community banks as they are essential 
throughout Pennsylvania, and they informed me that recently a 
de novo bank was told by the FDIC to slow its deposit growth 
because it was meeting a new yet underserved population that 
happened to be Amish. Again, brought to my attention by the 
Pennsylvania Bankers Association.
    Ms. Marshall, is this something that you found FDIC 
meddling in?
    Ms. Marshall. I do not have an example specifically of what 
you are describing, but I will tell you that the concentration 
of power at the Federal banking agencies here in D.C. needs to 
be reversed and that delegation of authority needs to go back 
down to the regional offices of the FDIC or the districts of 
the Federal Reserve because they, like State regulators, are 
local. They know the communities. They know the institutions. 
They have a better gauge, and so, we do not need a one-size-
fits-all approach to the Federal oversight of our industry. We 
need that appropriate balance between centralization of 
direction, but we need that execution and that independence of 
those individual districts and regions to make the best--make 
the choice structure for our institutions.
    Mr. Meuser. Have you found that to be the case? Has the 
FDIC been engaged in such drive-bys and stop-bys? Are they 
basing it upon the reserves? Are they basing it upon a business 
equation, or are they just basing it upon a de novo bank that 
happens to be growing faster than they predicted?
    Ms. Marshall. Again, I have not heard anything 
specifically, but I hope that all regulators, like I do, focus 
on safety, soundness, and consumer protection. In a de novo 
situation, you are looking closely at the business model and 
the business plan but work with that institution. You do not 
want to stifle the growth or the opportunity for those banks to 
serve those communities, especially when we have a new de novo 
in place. That can be balanced with true risk-management 
practices and to ensure that the bank and the regulators are 
working together for the best outcome, and I believe banks do 
an excellent job overall of managing risks. That is what they 
do every day, and so that collaboration and discussion between 
the bank and their regulators are very important.
    Mr. Meuser. Okay. I would like to ask you about the 
importance of raising the FDIC insurance from $250,000 
particularly, perhaps for small business payables, but I would 
rather just--I would like that answered. Mr. Kennedy, we are 
going to start with you and just go down the line. Community 
banks are not happy. There is not one that I meet with that 
says, ``Hey, we do not feel under duress. We feel great. We are 
flexing our muscles. We are gaining new customers. We are 
rolling.''
    They are feeling as if they are being somewhat suffocated. 
What can we do in this community and in this Congress to 
improve that situation?
    Mr. Kennedy. Thanks for the question. It is the question of 
the day. Frankly, what the chairman has put out is a masterful 
list, and others who have talked about the legislation, they 
have planned or have already engaged in, provided, but I think 
that, based on my 45 years of watching this industry and 
participating in it, something really dramatic to remove 
community banks from the heavy regulation that Congress has put 
on them. You can--you cannot blame all of the agencies because 
really the law is here. That is what started--and all of it has 
been in reaction, but it has been an overreaction, and it 
starts out, well, it is only the big banks, but then it is 
trickled down. You can ask any community banker that the 
trickle-down effect is always there.
    Mr. Meuser. Thank you. Mr. Chairman, I yield back.
    Chairman Hill. The gentleman's time has expired.
    the gentleman from California, Mr. Liccardo, is recognized 
for 5 minutes.
    Mr. Liccardo. Thank you, Chairman Hill, and thank you, 
Ranking Member Waters, for holding this hearing.
    Thank you to all the witnesses for coming forward to speak.
    I very much appreciate the testimony. I have learned quite 
a bit.
    I guess I had a question primarily for Ms. Romero Rainey 
about, as you look across community banking in this country, is 
it fair to say that commercial real estate (CRE) lending is a 
significant share of the portfolio for many banks?
    Ms. Rainey. Yes, it is.
    Mr. Liccardo. What steps do you believe are necessary from 
the standpoint of the banks to protect against volatility in 
that market that we are seeing today?
    Ms. Rainey. This is something that community banks are 
experienced in doing and have over time in terms of knowing 
that the markets change, and we have to prepare for that 
volatility. The other thing that I would really point out, when 
you look at a traditional community bank's portfolio, the 
majority of their CRE is owner occupied, and so that creates a 
very different dynamic as we think about the cash-flows and the 
impact in terms of how that business is able to manage. They 
are typically in those investments for the long term.
    Mr. Liccardo. Some significant share, and I think I saw an 
FDIC report suggested it could be more than 30 percent, is non-
owner-occupied, nonresidential. This could be an office retail, 
et cetera. I guess what I am concerned about is, as a 
recovering mayor of a city, is I have had those conversations 
almost 2 years ago listening to developers, owners of these 
properties telling me a lot of keys are going back to the 
banks. When they do, the valuations are going to be severely 
reduced, and the banks are going to be inheriting a lot of very 
poorly performing assets that are very far under water. I am 
wondering at this point, knowing what we think we know about 
the state of commercial real estate right now, is this the time 
when we need less regulation over, for example, issues around 
portfolio safety?
    Ms. Rainey. A couple thoughts there. First is, as I look at 
concentrations of commercial real estate, a lot of this is 
going to vary regionally. I am candidly not hearing a lot from 
our members that they are--their portfolios are struggling. 
There will be pockets, and that will have to be dealt with. 
Again, that is a perfect example of why one-size- fits-all is 
not the approach that we need to take here.
    Again, as I started with my comments, that is the beauty of 
a community bank is these are portfolios that they have built 
expertise in years of mastery in terms of knowing how to 
weather those storms. Again, let us look into those areas of 
challenge and think about how we support those communities as 
opposed to painting with a wide brush in terms of how we 
support the industry as a whole.
    Mr. Liccardo. Forgive me for staying at the wide brush for 
a moment. Nationally, I think, in the fourth quarter of last 
year, they can see rises of 19.8 percent in office. A lot of 
folks believe that is a significant understatement given what 
we know about the fact that an awful lot of space is being 
subleased, and those leases are coming up, and essentially 
there are going to be a lot of nonrenewals.
    I am thinking about that, thinking about I know, in the 
hotel industry, we are seeing a significant number of 
foreclosures on the West Coast. I cannot help but wonder if, at 
some point, the other shoe is going to drop and to what extent 
these banks are going to be as aware, small community banks, of 
the severe difficulties that are really underneath the surface.
    That vacancy rate, by the way, is about twice as high as it 
was right after the Great Recession, 2009. This is a monumental 
moment for failure of commercial real estate. How can we be 
assured sitting here that, 2 years from now, we are not going 
to be having hearings about the string of bank failures 
resulting from all these failed investments or all these failed 
loans, I should say?
    Ms. Rainey. What I know today is, when you think about a 
community bank operator, they are the ones right there on the 
ground watching what is happening in those markets and in those 
buildings so that we suggest a surprise in terms of a sudden 
shift that they are not prepared for, that is not the community 
bank business model. They have proactively--they are 
monitoring--again, they are in those markets watching that 
happen. How we prepare, give the flexibility, and take into 
account the fact that they are there within those markets----
    Chairman Hill. The gentleman's time has expired.
    Mr. Liccardo. Thank you. I yield back.
    Chairman Hill. The gentlewoman from California, the 
Chairwoman of the Asia Pacific Subcommittee on House Foreign 
Relations, Ms. Kim is recognized for 5 minutes.
    Mrs. Kim. Thank you, Mr. Chairman. I want to congratulate 
you on holding this very first full committee hearing on a 
great topic, and I look forward to working with you as chairman 
of the committee.
    I also want to thank all of our witnesses for joining us to 
examine how we can make community banking great.
    Today I am concerned about the decline of our community 
banking. In our country since the 1980s, the number of banks in 
America has declined from 18,000 banks to less than 5,000 banks 
operating today. What that means is that less banks in our 
communities means less competition, less access to capital for 
small businesses, and less essential banking services for 
communities that need it.
    Let me ask the first question to Ms. Romero. Can you give 
us your view on how we got to this point of having 13,000 less 
banks today than what we had in the 1980s?
    Ms. Rainey. I think it is accumulation of looking at this 
industry from a one-size-fits-all approach. When you look at 
the compliance costs and the regulatory burden that have just 
been added on and added on in the last 2 years, over 4,000 
pages of new regulation, that comes at a cost.
    Mrs. Kim. Can you tell me, how much does it cost for a 
community bank to comply with State and Federal regulations?
    Ms. Rainey. It is significant. The stories that we have 
heard today of banks adding more and more compliance officers. 
Those are not folks on the ground helping small businesses get 
to the next level, figuring out how to finance and transition 
that business to the next generation, and that is the shift 
that I think we really need to focus on.
    Mrs. Kim. I share with you, and my sense is also that the 
small banks are more worried about complying with regulations 
and focusing on how to comply with those regulations than 
focusing on what they need to do best, and that is making 
capital available for businesses and for worthy projects that 
they want to fund.
    Ms. Romero, I do have concerns about the supervisory 
appeals process as well. That it has not been very transparent 
and has very little oversight. Can you give us your 
perspectives on how we could improve the supervisory appeals 
process and make it more transparent?
    Ms. Rainey. I appreciate the question, because that is all 
we are looking for is transparency, and very much appreciate 
Chairman Hill's bill that would create this appeal process and 
examination transparency by looking to the FDIC to have an 
independent approach in which bankers can raise their questions 
and challenge the findings.
    Mrs. Kim. Sure. Ms. Marshall, in your testimony, you speak 
about the need to facilitate community bank innovation through 
third-party partnerships. Can you speak on how greater 
regulatory certainty and clarity with third-party partnerships 
can help small community banks, and how can you help consumers 
have greater access to many banking services?
    Ms. Marshall. Yes, ma'am, thank you. I think the consumer 
is a large part of this conversation, because they are 
demanding that you--they utilize new products and tools and 
services to meet their banking needs. They want that. They 
expect that. Community banks need to keep up because, quite 
frankly, they may not be able to innovate themselves, but that 
partnership gives them that opportunity to continue to serve 
their customers and attract future customers. The ability to do 
so is going to be very--the successful ability to do so is 
going to be very important. As we look at improving and 
enhancing current third-party risk-management guidance, we need 
a regulatory framework that is clear cut, a roadmap that gives 
the rules of the road for banks to be able to follow, and not 
just them but the third parties themselves as well as the 
consumer. You need clear guidance. We need clear definitions. 
We need it to be a transparent process in how regulators and 
bankers, and, quite frankly, the third parties can facilitate 
those conversations about what that looks like for the next 
generation because it is here to stay. I think it is very 
important for the vitality of our industry and meeting consumer 
needs.
    Mrs. Kim. Thank you.
    Ms. Owen, let me ask you a question. In my home district in 
southern California, I regularly meet and hear from small 
businesses--the banks--of the need to enact the Safe Banking 
Legislation, so can you talk about that, how enacting safe 
banking legislation can help local community banks?
    Ms. Owen. Banks do need good legislation, but it needs to 
be clear. It needs to be tailored. It needs to be very 
thoughtful in its implementation and timelines.
    Chairman Hill. The gentlewoman's time has expired.
    Mrs. Kim. Thank you, Chairman. I yield back.
    Chairman Hill. The gentlewoman from Michigan, Ms. Tlaib, is 
recognized for 5 minutes.
    Ms. Tlaib. Thank you so much, Mr. Chair.
    Can everyone on the panel agree that our government should 
be promoting residents' economic security, not the--serving the 
whims of billionaires? Does everyone here agree with that? If 
you disagree, raise your hand.
    Mr. Kennedy. I did not understand your question. Sorry.
    Ms. Tlaib. Is our government's role and responsibility to 
promote our residents' economic security, not serving 
billionaires? Okay. You are uncomfortable, Mr. Kennedy?
    Mr. Kennedy. No.
    Ms. Tlaib. Oh, Okay. I just want to be clear. We are 
community banks, right?
    Mr. Kennedy. I was thinking about my answer.
    Ms. Tlaib. For real people. No, we are community banks. I 
do not know. Maybe you do have a lot of billionaires you serve. 
I do not know. This is important because the topic of today's 
hearing is community banking, but we just cannot act like there 
is not a crisis going on.
    Do you know the people calling my office, it is hundreds of 
people calling my office right now saying, ``What is going 
on?'' With access to the Treasury payment system, Elon Musk can 
simply stop funding any Federal Government programs like 
Medicare or Social Security. My residents know that he does not 
care about them. They are not experiments.
    Our people in our communities and our families are not 
experiments for Elon Musk. It is really hard to be in this 
space to talk about something that I think a lot of people do 
care about, but at this moment, we are acting like there is not 
a crisis going on in our government right now.
    One thing I do want to talk to you all about, and I think 
it is really important, is--and this is for any of the 
witnesses here. Do you know which State right now specifically, 
and to get to community banking, but which State has the most 
community lenders per capita? Does anybody here know? No?
    It is North Dakota, which has around 64 banks and credit 
unions per hundred thousand residents. That is pretty great, 
right? North Dakota has six times as many locally owned 
financial institutions as the national average. Does anybody on 
the panel know that?
    For any of the witnesses, again, what makes North Dakota so 
special in its support of community lenders? Can anybody guess? 
Do you know what makes them special? A large part of the answer 
is the Bank of North Dakota. The Bank of North Dakota has 
operated successfully as a public bank for over 100 years. 
Today it provides business loans, student loans, home loans, 
and agricultural loans. I do not know if the chairman and 
others know this. Public banking is incredibly important to 
support in our country, especially during this time where we 
see a lot of folks in a stronghold of, again, the economic 
security and the future of our families. Did you know that 
North Dakota--the Bank of North Dakota--invested $1 billion in 
legislative directed programs that build schools, water 
infrastructure, and medical facilities? A public bank did that.
    In 2023, it returned $140 million to the State general 
fund, and over time it has returned more than $1 billion in 
funds to the State, money back to the State, to the 
communities. I do not even know if my own Ranking Member, 
Congresswoman Waters, knows this, but importantly the Bank of 
North Dakota does not compete with community banks. They do not 
compete with you all. It partners with you. About half of its 
$5 billion loan portfolio is lent in partnership with community 
financial institutions. Participation loans increase the 
capital available for community development, provide community 
lenders with greater access to capital.
    This is important as somebody that authors the public 
banking bill. Thanks to the Bank of North Dakota, no banks in 
the State failed during the 2008 financial crisis. I am going 
to repeat this, no bank in North Dakota failed during the 2008 
financial crisis. In fact, the bank continued lending while 
others pulled back, helping the State achieve the lowest 
foreclosure. As somebody that literally lives in the county 
with one of the worst foreclosures in the country in Wayne 
County, Michigan, but it helped achieve the lowest foreclosure 
and credit card default rates. Again, the lowest.
    My Public Banking Act would actually help States establish 
similar robust community banking sectors, which will be 
partners to all of you. If we are serious about assisting 
community banks, we should look to the longstanding and proven 
track record of The Bank of North Dakota. This is so important 
for many of my colleagues. Many are not here right now. I hope 
they are dealing with the crisis that is happening.
    However, it is important to understand the role of public 
banking. It is actually a great way to, again, protect the 
economic security and future of our families that, again, feel 
like we do not have our--have their back.
    With that, Mr. Chair, I yield.
    Chairman Hill. The gentlewoman yields back.
    The gentleman from Florida, Mr. Donalds, is recognized for 
5 minutes.
    Mr. Donalds. Thank you, Mr. Chairman. I am not even going 
to get into it. Thank you so much.
    Mr. Kennedy, how has the regulatory structure imposed by 
Dodd-Frank negatively impacted community banking in the United 
States?
    Mr. Kennedy. I think it was about a thousand pages of 
legislation by Congress and probably 10 times that of 
regulations that were issued under that act.
    Mr. Donalds. Okay. Specifically, in your view, has 
community banking in the country, frankly, been devastated by 
Dodd-Frank?
    Mr. Kennedy. Yes. It was done to react to a problem or 
series of problems, clearly, but it was an overreaction, and it 
applied to every bank in the country and beyond. It is--
stepping back, it is a serious problem. It is overregulation.
    Mr. Donalds. Okay. Thank you.
    Ms. Rainey, can you discuss how increasing the asset 
threshold for small bank holding companies could help with 
capital formation?
    Ms. Rainey. Yes. I appreciate the question.
    As we increase that threshold, what we allow these smaller 
bank holding companies to do is to grow to lend more and 
potentially partner with other smaller community institutions 
to keep that presence in the local community.
    Mr. Donalds. Okay. Awesome. Do you believe that a 
proliferation of small banks and small bank holding companies 
will be better--would be better in terms of addressing the 
needs of capital for individuals, microbusinesses, and small 
businesses?
    Ms. Rainey. It is the answer, and that historically--when 
we look at the footprint of small businesses in this country, 
which is unlike anywhere else in the world, we can attribute it 
directly to the presence of small banks and those that are on 
the ground that are taking that local capital and redeploying 
it to small businesses so that they can grow and create 
additional capital for that community.
    Mr. Donalds. All right. Thank you.
    Ms. Owen, can you describe the role community banks can 
play in revitalizing local economies and uplifting American 
communities?
    Ms. Owen. Absolutely. I am a proponent of the Access to 
Credit for Rural Communities (ACRE) which will provide lower 
interest rate loans as well as additional credit to our rural 
communities and our farmers and our ranchers, the agriculture 
that is so vital to not only my State but our country.
    Mr. Donalds. Okay. Thank you.
    Ms. Marshall, what immediate action can Congress take to 
address the regulatory cliffs you mentioned in your testimony?
    Ms. Marshall. I think starting with the static thresholds 
that have existed. We need to review those. They need to be 
indexed for the current environment, the current economy so 
that banks can continue to grow and expand alongside that 
economy and not fear that they--as they approach this arbitrary 
asset threshold, that they either need to pull back from their 
operations or, quite frankly, seek another alternative.
    We need to let them continue to grow alongside in the 
natural pace that they will be able to keep up from a risk 
management standpoint, and we need to take that stigma away 
that there is something magical or something horrible that 
happens when you cross over to be a $10-billion bank. As I said 
earlier, $10 billion is not the threshold that should define a 
community bank.
    Mr. Donalds. Let me ask you, Ms. Marshall, to follow up. 
What do you think the threshold is that should be defining 
community banks in the United States?
    Ms. Marshall. Something north--I have never been asked 
that, Mr. Donalds. Thank you very much. Certainly something 
north of 10, maybe something less than a hundred.
    Mr. Donalds. Fair enough. I understand why you do not want 
to--as a former community banker, I understand that a $10-
billion bank, although it is big, quote/unquote, you are not 
talking about the national banks, which are massively larger 
than $10 billion.
    Ms. Marshall. Right.
    Mr. Donalds. I do acknowledge that.
    Before I yield, Mr. Chairman, it was raised about the Bank 
of North Dakota. As a former banker or I would say a recovering 
banker, the State of North Dakota, the reason why they had to 
create a State bank is because there was no ability for any 
lending to occur because there were no banks in the State of 
North Dakota.
    I am quite sure every American understands, especially 
people from North Dakota, that it is a very rural State. It can 
be a very tough State, and there were not a lot of banks that 
could survive in that climate. The State of North Dakota 
decided, I believe around 1910, 1920, to create a State bank in 
North Dakota. It still remains to this day.
    I know that there are people in other States who brought up 
the idea of creating a State bank, but the reality is that 
commercial banking has been able to supply the needs in 
everybody's cities and economies, and there are now obviously 
community banks and other banks that operate in the State of 
North Dakota.
    I do not think that the topic of raising a State bank is 
the panacea to whatever the ills might be coming from the other 
side of the aisle. The real cure is unwinding the regulatory 
behemoth that is Dodd-Frank.
    I yield, Mr. Chairman.
    Mr. Fitzgerald [presiding]. The gentleman yields back.
    The gentleman from New York, Mr. Torres, is recognized for 
5 minutes.
    Mr. Torres. Thank you.
    There are 45 million Americans who have no credit score, 
who have been deemed credit-invisible or unscoreable. According 
to an analysis by VantageScore, expanding the scope of credit 
scoring to include alternative data like rent payments would 
generate a first-time credit score for about 33 million 
Americans. Of the 33 million, 13 million would have a credit 
score high enough to qualify for a mortgage.
    Ms. Spotser, do you believe as I do that banks should 
originate mortgages based on credit scores that take into 
account alternative data like rent payments?
    Ms. Spotser. Yes. I think it is a very important concept, 
and I think we are very pleased and supportive of the Federal 
Housing Finance Agency's efforts to make sure that the GSEs 
pursue it.
    Mr. Torres. Ms. Rainey, do you have any thoughts?
    Ms. Rainey. I think this is something that community banks 
do today. It is something that I love about relationship 
lending, it is not just credit-score-driven. We are able to 
take into account many of those factors, and so I am 
appreciative of anything that brings that information to the 
table.
    Mr. Torres. There are 5.6 million households, 4.2 percent 
of the population, that are unbanked. Nineteen million 
households, 14.2 percent of the population, are underbanked. 
There is a national initiative known as BankOn that offers free 
or affordable bank accounts.
    In your experience, how effective has the initiative been 
at reducing the unbanked and under-banked population in the 
United States?
    Ms. Rainey. I do not have the information specific to 
BankOn, but I think so much of this is about education and 
creating pathways for folks to understand, to create 
connections to banks, and anything we can do to help with that 
is good.
    Mr. Torres. Ms. Spotser, do you have----
    Ms. Spotser. I think education is important, but I do not 
think that is the reason why we do not have--people are not 
getting access to bank accounts. I think it is the absence of 
service in communities that are traditionally underserved.
    One of the things that we have talked about is the absence 
or the consolidation of banks, but what we have not talked 
about is the disappearance of bank branches by existing 
financial institutions in communities of color, and that has 
consequences that lead to an increase in lack of access in 
banking account opportunities for people of color.
    Mr. Torres. In places like the Bronx?
    Ms. Spotser. In those places.
    Ms. Owen. Mr. Torres, I would like to add.
    Mr. Torres. Yes. Sure.
    Ms. Owen. We do offer BankOn accounts and are very proud to 
do so. It has certainly allowed us to bank some of our unbanked 
population and help them so that they can get direct deposits 
at the bank and protect those--protect them from the risk of 
their checks going through the mail, payroll checks and other 
things. We are very proud to be able to offer that.
    Mr. Torres. In spring of 2023, the fear of contagion risk 
led the Federal Government to insure the uninsured depositors 
of SVB, Signature, and First Republic. If the Federal 
Government feels compelled by contagion risks to insure the 
uninsured at the back end why not provide unlimited deposit 
insurance at the front end? In finance, as in healthcare, it 
would seem to me preventative medicine may be more cost-
effective than emergency medicine. What do you make of that 
argument?
    Ms. Rainey. I think there is a lot we need to talk about 
here, and I think that there are two pieces to this. One is the 
contagion effect. The agencies should have had the ability to 
implement a transaction account guarantee immediately so that 
we were not talking about a contagion effect. Then as we think 
about, ultimately, reforms to the deposit insurance system, how 
are we ensuring that moneys are safe regardless of the size of 
the institution and that----
    Mr. Torres. Indulge my hypothetical for a moment. In a 
world of unlimited deposit insurance, what incentive is left 
for a depositor to withdraw all their deposits from a bank?
    Ms. Rainey. There is none, but there is also a cost that 
comes with that unlimited insurance. How that then creates a 
disproportionate burden on the smaller banks is the piece that 
we need to solve for.
    Mr. Torres. How can we--how would you solve for that?
    Ms. Rainey. I would solve for it by thinking about a system 
of assessments that puts more of that burden on the largest 
institutions.
    Mr. Torres. A tiered system of assessments?
    Ms. Rainey. Yes. Yes.
    Mr. Torres. What do you make of the role of the Federal 
Home Loan Banks as emergency liquidity providers? It has been 
said that emergency liquidity from the Federal Home Loan Banks 
is much more accessible than the Fed discount window. What do 
you make of that role?
    Ms. Rainey. I think the Federal Home Loan Banks play a very 
critical role in terms of providing, not just immediate 
liquidity, but liquidity over time that allow community banks 
to manage their balance sheets and have--like I said, given 
seasonal aspects, whatever it may be, they are very critical to 
banks' liquidity.
    Mr. Torres. I see my time has expired. Thank you.
    Mr. Fitzgerald. The gentleman yields back.
    I now recognize the gentleman from Nebraska, Mr. Flood, for 
5 minutes.
    Mr. Flood. Thank you, Mr. Chairman of Wisconsin.
    The State of our banking system is not what it used to be 
post-Dodd-Frank. I represent a district, and I live in a State 
full of outstanding community banks.
    In the 1980s, there were more than 18,000 banks in the 
United States. Today, there are fewer than 5,000 commercial 
banks. When I started on the Nebraska Unicameral Legislature's 
Banking Committee, we had over 300 banks, and today, we have 
137 and dropping. One is consolidation, and the other is a lack 
of de novo charters when it comes down to the big issues, and I 
both believe--I believe both have the same root cause, 
regulatory burdens.
    Ms. Romero Rainey, in your testimony earlier today, you 
spoke to how inefficient and prescriptive regulations led to 
further bank consolidation. Can you expand on that point for 
our benefit?
    Ms. Rainey. Absolutely. I think the core theme for me here 
is, as we look at the community bank business model that is 
tied directly to relationship lending, we need to look at it 
through a lens of how do we proportionally manage that risk. 
Unfortunately, regulation that has been written over the 
years--4,000 new pages in the last 2 years--has not been 
proportionate to the community bank business model, and that 
comes at a higher cost to community banks, which absolutely 
contributes to consolidation.
    Mr. Flood. One of the things I love about our banking 
system in America is that it is diverse. You have the Global-
systemically Important Banks (G-SIBs). You have the regionals. 
You have the community banks and then you look at Europe. How 
many banks are calling the shots over in Europe? A couple? A 
handful? Here we have this diverse system that is the envy of 
the Nation, and we seem to be killing off one of the three legs 
of the stool.
    Let us talk about these de novo bank charters. We have seen 
a staggering drop in the number of these over the years. 
Congressman Barr's legislation would seek to address that 
problem, and I am a proud cosponsor of the bill.
    Another question to you, Ms. Romero Rainey. You made a 
really interesting comment in your testimony that your family's 
community bank, Centinel, would not have been chartered today 
given the regulatory environment. Which specific barriers do 
you feel would have been most challenging to chartering a new 
bank de novo with the circumstances you had when your family 
bank started?
    Ms. Rainey. First and foremost, the minimum amount of 
capital. As we think about what is required, again, it is a 
one-size-fits-all approach. That has to be solved for 
immediately, especially as we look at access to capital in 
rural areas.
    Mr. Flood. Very good.
    Mr. Kennedy, in your testimony, you touched on the 
importance of allowing community banks to innovate and use 
technology to confront some of the barriers posed by the 
regulatory burdens. I totally agree. I would be fearful, if I 
were running a community bank, of getting into bed with a 
third-party vendor that could take me to a place where my 
license could be suspended.
    How can technology help smaller institutions face the 
challenges posed by the regulatory burdens? What do you think 
of that?
    Mr. Kennedy. I think technology can level the playing field 
and has for the last 20 years and will continue to do that. 
There are just--there are a lot of different meanings to the 
word ``fintech.'' I think the Commissioner talked about it 
earlier. We have to be innovative, and the regulatory agencies 
have to understand that and give the banking community space to 
do that.
    Mr. Flood. Do you think the regulators of community banks 
are as maybe open-minded to some of the fintech possibilities 
as maybe the large G-SIBs with their regulations?
    Mr. Kennedy. I think they are. I am not sure that the 
leadership in Washington of late, particularly in the last 4 
years, has allowed them to be.
    Mr. Flood. Very fair.
    Mr. Kennedy. I urge in my remarks and also in my written 
testimony that we give the regulatory folks an opportunity, 
fund them better, give them the opportunity to understand and 
work side by side with banks as we innovate.
    Mr. Flood. Ms. Marshall, I appreciate seeing you again this 
week. A lot of banks in my home State have gone from an OCC 
charter to a State charter. Are you seeing that in Arkansas as 
well?
    Ms. Marshall. Absolutely. Yes, sir. There are only seven 
State charter banks--seven national banks chartered in 
Arkansas, and so almost 90 percent of our banks are State-
chartered. That has happened fairly recently over the last few 
years.
    Mr. Flood. Why is that?
    Ms. Marshall. I will say it is our relationship with those 
institutions, our knowledge of the local communities, our 
accessibility, our willingness to partner with them in a way 
that is not inappropriate but best suited for both 
organizations to maintain that healthy, vibrant community 
banking sector.
    Mr. Flood. Do you think the OCC wants a larger bank to 
regulate? Do they want to be in the space of community banks?
    Ms. Marshall. I would not be able to speak to what the OCC 
would or would not want. I can just assure you that our banks 
are pleased with the relationship they have with the State.
    Mr. Flood. Thank you very much. I yield back.
    Mr. Fitzgerald. The gentleman yields back.
    The ranking member is now recognized for a unanimous 
consent request.
    Ms. Waters. Mr. Chair, I have a statement. I have a 
unanimous consent request to enter a few statements in the 
record.
    I have a statement from the Americans for Financial Reform, 
representing more than 200 groups, supporting CFPB and its 
rules.
    I have two other letters from more than 200 consumers, 
civil rights, labor, and other groups supporting CFPB's 
overdraft rule.
    I have seven other letters from various groups, including 
the Leadership Conference on Civil and Human Rights, Rise 
Economy, and the Responsible Business Lending Coalition, 
strongly supporting CFPB's small business lending transparency 
rule, the National Bankers Association, and inclusive each 
submitted statement urging us to build on our bipartisan work 
to support CDFIs and MDIs.
    Last, the Free Speech Coalition submitted a statement 
highlighting how debanking hurts marginalized communities.
    Mr. Fitzgerald. Without objection.

    [The information referred to can be found in the appendix.]

    Mr. Fitzgerald. We now go to the gentleman from Indiana, 
Mr. Stutzman. You are now recognized for 5 minutes.
    Mr. Stutzman. Thank you, Mr. Chairman.
    Thank you for being here. This is such an important issue 
for our communities. I come from a district in Northeast 
Indiana that is very diverse, a lot of rural areas, a lot of 
agriculture, a lot of manufacturing. We have, of course, the 
city of Fort Wayne, so we have an urban area and some suburban 
areas.
    I have been absent from Congress for the last 8 years, and 
so I have been very active in our community, in the business 
space and have worked with a lot of our banks--small, medium, 
large, all of them--and working to create jobs and to make--
create better opportunities for our communities.
    One of the things that I find interesting--and Mr. Flood 
touched on just a little bit of it--is the diversity in our 
banking system, which I find to be very beneficial as a 
business owner and working with banks from whether it is 
startups or whether it is existing companies, agriculture, 
which is tricky. Not just any bank is involved in agriculture.
    What I continually heard from friends in the industry is 
the--and I do not think that they even wanted to complain 
because they wanted to be sensitive and careful to the 
circumstances that we were in, but it just seemed like their 
hands were tied continually in a variety of ways.
    I know one of the key things for this hearing is just 
fairness, transparency, right-sizing the government. President 
Trump signed an executive order, which launched massive 
deregulation initiatives, including a provision to eliminate 10 
regulations for each new regulation issued. I guess I am just 
kind of curious. Would that be possible? How easy would that be 
for the industry?
    I guess, maybe especially for smaller community banks, that 
do not have the large group of attorneys that are readily 
available to help, but I know that there has been a lot of 
hardships on the banks, which creates the hardships for small 
businesses and folks in the community that are really building 
up our small communities.
    I will tell you, rural communities are struggling. It is 
tough out there. That is why I believe this hearing is so 
important. How can we help? Is that the right direction? I 
support President Trump's end goal and initiatives, but is that 
something that will be a useful tool?
    Ms. Rainey. I think it is. As we think about our theme here 
today, again, how are we thinking proportionally to the risks 
that we are trying to mitigate and manage because that really 
is what is at the core of a successful community bank, is risk 
management.
    How do we provide, to your words, the flexibility for these 
banks to do the good work that they are not just in the easy 
times but more importantly, in the challenging times. There is 
a reason that community banks make over 70 percent of the 
agriculture loans in this country. It is because they are 
experts, and they have proven their ability to stand the test 
of time.
    To think about--to pull back, to repeal 1071 that would 
make that less effective or efficient, to think about the 
examination process in a different way for these smaller 
institutions, to think about their access to capital and 
ability to grow through the Small Bank Holding Company Act. I 
think there are a lot of ways that we can just think 
differently in a way that acknowledges the very different 
business model that is community banking.
    Mr. Stutzman. Yes. I have only a minute left, but I would 
be curious, how is the next generation responding? Is there an 
interest in banking? Is there an interest in being a loan 
officer? I know we have one particular bank that has a really 
nice program with the local high school with high school 
students, but is there an interest? Are you seeing that across 
the country because it is important for our rural communities 
to be viable going forward for generations to come?
    Ms. Rainey. I take a personal interest in that as a third-
generation community banker, making sure this goes on to the 
next generation, and I think exactly what you are talking 
about. Community banks grow their own, and they do it through 
internships. They do it through engaging with local schools. 
This is where, again, we need more of that and really creating 
that understanding that a career in community banking is about 
giving back and engaging in community is such a wonderful 
story.
    Mr. Stutzman. Yes. My fear is that too much regulation 
drives people apart in the relationship business. We are 
constantly critiquing--the banks critiquing customers. It is 
important, but at the same time, there has to be a win-win for 
everybody involved.
    Thank you for being here. Thank you for your testimony 
today.
    Mr. Fitzgerald. The gentleman yields back.
    I am now going to recognize myself for 5 minutes.
    Thanks to the witnesses for being patient. I know it has 
been a long morning, afternoon.
    I just want to dig a little bit deeper into the CFPB, and 
the question is for Ms. Owen. I know other members have kind of 
talked a little bit about this, this morning.
    Section 1071 rule requires lenders that make a certain 
number of small business loans to collect and report to the 
CFPB a total of--there is 80-plus--81 separate fields--data 
fields--and it all applies, obviously, to the loan. It is a 
gathering of information, right. Seems excessive, which is why 
I am bringing it up. As I understand it, a lender is required 
to comply with this rule if they make at least 100 small 
business loans, arbitrary number.
    Ms. Owen, can you please kind of explain or can you tell us 
any more information about the enormous data collection that is 
happening and what impact that has on small businesses, 
community banks, and the credit unions that serve them?
    Ms. Owen. Absolutely. Thank you very much for your 
question.
    No doubt, trying to collect those 81 data points from a 
customer is going to be very difficult. Often, they come in 
with basic information. We use financial education to help 
educate our small businesses and end up giving them a list of 
items that we need for them to bring back. Now we are going to 
have to add an additional amount of data that they will need to 
collect.
    Often, these customers are very private, so they really do 
not want to disclose some of the information. We have had them 
often tell us, ``It is none of your business.'' When we tell 
them, ``We have to ask these questions,'' they often do not 
like it.
    Mr. Fitzgerald. Yes. Let me interrupt you there because it 
is kind of the next follow up question that I had.
    Because 1071 requires CFPB to publish the data it gets from 
lenders every year, that is kind of what you are referring to 
as kind of this otherwise undisclosed information that small 
business people are uncomfortable with. If you include that 
information, whether the lender denied a small business loan or 
whether or not they are granted it, right, what steps do you 
think the CFPB could be doing to protect that information and 
the privacy that otherwise--small businesses are not really 
offered any guarantee that is going to happen. Is that correct?
    Ms. Owen. Yes. We are very concerned about the release of 
private information into the marketplace and what it can mean 
for those individuals. As I said before, ``it is not going to 
be difficult to determine whether or not someone was approved 
or denied a loan, especially in a small community where there 
are only so many businesses especially of a particular 
industry.'' There are great concerns there.
    Mr. Fitzgerald. Thank you very much.
    To Ms. Rainey, kind of switching topics a little bit. 
Currently, credit unions, whether they are farm credits or 
fintechs, are not considered competitors for the purpose of the 
concentration analysis done under the bank mergers. Congressman 
Barr and I have been working on a number of pieces of 
legislation on that front to make that more streamlined and 
easier.
    Can you discuss how this makes the bank mergers, especially 
in rural markets--kind of creates this artificially 
concentrated area and it is misleading, I think? Would you 
agree?
    Ms. Rainey. It is absolutely misleading because it is not 
painting a picture of the full market. When you look at the 
other financial services providers and if you exclude credit 
unions and farm credit, especially in rural communities, that 
does not tell the picture and it, I think, hampers some of the 
opportunity for some of the smaller banks to merge and work 
together.
    Mr. Fitzgerald. Thank you.
    The last thing I just wanted to touch on, I guess, is, 
again, going back to Ms. Owen. Community bank lending to 
farmers and ranchers is critical. We hear it especially from, 
obviously, a number of members that either have been or have 
some type of history on that issue, whether they are on the 
Financial Services Committee or they may be on other locally 
serving community boards that are focused on farms and 
ranchers.
    Can you tell us again, that Access to Credit for Rural 
Economy Act--it is a bill that we have been working on--how 
this could be implemented and how this could be very important 
to those communities that are kind of watching what Congress is 
doing right now?
    Ms. Owen. Yes. It will lower the cost of financing for our 
farmers and ranchers and agriculture industry, rural 
communities, as well as allow additional access to credit for 
them, which is vitally important. They are in need of this.
    Mr. Fitzgerald. Thank you very much. I yield back.
    I will now recognize the gentleman from Ohio, Mr. Davidson, 
for 5 minutes.
    Mr. Davidson. Thank you and thank you for our witnesses for 
taking time out of your businesses to come share with us and 
hopefully make the market a better, more functional place.
    Ohio is home to many strong community banks and some bigger 
regional banks, and we have a diverse financial services sector 
in our own State. It reflects the potential strength of our 
country's economy. Maybe one of the themes that we will do is 
making America great by making our community banks great again, 
but may be by reprivatizing our economy, because for a while it 
has felt like the Federal regulators have decided that they 
need to weigh in on almost everything.
    I really just, Ms. Marshall, wanted to ask you about State-
regulated banks that choose to do that for a reason, but, of 
course, there always seems to be a Federal nexus. Could you 
kind of highlight for us what that tension has been like 
historically and maybe lately between State regulators and 
Federal regulators?
    Ms. Marshall. Thank you for the question.
    Yes, as a State bank, you are going to have two regulators, 
the State regulator and the Federal regulator of their choice. 
We work very hard at the local level to make that as seamless 
and efficient and effective as possible, but it is that 
direction that is coming from D.C. that is directing perhaps--
or challenging their local offices to manage situations in a 
specific way and overriding what the examiners on the ground 
may feel or think is the appropriate outcome.
    One of the things that I think that could really make a 
difference here is, quite frankly, Congress' support of the 
existing law, which is to ensure that there is a State bank 
regulator that sits on the FDIC board. That is in law and--
someone with State bank regulatory experience. Pardon me. That 
is something that has been absent for quite some time, and I 
think that would help temper this overarching direction that we 
have seen for quite some time. I think that would help ensure 
that there was an equal voice for State and community banks to 
provide this commonsense approach and balance out some of that 
direction.
    Mr. Davidson. Yes. I think we are hopeful that we will get 
somebody with that kind of regulatory experience even at the 
Fed when we look at the Fed's desire to reach into virtually 
everything as well.
    Ms. Owen, when you look at your experience in the market, 
one of the things that you see maybe across sectors is that 
consolidation and concentration generally reduces innovation 
and it almost always reduces competition. How have you seen 
that play out in the market as a community banker?
    Ms. Owen. Yes. We have certainly seen consolidation within 
the State of Arkansas and, frankly, across the country, as you 
have seen with the shrinkage of the number of banks. It hurts 
all of our communities when they lose a financial institution 
that--a successful financial institution is so vital to each 
and every community.
    We are very much in favor of de novo banking and making the 
requirements on capital not so rigorous as well as allowing 
more time for compliance with regulation for these de novo 
banks.
    Mr. Davidson. Yes. I appreciate it. You guys have 
highlighted some great legislation, some of my colleagues have, 
with Congressman Donalds on the Small Bank Holding Company Act, 
Congressman Williams on the 1071 fix, Congressman Barr and 
others on some of the community bank regulations that deal with 
capital leverage ratios.
    I was speaking with a small community banker today. They 
are holding 17 percent. The whole concept of tailoring is out 
the window because they are being pressured. They do not really 
own their own balance sheet. They cannot decide what is on 
their books in their own way, and that is a factor.
    Ms. Rainey, could you talk about that? Have you had some 
observations in the market where it feels like regulators are 
steering lending decisions instead of the banks?
    Ms. Rainey. Yes. Again, I think that is core to all of 
this. Community banks have proven their ability to manage 
risks, to understand their local markets, and let us give them 
the freedom and flexibility to do that.
    Mr. Davidson. Yes. Thank you for that.
    Maybe the last question for you, Mr. Kennedy. Structure 
makes a lot of difference, and one of the, I think, really 
important innovations is the way that you get a return is not 
just leverage. It is also how you can retain some of the 
equity, and a lot of the equity in a lot of business deals goes 
to the IRS. You have the small--the S-corp election for a lot 
of smaller banks. Can you talk about how that is important and 
how that shapes the market?
    Mr. Kennedy. Thank you for the question. It is extremely 
important. As I alluded to earlier, the Federal Reserve study--
excuse me. Yes. The New York Fed studied that legislation that 
allowed banks to have some S elections. It is the reason--the 
principal reason we have as many that we still do, but it is 
extremely important that we give that--extend that----
    Mr. Davidson. I will be fighting to keep that.
    Thank you all for your time, and I yield back.
    Mr. Downing [presiding]. The gentleman yields.
    The gentleman from Iowa, Mr. Nunn, is now recognized for 5 
minutes.
    Mr. Nunn. Thank you, Mr. Chair. I appreciate that.
    As most Iowans know, their local lender allows their 
institution to offer pretty customized services, particularly 
where they live and operate. This could be a farmer, a small 
business owner, just a fellow dad trying to help out.
    Iowa has approached our financial regulatory framework, I 
think, pretty thoughtfully, which is why we still have over 250 
small lenders across our community. Many States five or six 
times our size do not even have that type of diversity in the 
lending system.
    I look forward to reversing some of the damages, Mr. Chair, 
that were done under the Biden-Harris Administration that have 
hindered lenders, restricted our economic growth, and 
disproportionately affected rural communities across our 
country.
    Mr. Chair, I would like to submit for the record the list 
of priorities coming from my Iowa Bankers Association, from the 
Iowa credit unions, and our Iowa community bankers. This lays 
out a very good framework of what is working in a place like 
Iowa and maybe a recommendation on things we should be doing at 
the Federal level.
    Mr. Downing. Without objection.

    [The information referred to can be found in the appendix.]

    Mr. Nunn. Thank you.
    Let us get to work. First and foremost, Section 1071 rule. 
I remain concerned that 1071 forces our small banks to level 
additional burdens on our businesses. In fact, they are 
requiring 81 different data fields. Now, that is a 30 percent 
increase over what is Federally mandated. This is already 
something when we talk about efficiency we can start looking 
at.
    An Iowa bank with just 17 full-time employees wrote to me 
recently and said, we do not have enough manpower on staff to 
address the compliance requirements coming out of 1071. It is 
going to force us to hire another employee. Now, in a small 
community, when you are spending another six-figure investment 
to meet a compliance requirement, that is money that is not 
being spent in that community or helping a local borrower.
    Ms. Owen, I would like to talk with you. How does the 
impact on community institutions to report 133 different data 
fields between 1071 and the beneficial ownership reporting 
requirement impact a local lender?
    Ms. Owen. It would require us--or it will require us to 
invest more in the compliance side of complying with this 
regulation, which absolutely directly affects what we are able 
to invest in the communities not only making loans in the 
community and staffing loan officers to be able to do that, but 
also supporting the local food pantries and financial education 
and many things that we do.
    Mr. Nunn. You hit the nail on the head and thank you for 
highlighting the ripple effect this has across communities.
    It is one of the reasons I am proud, Mr. Chair, to 
cosponsor Chairman Williams' bill to repeal 1071.
    I would like to also speak to tailoring. Now, institutions 
of different sizes and business models are purposefully 
different inherent on where they are. In fact, most Iowa 
lenders have under $7 billion in assets. The Biden 
Administration chose to treat every lending institution the 
same as a multinational bank in New York with $3.9 trillion in 
assets.
    Now, with respect to my friends from New York, across the 
rest of the country, we are talking multibillions of dollars. 
For comparison, 7 billion inches is roughly 110 miles. That is 
enough for me in Des Moines to drive to the birthplace of John 
Wayne in Madison County. It would take that same amount of 
inches--if we were trying to talk about 39 trillion inches from 
my house--the same distance would be to the sun. Put that into 
perspective. This is how we are treating vastly different sums 
of money and regulations on a small bank that is here in 
Madison County versus a big bank which would be the equivalent 
from Des Moines to the center of the universe.
    Ms. Marshall, I would like to ask you, do you think that 
tailoring regulatory caps to account for inflation will 
alleviate some of the immense regulatory burden that is 
crippling banks and lenders right in Iowa?
    Ms. Marshall. I absolutely do.
    Mr. Nunn. I am glad to hear that.
    Ms. Marshall. Mr. Nunn, if I may.
    Mr. Nunn. Yes, ma'am.
    Ms. Marshall. Your previous question about the compliance 
impact on our institutions and our community banks, in addition 
to the cost, what I also find when I talk to bankers is that 
they are having a hard time finding the talent. Quite frankly, 
not so much the willingness but the expertise and sometimes it 
is the willingness of staff that they are going to bring in.
    To an earlier member's question about the next generation 
of bankers, who is going to come into those institutions in 
those rural communities and take on this massive burden? Where 
is that resource going to come from? That is another reason our 
community banks are looking at how we can continue to survive 
when we do not have the resources both financially and 
personnel.
    Mr. Nunn. Ms. Marshall, I could not agree more because what 
I want my local lender to do is to help Main Street buy that 
first combine for a farmer, help a kid get an F-150, not spend 
most of their time trying to understand regulatory compliance 
out of D.C. that is outdated, overbloated, and can be 
rescinded.
    Thank you.
    Ms. Marshall. It is all about economic development.
    Mr. Nunn. Yes, ma'am.
    Mr. Downing. The gentleman's time is up.
    The gentleman from North Carolina, Mr. Moore, is now 
recognized for 5 minutes.
    Mr. Moore. Thank you, Mr. Chairman.
    Today's hearing is about restoring certainty and common 
sense to the way we regulate community banks. In my home State 
of North Carolina, of course, Charlotte is--part of Charlotte 
is in my district. We have a good number of banks and financial 
institutions there. We rely on our local banks to provide small 
business loans, mortgages, and financial services that keep our 
families and our communities thriving. Many of these banks are 
locally owned, deeply invested in their communities, and 
essential to our economy.
    Yet instead of supporting community banks, the Consumer 
Financial Protection Bureau, the CFPB, has been driving up 
costs, increasing red tape, and making it harder for them to 
serve their customers. You all have answered a number of 
questions. I noticed this is a common theme of coming back to 
this same agency.
    By the way, thank you for sitting here for almost 3.5 
hours. That has been a tough assignment, Mr. Chairman, for 
these witnesses. Thank you for doing this.
    I think we are getting a sense that Section 1071 is a 
leading rule that is an example of a big government agenda at 
CFPB. It seems that this rule, from the testimony you provided 
so far to the other questions, is forcing small banks to 
collect, I believe, as referenced, already over 80 different 
data points on every small business loan application, including 
intrusive personal financial information on business owners.
    It is not just a paperwork burden, as you have all already 
spoken to, but it is a mandate that discourages lending to 
small businesses and ultimately reduces access to capital for 
small businesses, particularly in rural communities, as my good 
friend from Iowa was just commenting about.
    The other thing that is very frightening to me in this 
agency is that the CFPB is operating with no accountability. I 
do not know how many Americans are aware of this disastrous 
policy that was passed and the way it was implemented under the 
previous administration, under President Biden. It seems that 
we have a choice that we can either continue down this path of 
bureaucratic red tape that will ultimately lead to economic 
stagnation, or we can institute commonsense reforms that allow 
community banks to lend, to grow, and to support their local 
economies.
    I look forward to working with you all. I look forward to 
working with your peers and my colleagues here on this 
committee and in the House so that we can get this right.
    I do have a couple questions, but I do not want to be 
repetitive of other questions that have been asked. The first 
question would be to Ms. Romero Rainey.
    In the final days--and this has been mentioned earlier--but 
in the very final days of the Biden Administration, Director 
Chopra used his final days to issue a flurry of harmful 
regulations. What I would say is, one, if you had to narrow it 
down to one, two, or three, which would you say are the most 
concerning that you have seen? Two, if not rolled back, how 
would these policies affect small businesses and put American 
banks and businesses at a disadvantage internationally?
    Ms. Rainey. I am not as familiar with what happened in the 
last 24 hours. What I think I would like to speak about is to 
pick up one more piece. As I think about most harmful, I go 
straight to 1071. There is one more piece that we have not 
talked about as much, and it is the ripple effect back to the 
small businesses, as you were alluding to.
    The last thing small businesses need in this country is the 
commoditized approach to small business lending, which is what 
this rule would require. Again, as we have demonstrated in 
multiple aspects, small businesses do not need one-sized 
approach. No two small community banks look alike, no two small 
businesses look alike, nor should their lenders treat them as 
if they were alike.
    Mr. Moore. Yes, ma'am. Thank you.
    Mr. Kennedy, a question for you, sir. The CFPB's scrutiny 
of nontraditional banking services such as the fintech 
partnerships has made it harder, I would argue--and I believe 
there is testimony to this--for banks to innovate and to offer 
modern financial products. Given that, how would you suggest 
that Congress set clear limits on the CFPB's role in regulating 
financial technology? Secondly, how would you define that the 
current uncertainty is affecting the industry?
    Mr. Kennedy. The CFPB has a trickle-down effect on banks 
under $10 billion, of course, and so I think having clear 
guidelines from the agencies that really regulate banks and 
understand banks and the relationship of fintechs is extremely 
important.
    I think we have all got to recognize in the regulatory and 
in the business world, we have to work together. Things move 
very rapidly, and we have to work cooperatively. That is my 
thought.
    Mr. Moore. Thank you, sir.
    I yield back the balance. I give you back the 25 seconds of 
your day today.
    Mr. Downing. The gentleman yields back.
    The gentleman from New York, Mr. Lawler, is now recognized 
for 5 minutes.
    Mr. Lawler. Thank you.
    Like many of my colleagues, I have been alarmed during the 
last administration by a steady stream of partisan rules from 
regulators that failed to be accompanied by substantive cost-
benefit analysis, that lacked in understanding of the 
cumulative effects they would cause, and whose adverse effects 
would be borne by American families and businesses of all 
sizes, including by increased costs and reduced availability of 
credit.
    We should be doing everything we can to ensure businesses 
and entrepreneurs have access to the resources they need to 
thrive and drive an innovative and competitive economy, and we 
need our community banks to be thriving as part of that effort. 
I know the chairman's ``Making Community Banking Great Again'' 
principles include ensuring access to diverse sources of 
funding and capital. With that in mind, I would like to touch 
on brokered deposits.
    Ms. Romero Rainey and Mr. Kennedy, following up on the 
question from my colleague, Mrs. Wagner, to Commissioner 
Marshall, can you discuss some of the ways that community banks 
use brokered deposits to access funding which allows them to 
make more loans to small businesses and families?
    Ms. Rainey. Yes. Brokered deposits have been a significant 
tool for community banks in a few different ways. One is just 
as you think about seasonality in a bank's balance sheet. Maybe 
I am an agricultural (AG) lender and so deposits are going to 
be high in one part of the year and maybe not as much in 
another. In my community bank, we are tourism-driven. Very much 
varies the peaks and valleys in terms of the deposit flow.
    Brokered deposits are a critical source of helping to 
maintain stability in that balance sheet regardless of what 
those local deposits are doing, and so that provides--they are 
contractual, they are safe, they are secure. It is a great tool 
for community banks to use.
    Mr. Lawler. Mr. Kennedy.
    Mr. Kennedy. Thank you. Most of our clients in our own 
community bank do not use brokered deposits, but we importantly 
use deposit networks that allow us to provide Federal deposit 
insurance through reciprocal arrangements. This has been around 
for the last 27 years, and it is an extremely important way for 
us and these community banks to maintain their deposits locally 
for institutions and individuals that have more deposits than 
$250,000, particularly a lot of public entities.
    It is a very valuable tool. Not many people are aware of 
it, but it is a way that--there is no big cost to it. It is not 
the theoretical--and the FDIC has defined that as brokered 
deposits only once you get to a certain limit. There is not a 
lot of logic to that, but it is an important element of this 
whole notion of Federal deposit insurance.
    Ms. Marshall. Mr. Lawler, may I have a moment on brokered 
deposits that have not been addressed today?
    Mr. Lawler. Sure.
    Ms. Marshall. Speaking with my community banks that have 
used them quite successfully for many years, another very 
important part is that they are often the most cost-effective 
source for funding. When net interest margins are squeezed and 
there is an extreme amount of increase on interest expenses 
that are going on to banks' balance sheets. That is another 
reason why they are looking to find all the opportunities to 
have low-cost funding sources to then turn around and lend 
money to the consumers that need it most.
    Mr. Lawler. Thank you for that.
    The 2020 final rule on brokered deposits was preceded by 
significant study and public rulemaking with an advanced notice 
of proposed rulemaking, a notice of proposed rulemaking in 
consideration of 220 comments before finalization. Last year, 
the FDIC issued a proposed rule modifying brokered deposits. 
However, last year's proposal featured incomplete data that did 
not indicate what problem the FDIC saw based on data and 
analysis that would justify a wholesale rescission of its 2020 
rule.
    It was alarming to me and many of my colleagues that this 
proposal appears it would have had a unique and negative impact 
on community banks. By widening the scope of deposits 
classified as brokered, last year's proposed rule would have 
increased the deposit insurance fund assessments banks must pay 
to the FDIC. Such costs would have been borne out by customers 
in the form of higher fees, higher interest charged on loans, 
and lower interest paid on deposits.
    Can any of you speak to that in the brief time that I have 
left?
    Ms. Rainey. I would just say to your point, the rule was 
made with incomplete and very dated data in terms of the basis 
for it, so flawed.
    Mr. Lawler. I appreciate it. Thank you.
    I yield back.
    Mr. Downing. The gentleman yields.
    The gentleman from New York, Mr. Garbarino, is now 
recognized for 5 minutes.
    Mr. Garbarino. Thank you, Chairman.
    Thank you to the witnesses, for all being here today.
    Originally set up to be an objective assessment of 
financial institution safety, soundness, and overall health, 
CAMELS has turned into an opaque process marred with 
inconsistency and subjectivity. The management rating is 
uniquely subjective as it is not based on any empirical 
standard.
    Initially, the management rating flowed from other ratings 
since it was a logical train of thought that if your bank has 
satisfactory capital assets and earnings, then it was safe to 
presume the bank was well managed. However, today, it appears 
examiners have delinked the management rating causing banks to 
potentially receive an unsatisfactory rating simply because 
they did not manage their operations or conduct their 
businesses how the examiner mandated.
    As a result of a poor rating, a bank could face limits on 
acquisitions of potentially higher deposit insurance premiums 
for multiple years with no way to appeal the examiner's 
decision.
    Mr. Kennedy, can you describe how the management rating has 
been misused over the years?
    Mr. Kennedy. It is a difficult question because there is a 
lot of confidential information involved in that, but I think 
it is just a subjective--that is the unfortunate thing about 
CAMELS. Each one of those ratings in CAMELS are very 
subjective, and I have seen them in my 45 years of practicing 
law and representing banks all over the country, widely 
divergent in terms of those decisions.
    Mr. Garbarino. Does the examiner--when a bank gets a low 
rating, does the examiner provide a detailed reason for the 
rating, or is there a mechanism for a bank to challenge that 
rating?
    Mr. Kennedy. There is, but it is not effective.
    Mr. Garbarino. How would you make it effective?
    Mr. Kennedy. I think I would make it more open, and have an 
independent agency as suggested, I think, by the chairman.
    Mr. Garbarino. You can challenge the rating, but it should 
be more open and you would use an independent----
    Mr. Kennedy. Yes, sir.
    Mr. Garbarino [continuing]. takes you using an independent 
agency?
    Mr. Kennedy. Yes, sir.
    Mr. Garbarino. Thank you very much.
    Mergers present banks of varying sizes, from community to 
regional banks, with the opportunity to grow and benefit from 
economies of scale. They also promote competition and generate 
cost savings that can be then passed on to customers and 
consumers.
    As the number of de novo bank formations decreases; bank 
mergers have effectively become the only avenue for increasing 
competition. Unfortunately, under the Biden-Harris 
Administration, bank merger evaluations became more stringent, 
making mergers more difficult to complete. Rather than making 
the bank merger evaluation more subjective, costly, or time-
consuming, regulators should seek to provide clarity through 
objective metrics to evaluate potential mergers. Further, clear 
expectations and timelessness for merger approvals allow banks 
to make informed decisions on how to grow and meet the needs of 
their customers.
    Ms. Owen, can you explain how inconsistent timelines can 
impact decisions to merge?
    Ms. Owen. Absolutely. It impacts so much more than people 
initially think of. It is not only a matter of putting the two 
banks together; it affects people's lives. There are jobs 
involved with mergers. There are the communities and decisions 
made of whether or not branches are going to remain open or 
whether or not they need to be closed, where operation centers 
are going to be located. It goes on and on and on.
    There is a multitude of decisions and things that come out 
of or are part of a merger, not just what people initially 
think of the combining of two financial institutions.
    Mr. Garbarino. Do you have any recommendations on how we 
could fix what the Biden-Harris Administration did over the 
last 4 years when it comes to mergers?
    Ms. Owen. I am very much in favor of what Chairman Hill has 
proposed with a timeframe for completing the mergers unless 
there is reason not to do so.
    Mr. Garbarino. Thank you very much for that answer.
    S. 2155 directed potential regulators to create a 
simplified capital framework for community banks known as a 
Community Bank Leverage Ratio (CBLR). As a result, a final rule 
was approved to allow community banks with a leverage capital 
ratio of at least 9 percent to be considered in compliance with 
Basel III capital requirements and exempt from the complex 
Basel calculation. The intent behind this section was to 
simplify the capital regime for community banks, ensure they 
maintain enough capital to weather a downturn.
    Ms. Romero Rainey, at the time of this rulemaking and even 
today, would you say that the majority of qualifying community 
banks that have at least 8 percent CBLR already meet the well-
capitalized, risk-based capital ratios?
    Ms. Rainey. Yes.
    Mr. Garbarino. Can you please describe the benefits that 
community banks saw from lowering the CBLR to 8 percent?
    Ms. Rainey. Again, part of this was to allow for additional 
flexibility and whether it is the definition of well-
capitalized or they are looking to pursue other opportunities.
    Mr. Garbarino. That is a great answer, and I appreciate it.
    I am running out of time, so I will yield back. Thank you.
    Mr. Downing. The gentleman yields.
    I now recognize myself for 5 minutes.
    Thank you all again for being here. I know it has been a 
long day.
    In 2008, there were 64 State-chartered banks in Montana. 
Now, today, there are only 36, almost half. The situation 
nationwide is not much better. The vast majority of these banks 
that left the business were small community banks with crushing 
regulations being the primary factor.
    Now, as we have covered throughout this hearing, there are 
many challenges that prevent new banks from forming or lead to 
mergers or closures of existing banks. That is particularly 
devastating for rural communities like Montana's Second 
District, which I proudly represent.
    Montana is a heavy producer of cattle, of wheat. It is the 
number 1 producer of lentils in the United States. Montana 
banks support over 24,000 small farm loans across the State. 
Now, these are the family farms that put food on our tables and 
clothes on our backs. The biggest obstacle community banks face 
from examiners is not safety and soundness but the Bank Secrecy 
Act and the Anti-Money Laundering laws.
    These laws have a role in preventing fraud but are now far 
past the point of common sense. One bank in Montana with about 
$800 million in assets has six full-time employees doing 
compliance, roughly half of which is just spent on the BSA and 
the AML.
    My first question, Ms. Owen or Mr. Kennedy, can you--either 
one of you--talk about the difficulties community banks face 
with our outdated BSA and AML laws?
    Ms. Owen. I will start. We have four BSA officers, and I am 
just under $500 million in size. We do a lot of reporting, as 
was mentioned earlier, on transactions of $10,000 or more. We 
never get any feedback back from FinCEN.
    Mr. Downing. Do these regulations make opening new accounts 
for customers difficult as well?
    Ms. Owen. Absolutely. It takes a lot more time. You cannot 
come in and quickly open an account. You might as well plan to 
be there for a while.
    Mr. Downing. Thank you.
    Ms. Romero Rainey, what should Congress do to fix this?
    Ms. Rainey. First, we need to start with the thresholds. As 
we have discussed here today, the CTR thresholds that Ms. Owen 
just referenced were created in the `70s and have not been 
revisited or indexed since then. I think there is a really easy 
and simple fix, if there is such a thing, but that is a great 
place to start.
    Mr. Downing. Right. Thank you for these responses. It is 
clear that lawmakers and regulators need to do much more to 
ease the burden on our small banks. No one is hurt more by bank 
closures than the communities they serve.
    I yield back. Thank you.
    Now I will--the gentleman from Florida, Mr. Haridopolos, is 
recognized for 5 minutes.
    Mr. Haridopolos. Thank you, Mr. Chairman.
    First, I want to applaud you for your endurance. Great job 
today. I am your last person. I guess they are saving the best 
for last.
    With that in mind, I first have to say this, when I was 
running for Congress, I had some concerns about the CFPB. Now 
that I have actually been under the hood for the last few 
weeks, I have even larger concerns. We are so grateful for your 
willingness to testify today and give an honest appraisal of 
how it hits the real world, and we are so grateful for this 
testimony. I will try to be brief.
    The first question will be for Mr. Kennedy, if you do not 
mind. Can you discuss putting a kind of shot clock on bank 
mergers and how that could provide clarity for institutions and 
help prevent long and drawn-out mergers that drain resources?
    Mr. Kennedy. Absolutely. There is no such shot clock, as 
you say. They can continue to ask questions and more questions, 
and I have seen it go on for years. The cost on the uncertainty 
is just not workable.
    That same shot clock ought to be applied to really every 
application, including de novos, because a de novo--that is one 
of the big burdens with de novos. It is not only capital, but 
the process of those applications needs to be accelerated.
    Mr. Haridopolos. Thank you.
    Ms. Romero Rainey, if I could, the CFPB recently finalized 
an overdraft rule that I am concerned about because, again, it 
is overly complex and can really limit or eliminate consumer 
access to funds that can help cover emergency expenses. Would 
you discuss some of the problems that you faced or potentially 
face with that rule?
    Ms. Rainey. Yes. To your point, it is about limiting 
options. While in the rule, in all fairness, community banks 
under $10 billion were exempt from the rule, there are two 
pieces that were--we have talked about today, trickle down and 
what that means in terms of how this will be applied to 
community banks, as well as specifics within the rule that say 
that could be revisited over time.
    At the end of the day, this is about ensuring that 
consumers have access to products and services and, in these 
cases, very well-disclosed services that they have chosen to 
pay a fee for.
    Mr. Haridopolos. Mr. Chairman, with that, it has been a 
long day. I want to yield back my time so these folks can get 
on to the day but thank you very much for making the time for 
us. It has been very helpful, especially as a new Member of the 
Congress. Thank you.
    Chairman Hill [presiding]. The gentleman is modeling good 
behavior. He yields back. That is appreciated by our witnesses.
    I want to thank all of our witnesses for your outstanding 
testimony today. Thanks for presenting your views to the 
committee. It will help us in our work.
    Without objection, all members will have 5 legislative days 
to submit additional written questions to the witnesses to the 
chair, and we will forward those to you for your response. I 
ask our witnesses to respond no later than March 31, 2025, to 
those written questions.

    [The information referred to can be found in the appendix.]

    This hearing is adjourned. Thanks.

    [Whereupon, at 2:01 p.m., the committee was adjourned.]

                                APPENDIX

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