"Chairwoman Waters, Ranking Member McHenry, and members of the Committee, thank you for the opportunity to testify today before the
The Financial Needs of Communities
"Our nation's banks are the center of economic activity in their communities. The ability of these banks to provide safe and secure financial products and services to their customers forms the backbone of a strong national economy. The
"For these reasons, I have focused much of my efforts at the
"Based on the feedback from our banks and the communities they serve, I have challenged the
* Promote and preserve the nation's Minority Depository Institutions (MDIs);
* Encourage community banking, including the establishment of de novo banks in communities of all sizes;
* Provide clarity and consistency to financial institutions on their obligations under the Community Reinvestment Act (CRA); and
* Ensure that banks can help low- and moderate-income households - who are often unbanked or underbanked - meet their financial needs safely when confronted with a crisis.
Minority Depository Institutions
"Many of the institutions overseen by the
* In 2018, we appointed a full-time, permanent executive to manage our MDI programs across the
* In June of this year, we will host the first of several roundtables between MDIs and other
* In June, the
* We continue to provide technical assistance to groups seeking to organize new MDIs, and to existing MDIs to support their efforts to acquire failing institutions (including three regional roundtables and two webinars over the last few months, an additional webinar in the future, and a workshop at our June MDI and CDFI conference).
* This fall, we will establish a new MDI subcommittee on the CBAC to both highlight the MDIs' efforts in their communities and to provide a platform for MDIs to exchange best practices.
"Beyond these outreach efforts, the
Streamlining the De Novo Application Process
"Banks - particularly community banks - are the economic heartbeat of communities of all sizes across
"While very few new banks opened in the years following the crisis, the
"Last year, the
"As these efforts proceed, our focus should include: clarifying what activities qualify for CRA consideration; reviewing how we assess lending - including digital lending - by banks outside of their main offices and branches; and ensuring that CRA investments target those most in need in a bank's community.
"According to a recent study by the FRB, nearly four in 10 households cannot cover a
"To solicit feedback on these products and consumer needs, the
"Last year, the
"Regulatory Efforts to Strengthen the Financial System The
"For the most complex firms (the Global Systemically Important Banks, or G-SIBs), the
Appropriately Tailoring Regulatory Efforts
"Given the difference in size and complexity at our nation's financial institutions and the continued evolution of the financial services industry and our economy as a whole, it is vital that the
"Consistent with the statutory mandates in EGRRCPA, the
* An interagency proposal to incorporate exemptions from appraisal requirements for certain rural transactions (Section 103); - A final rule to except a limited amount of reciprocal brokered deposits from being reported in Reports of Condition (Section 202); - An interagency proposal to allow reduced reporting requirements in the first and third calendar quarters for certain institutions (Section 205);
* An interagency interim final rule to treat certain municipal obligations as high-quality liquid assets for purposes of calculating the liquidity coverage ratio (Section 403);
* Two interagency proposals to tailor capital and liquidity requirements according to risk-based categories, one for domestic and one for foreign banking organizations with total consolidated assets of
* An interagency proposal to amend the supplemental leverage ratio for custodial banking organizations (Section 402); and - An interagency proposal to revise the definition of a high-volatility commercial real estate exposure (Section 214).
"Having observed several years of Volcker Rule compliance by
"To address some of these concerns,
"Notwithstanding the proposed changes in EGRRCPA, the five agencies issued a separate, additional proposal, broadly referred to as Volcker 2.0. This proposal sought to simplify the rule and reduce the amount of subjectivity in its implementation. Benefitting from a review of 151 comment letters, we are working with our partner agencies toward revisions to the Volcker Rule to provide more clarity, certainty, and objectivity to market participants.
Brokered Deposits Advance Notice of Proposed Rulemaking
Community Bank Leverage Ratio
"Efforts to comply with Basel III capital standards have imposed substantial compliance costs on community banks. In fact, at the time of the
"In the meantime, Section 201 of EGRRCPA directed the
"Under the proposed CBLR rule, a qualifying bank with less than
"We estimate that over 80 percent of community banks would be eligible for the proposed CBLR based on the proposed calibration and qualifying criteria. This was a key priority in designing the proposal - to ensure that the simple ratio would be available broadly and without too many complex restrictions.
"A key burden reducing aspect of the proposal is that the CBLR would require a single page of regulatory reporting, a substantial reduction from the 15 pages currently required.
"Since the agencies issued the CBLR proposal, we received numerous helpful comments and are carefully reviewing each of them. For example, we have heard feedback on the CBLR levels proposed as proxies under the Prompt Corrective Action (PCA) framework. These proxies were included in the proposal as an option for institutions that fall below the CBLR to allow them to continue to use the framework. Reverting to Basel III based capital calculations at a time when they should be focused on addressing their declining capital position could be resource intensive and counterproductive for a small bank. We recognize that this has caused some concern and are considering how best to proceed with this feature of the proposal based upon the comments.
"Section 401(a) of EGRRCPA raised the minimum consolidated asset threshold for financial company-run stress tests from
"The agencies are also considering amendments to the 2012 Stress Testing Guidance that would provide for further tailoring of supervisory expectations. In particular, the agencies are considering raising the asset threshold in the 2012 Stress Testing Guidance to
"Since the resolution planning requirements took effect in 2012, large firms have improved their resolution strategies and governance, refined their estimates of liquidity and capital needs in resolution, and simplified their legal structures. For example, the
"In addition to the bankruptcy planning requirements for the largest
"Based on experience implementing both rules, the
The Role of Guidance
"As a supervisor, our rules and expectations should be clear to those we supervise. A key aspect of effective supervision is providing a level of certainty surrounding compliance with applicable laws and regulations.
"Related to this concept, much has been said about the role of guidance in our regulatory and supervisory framework. Under the Administrative Procedures Act, a rule is defined, in part, as "an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy."8
"Separately, there is supervisory guidance. Supervisory guidance can be a helpful tool to provide clarity to our regulated institutions and to
"In September, the
Supervisory Efforts to Ensure Safety, Soundness, and Consumer Protection
"As noted, the
"Supported by our supervision efforts and a strong economy, our nation's banks are stronger than ever. Over the last ten years, we have replenished the DIF to
"Our efforts to investigate bank failures and identify possible violations of law and regulation help hold banks accountable, as well as their officers, directors, and other employees or contractors. During 2018 alone, the
"Our supervision efforts also help to identify and mitigate risks to the financial system, working both independently and in partnership with our fellow regulators. The
"With respect to direct exposure to leveraged loans, banks generally hold the revolving portion of leveraged transactions, which tends to be less risky than the portion held by institutional investors. Nonetheless, risks could flow back into banks through pipeline risk, indirect exposure through financing to non-bank lenders, and investment in collateralized loan obligations (CLOs). In addition, a significant rise in leveraged loan defaults could have broader economic impacts that affect both bank and non-bank sponsors of leveraged loans, and is something the
"The site also contains guidelines and decisions related to appeals of material supervisory determinations and deposit insurance assessments, as well as policies and procedures for how we conduct our work. Additionally, we made publicly available information on how our case managers and examiners implement the risk-focused supervision program. The
"Bank Secrecy Act and Anti-Money Laundering (BSA/AML) laws and regulations are a vital component of
"Considering these costs, we continue to encourage the
"In addition to these communication and outreach efforts, the
"Since I arrived at the
Reducing Community Bank Examination Burden
"The compliance officer at many of our community banks wears many hats, and may also be the Chief Financial Officer, a loan officer, and a teller. If we can make compliance at our nation's community banks less complex, while maintaining safety and soundness and consumer protections, we can help banks focus resources on the business of banking their communities, not dealing with bureaucracies. As an example, the
"We have also incorporated additional risk-focusing and leveraged technology in our examinations to reduce the amount of time we are on-site at an institution without sacrificing the quality of our examinations. Risk-focusing allows our examiners to review information from an institution before an examination begins; to gain a better understanding of the institution's business model, complexity, and risk profile; and to focus resources during an exam on areas that present the most risk to the institution or its customers. Technology has allowed our examiners to perform some examination activities at the local field office instead of on-site at the institution, and we are focusing on additional opportunities to take advantage of technology in the examination process.
"In 2018, risk-focusing and leveraging technology for consumer compliance exams allowed the
"While some banks have spent substantial sums on new technology and others have partnered with fintechs to expand their products and services, many banks - especially smaller banks - have been reluctant or simply unable to invest. We have already engaged with banks to understand how they are innovating and to promote technological development at community banks with limited funding for research and development. We are also looking at policy changes that may be needed to encourage innovation, while maintaining safe and secure financial services and institutions. Rather than play "catch up" with technological advances, the
"As the financial services industry changes, the
"Over the last year, we have made significant investments in new technology within the
"We have also established a Supervision Modernization Subcommittee for the CBAC. This subcommittee - composed of banks, technologists, legal experts, former regulators, and distance learning leaders - will make recommendations to the CBAC for improving our supervision activities. These recommendations will support new investments in technology and improvements in our supervision processes, including how we hire, train, and deploy our workforce.
Maintaining a Diverse Workforce
"As I explained to the
"Most of my professional life has been focused on the financial services industry. Before my tenure at the
"Thank you for the opportunity to testify today, and I look forward to your questions."
* * *
1 Federal Reserve Board Report on the Economic Well-Being of
2 The three prudential banking agencies have each taken a separate approach to small-dollar lending at the institutions they regulate. See FDIC FIL-50-2007, Affordable Small-Dollar Loan Guidelines (
3 As of
4 The agencies responsible for implementation of the Volcker Rule include the
5 See OCC and the FRB Regulatory Capital Rules:
6 See FDIC Notice of Proposed Rulemaking Simplifications to the Capital Rule Pursuant to the Economic Growth and Regulatory Paperwork Reduction Act of 1996, FIL-45-2017 (
7 See OCC, FRB, and the FDIC Notice of Proposed Rulemaking, Regulatory Capital Rule: Capital Simplification for Qualifying Community Banking Organizations, 84 FR 3062 (
8 5 U.S.C. *551(4).
9 As of
10 12 USC Sections 1820(b)(3) and 1818(t).
11 As of
12 The aggregate amount of the settlement was
13 FDIC Transparency & Accountability (