Transcripts For CSPAN2 Senate Banking Hearing On Oversight Of Financial Regulators 20240713

From the honorable randal quarles, Federal Reserve vice chairman for supervision; the honorable jelena mcwilliams, chairman of the fdic; and the honorable rodney hood, chairman of the ncua. Welcome to all of you. This hearing provides the committee an opportunity to examine the current state of and recent activities related to the regulatory and supervisory activities of these agencies. It has been over a year now since the enactment of s. 2155, the Economic Growth, regulatory relief and Consumer Protection act, and the work of the agencies to implement most of the laws provisions, including the tailoring rules for u. S. Banks and u. S. Operations of foreign banks. Your agencies should also carefully review the existing supervisory frameworks and make any necessary adjustments to appropriately align them with the tailoring rules and requirements. On july 30, 2019, all of the Republican Banking Committee members and i sent a letter to the federal banking regulators urging your agencies to finalize several outstanding provisions of s. 2155, such as the Community Bank leverage ratio and shortform call reports, and to further tailor regulations to promote Economic Growth, including addressing the current expected credit losses accounting standard, the volcker rule, interaffiliate margin and madden. Thank you for acting on many of these priorities. I encourage you to continue exploring additional opportunities to tailor rules. In that july letter, as well as an october 2018 letter to your agencies, several Banking Committee republicans and i urged your agencies to revise the volcker rule, including using your discretion granted by congress to address the current covered funds overlybroad definition. Although your agencies joined the sec and cftc to issue a proposal revising several aspects of the volcker rule, the covered funds provision was left relatively untouched. I encourage your agencies to take quick action to address the covered funds issue by revising the definitions overlybroad application to venture capital, other longterm investments and loan creation. Separately, in september, shortterm borrowing rates spiked as a result of a large Corporate Tax payment coming due, and 300 billion in treasuries hitting the market, even in light of Banks Holding a surplus of cash at the fed, currently around 1. 4 trillion. In light of these events, banks could have stepped in to alleviate the volatility in those markets by lending some of the excess cash that they hold at the fed. So why did they not do that . Some have suggested that certain aspects of the feds supervision and regulations imposed after the 2008 financial crisis may have exacerbated this problem, specifically the treatment of cash versus treasuries. Although the fed has taken some steps to address the issue in the shortterm by buying treasuries and lending funds, it is important that the fed review the details of its current regulatory and supervisory regime for potential longterm fixes. Now quickly turning to guidance, senators tillis, perdue, rounds, cramer and i wrote to gao in february asking for its legal opinion as to whether three Federal Reserve supervision and regulation letters constitute a rule under the congressional review act. In its october response, gao concluded that two of the letters, including one providing a new supervision framework for large Financial Institutions and another related to recovery planning, are rules under the cra, and are required to be submitted to congress for review. During the Banking Committees april hearing on this very issue, i urged your agencies to follow the cra and submit all rules to congress, even if they have not gone through a formal noticeandcomment rulemaking to continue providing more clarity about the applicability of guidance. I encourage the federal banking regulators to take a more deliberate approach going forward, and take any necessary steps to rectify informal guidance that has not been submitted to congress. In january 2019, the ncua announced the portion of regulations that would be reviewed as a part of the process through which the agency reexamines all of its existing regulations every three years. The Comment Period for that review process has since closed, and i look forward to learning more about the regulatory recommendations provided to the ncua and its roadmap for actions going forward. Finally, the Banking Committee has been exploring Digital Currencies over the last few congresses, especially in light of the recent development of the libra Digital Currency, started by facebook. In july, i asked Federal Reserve chairman powell about his understanding of and the feds role in the project. Although chairman powell noted that the fed has set up a working group to focus on libra and is in contact with the other regulatory agencies, he also said that there is not any one agency that can stand up and have oversight over this. Given its scope, regulators across the globe continue to evaluate libra, its potential impact in the marketplace, and consider appropriate and necessary regulatory responses. It seems that Digital Currencies are inevitable, and the u. S. Needs to lead by providing clear rules of the road. During this hearing, i look forward to learning more about the status of addressing the overlybroad covered funds definitions in the volcker rule, especially with respect to long term investments; how the agencies are thinking through the recent turmoil in the repo market, and what adjustments may be appropriate for a longterm fix; whether the supervisory framework that applies to banks currently needs to be updated to better reflect changes made in the tailoring rules; and how the agencies are thinking about the libra project, including what u. S. Regulatory framework merits consideration to balance innovation and protect its users and privacy. I thank each of you for your willingness to join the committee today to discuss your agencies regulatory and supervisory activities, and these important issues. Senator brown. Thank you, mr. Chairman. Welcome to the three regulators here. I want to start by noting that typically when we have the financial regulators testify, the comptroller of the currency is also here. Mr. Otting had a conflict today. He is expected to announce changes to the Community Reinvestment act shortly, changes that the Civil Rights Community and others are very concerned about. I share those concerns, and i expect that we will have him up before this committee to talk about this proposal and other activities at the occ soon. Thanks. We all saw how wall streets financial schemes hurt regular people when they blow up in bankers faces, like they did in 2008. You all saw the devastation of the crisis. Whether as a staffer in the senate, while serving at the agency you now lead, or at a private equity firm after a stint at treasury, you had a front row seat. You can argue about or discuss responsibility. We can talk about that later. Thats why im concerned about the collective amnesia you all appear to have as you make changes to the bank rules, changes that allow wall street to get back to its old tricks, and that i fear will cost americans their jobs, homes, and savings the next time complicated bets blow up in bankers faces. But what is sometimes harder to see are the schemes that hurt families and the economy even when they work exactly how wall street intends. My state is the setting of one of those wall street schemes. Twelve years ago, just before the financial crisis, a giant private equity firm bought a Nursing Home Company based in toledo that operated facilities nationwide. Soon that Nursing Home Company was being strangled by debt from risky leveraged loans. It laid off hundreds of staff and let its patients suffer under negligent, horrifying conditions. According to the washington post, staffing cuts meant there werent enough nurses to respond to patients. Health Code Violations rose dramatically. In pennsylvania, a patient broke her hip and crashed to the floor when a staffer tried to do a twoperson job and move her on his own. Patients faced other Living Conditions that no human should have to endure, waiting in soiled clothing and dirty beds for help that was never going to come. And all the while, that wall street private equity firm was extracting more profits. Last year, the Nursing Home Company went bankrupt. But that didnt stop the private equity firm from making huge profits on their investment. This is what happens when leveraged loans, collateralized loan obligations, and leveraged buyouts work as designed. Wall street extracts all the profits out of the company, and the rest of us, workers, patients, our families, we pay for it. Today wall street is looking for profits anywhere it can find them, and these schemes squeeze money out of every part of the economy, not only healthcare. It may be from a hospital in philadelphia or ohio but is also manufactured Home Communities in iowa and ive seen where private equities commit and raised the rent 50 and people are captive having to live there and much higher rent that they didnt expect so manufactured Home Community in New Hampshire not just harming individual families but entire communities. Imagine how bad it will be if these complex Financial Transactions blow up like the subprime mortgage ones did in 2008. This is just one of so many challenges working families are facing. We got a report this week showing that almost half of all American Workers are stuck in low wage jobs. One in four families spend more than half of their income on rent and utilities. I know people seeing about this economy but think about this tenure economy where growth has declined a a bit in the last couple of years but think about that, almost half of American Workers are stuck in lowwage jobs. One in four families spend more than half of their income on rent and utilities. If one thing goes bad in their lives, they lose their home. Forty percent of americans are so short on cash they would be forced to borrow money to cover a 400 expense. Those of the people the three he worked for. You dont work for this president. You dont work for wall street or the banks. You worked in part for the half population that cant come up with 40 of the population that cant come up with 400. More and more families have to borrow just to get by, credit card debt, student loan debt, and mortgage debt, are all higher than before the crisis. Wall street squeezes more out of every paycheck, adding to their billions. If regular americans are struggling ten years into a socalled recovery when the stock market is booming, what will happen in a recession . This cant be how the Financial System should work. The regulators job isnt to protect profits for big banks and big corporations. Its to protect our economy and our Financial System, and the ordinary families that the system is supposed to serve. I guess when the president says draining the swamp, he really means betraying workers and giving wall street free rein to prey on them and wring every last cent out of profit of our communities. This president uses his phony populism, racism, antisemitism, antiimmigrant slander, to divide us, to distract from all the ways he and his handpicked cronies have betrayed working families and left them struggling. Thats not how a democracy should function, and i am deeply worried that if you dont stand up for workers and families, so much in our economy and our democracy is at risk. Thank you, mr. Chairman. Thank you. We will now turn to our witnesses. Ask you give remarks in the order i introduced you. We will turn you first, mr. Quarles. Thank you very much, chairman crapo, Ranking Member brown, members of the committee. Thank you for the opportunity to appear today. My colleagues and i join you on the cusp of a significant and shared milestone, which is the full and faithful implementation of Congress Efforts to improve Financial Regulation in the form of the Economic Growth regulatory relief and Consumer Protection act. Today i will briefly review the steps weve taken towards this milestone, share information on the state of the Banking System and discuss the continuing need to ensure our regular framework is both coherent and effective. The act was an effort to consolidate a of work on financial reform. And a specific target response to the conditions facing todays banking organizations and their customers. It was also rooted however in longstanding congressional proxy of reviewing the work done in the immediate aftermath of the crisis, of addressing any gaps, and of ensuring the public and private resources go towards the best and most efficient use. The latest supervision and regulation report delivered in connection with my testimony today confirms that we have stable, healthy and resilient Banking Sector with robust capital in liquidity positions, stabled on performance and strong loan growth, steady improvements in safety and soundness, and several areas of continued supervisory focus including operational resiliency and cyber related risks. The Banking System is substantially better prepared to manage unexpected shocks today that was before the financial crisis. And now when the waters are relatively calm is the right time to examine the efficiency and effectiveness of our protection against future storms. With last years reform Legislation Congress made a significant down payment on the task and less than 18 months after the passage, weve implemented all of its major provisions. Earlier this year we completed a cornerstone of the legislation tapering on rules for regional banks, and building on our existing work that firms with greater risk should be, meet higher standard and have more screwed up. We relied heavily on a firms total asset and proxy for those risks, and for the cost of the Financial System would incur if the firm failed. This simple asset proxy was clear and critical, rough and ready. It was neither risk sensitive nor complete. Our new rules and put a broader set of indicators to assess the need for greater supervisory scrutiny and maintain the most stringent requirements strictest oversight for the largest and most complex firms. We and our interagency codes have worked on a range of measures to address the issues facing Smaller Banks with particular attention to the Committee Bank business model. And our goal through this intense regulatory activity has been to faithful intimate congresses instructions but those instructions also speak to a broader need in one central ongoing work which to ensure the obligatory regime is that only simple and efficient and transparent, but also coherent and effective. Financial regulation like any area of policy is a product of history. Each component dates from a particular time and place and it was designed, debated and acted to address a particular set of needs. No rule can ever be truly evergreen. Gaps in areas for improvement will always reveal themselves over time. Our responsibilities to address those gaps without creating new ones, to understand fully the interaction among regulations, to reduce complexity where that is possible and to ensure our and i will book supports the safety, stability and strength of the Financial System. My colleagues and by paying to a smooth transition away from libor and other legacy benchmark rates come to sensible treatment of new Financial Products and technologies, and to clear consistent supervisory communication which reflects and reinforces our regulations and laws. My written testimony and the accompanying supervision regulatory report covers each of these areas in greater detail and i appreciate the opportunity to discuss them with you today. Thank you and i look forward to answering your questions. Thank you very much. Chairman mcwilliams. Chairman crapo, Ranking Member brown, members of the committee, and fellow staff, thank you for the opportunity to testify today. 18 months ago i began serving as the 21st chairman of the fdic. During this time the fdic has undertaken a great amount of work with a particular emphasis on three overarching goals. Strengthening the Banking System as a continues to evolve, ensuring that fdic supervised institutions can meet the needs of consumers and businesses, and fostering Technology Come solutions, and encouraging innovation at Community Banks and the fdic. The fdic has made significant progress in each of these areas and i appreciate the opportunity to share our progress with this committee. Before discussing the fdic is work to strengthen the Banking System i would like to begin by providing context regarding the current state of the industry. The u. S. Banking industry has enjoyed an extended positive Economic Growth. July this expansion became the longest on record in the United States. By nearly every metric the Banking Industry is strong and well positioned to continue supporting the United States economy. While the state of the Banking System remained strong, the fdic is content to monitor changes in industry worked to further strengthen the Banking System by modernizing our approach to supervision including outdated regulations and increasing transparency, enhancing resolution prepared this, assessing new and emerging risks, and creating the workforce of the future. My written statement details the many actions the fdic has taken in each of these areas. While these efforts are steps towards a stronger Banking System, there are certain areas in which the needs of consumers and businesses must be addressed by more comprehensive reforms. We have been working diligently to update all regulations governing broker deposits which were put in place over 30 years ago. In addition were working with our fellow regular to modernize the Community Reinvestment act to provide clarity for banks seeking to offer loans that meet consumer small dollar credit needs. Finally perhaps no issues more important or more central to the future of banking and, frankly, the president then innovation. Technology is transforming the business of banking both in the way consumers interact with her banks in the way banks do business. Regulars cannot play catchup but must be proactive engaging with stakeholders including banks, consumer groups, trade associations and Technology Companies to understand and help foster the safe adoption of technology across the Banking System, especially at Community Banks. Since 1933 the fdic has played a vital role in maintaining stability in Public Confidence in the nations Financial System. This Mission Remains as critical day as it was 86 years ago but if were to achieve our mission in in a modern financial environment the agency cannot be stagnant. Last you a begin a 50 state listing tool to engage with state regulars, fdic rager institution, consumers and other stakeholders. At the outset of this effort i emphasized the need to reverse the trend for having those affected by our regulations come to washington to have their voices heard. But instead to meet them on their home turf. I am now more than halfway through the listening tour which is been incredibly informative and has underscored the importance of seeking prospectus outside of the washington beltway. I look for to visiting the remaining states and putting more about the issues that matter most to consumers in communities across the nation. Thank you again for the opportunity to testify today and i look forward to your questions. Thank you. Mr. Hood. Chairman crapo, Ranking Member brown, and members of the committee, as the 11th chairman of the National Credit union administration, i am honored to appear before you this morning and thank you for the invitation. Ive written a very detailed statement that you all have for the record but in my brief moment to speak with you this morning from opening, i would like to talk about three areas where think with mutual interest what is the current state of the Credit Union System, secondly i want to talk about efforts to foster greater Financial Inclusion within third i would like to talk about cybersecurity. Ladies and gentlemen, strong Growth Trends and federal insured credit engines are continuing in 2019, roughly 119 million members work hard of americas great incest today. That accounts for roughly onethird of america being a part of a credit union. Credit union assets approximate 1. I 4 trillion through the ed of the Third Quarter of 2019. Credit unions have also recorded a very strong aggregate net worth ratio of 11. 39 . Roughly 400 basis points above the 7 7 statutory requiremen. The Credit Union Share Insurance Fund is also healthy at this time worth roughly assets of 16. 7 billion, well above the 10 billion level the fund was at just over a decade ago. Also impose a very Strong Equity ratio. Overall yeartodate operating results evidence a very healthy and solid federal Credit Union System. Now i would like to talk about ncua efforts to foster greater Financial Inclusion. I deeply believe Financial Inclusion is indeed the civil rights issue of our time. Inclusion means not only broader access to Financial Services but also to employment and business opportunities. We at ncua have Just Launched the Second Chance initiative where our voters just recently for nonviolent criminal offenders to Employment Opportunity with Credit Unions. This creates opportunities for these individuals who are declined that the client economic ladder and have greater inclusion and shared prosperity. I agree with you, senator brown, it is troubling to read and a recent Federal Reserve survey that nearly 40 of american households cannot afford to pay for a 400 emergency. Even more troubling is that percentage increases to 60 for families with a disability. This is why i definitely pleased ncua and its board has approved powells two, a shortterm shortterm small dollar loan product that serves as a responsible alternative to pernicious payday loans. These loans that were creating through the program are often been being coupled with our Credit Unions with financial education, counseling and coaching. Further helping these individuals achieve access to Financial Services. Rural america must also be involved and included in financial expansion and inclusion. That is why i am also pleased that ncua has worked to provide guidance to the Agricultural Community to help individuals learn how to work with this emergent business trip to remind them of following guidance. We briefly provide obligatory relief regarding the commercial Real Estate Appraisal report, increasing that appraisal requirement from 50,000 to 1 million in response to some of the Rural Communities not be able to get appraisals done in a timely manner. Third, i would like to focus on cybersecurity. Cybersecurity is a high priority for my chairmanship. Cyber attacks are indeed an acute threat that we as regulators must combat and face every day. I care about this issue so passionately that i appointed a Senior Advisor to advise me in the industry and how do we and the Credit Union Industry safeguard our Defense Mechanisms and really go through extra efforts to protect member owner data. This individual who is spearheading this effort is also providing cybersecurity training and outreach to assist our small Credit Unions. Also utilizing new tools to better assist our examiners who are looking at the levels of preparation of cybersecurity preparedness in our Credit Unions and also working in concert with some of the other federal regulators here today. In closing i would like to inform the committee that we are very grateful and appreciative of the work that you all did in passing senate bill 2155. I am. I am also pleased to report that ncua has met all the provisions that retain to credit union especially actions we could take unilateral. If i look for opportunities to work with you in the days ahead, i would like to look for opportunities to promote greater Financial Inclusion, economic mobility, and shared prosperity in americas underserved areas. Thank it. Thank you very much, mr. Hood. As i begin my questions, ive got a lot of them, more than ill be able to cover in my five minutes so i ask you, first of all you should expect to get some written questions from following. But i ask you to be as precise as you can in your responses. The first one is to chairman quarles and chairman mcwilliams, and i hope it will just require a yes answer quickly from both of you. Its on the covert funds issue and i just wanted to ask if each of you just commit you will respond and resolve this issue quickly . Yes. Yes. Thank you. Got a good start there. Chairman mcwilliams, on madden, you indicated when the madden decision came down that it has interjected certain answer becomes significant uncertainty and to the secondary market for loan sales in the Second Circuit embraces safety and security concerns. How does the fdics proposal addresses the confusion around about . Thank you for the question. The fdics proposal basically does not change since the framework we had before madden. Since 1820 there was supreme court, president the basics what a vote is not you sorriest when made, the things that makes the own you serious. This court, this Congress Gave the National Bank status that prose is built in 1865 and then when her 15 years later in 1980 we got at the ftc got the same opportunity to the public that into our statute so we thought long existing guidance in permitting basically exactly that. Its the socalled maiden doctrine that the court ignored, almost both regulatory and legal history. We were compelled to provide clarity restating what we had in place since 1980 frankly at the fdic, and our proposal does not change anything that weve had since 1980. The concern with madden is there going to be implications for the secondary market that are going to undermine the safety and stability of the system and the soundness of our banks. If banks are unable to sell it in the secondary market and have sanctity of the contract carryover, theres going to be obstruction in the building of the banks to basically be able to offload those loans if they need liquidity at the time of stress and something from the regular sort of perspective are quite concerned about. Thank you. I appreciate your attention to this. Mr. Hood, this summer you publicly stated the ncua board intends to release a proposed rule to allow subordinated debt to become as regulatory capital. For a broad range of Credit Unions by the end of the year. Can you provide committee with an update on your progress on this will make a . Thank you for the question. This has proven to be a very complex issue so were still working diligently on the proposal. Because we really want to get it right, i really am delighted our aggregate network ratio for credit in your date is not 11. 39 so we do have a Strong Capital position now. I want to introduce the level of capital but right now we are still studying it and making sure we get a proposal right before we give it to stakeholders for comment. Thank you Anna Pritchett attention to this. And finally, mr. Quarles, we dont have nearly enough time left to get into this issue as deeply as id like to but i want to talk about Digital Currencies. I understand your basically the lead at the fed on dealing with our other regulators around the globe and working with others as they look at libra and, frankly, at the Digital Currency issue, creek. With yes. The g20 has given the Financial Stability for the task of considering this issue. Thats my responsibility. Im very concerned, the labor issue and facebook presents one set of issues, or one set libra once an issue but the Digital Currency issue is much broader as i see it. One of the big concerns i have is that the potential for Digital Currencies based on Blockchain Technology could ultimately undermine the role of the u. S. Dollar in global markets. Do you share that concern . I think i would be ever longterm concern if you consider the current proposals for stable coins, those over like a basket of to anchor the value or included very heavy weight towards the door just given the role of the dollar internationally currently and that would likely be the case for some time. But over a long period of time that would be an issue i would need to think about. As other nations, for example, were to pursue that, wouldnt they give them the ability to basically try to start shifting away from the dollar, the utilization of other countries . If other currencies were more useful in the Payment System or useful forms of payments, again it would be an immediate effect but over a long time that would be a factor, yes. Thank you. My time is up. A lot more of what to talk to you about this, both in conversation as those in questions. I will get further information to you on this. This is something when you do take a really deep on and rapidly. Thank you. We can get a second round, to. Sure. Thank you. The private equity firm i majored in my opening statement, mr. Quarles, the one that cuts staff at Nursing Homes and endangered documentation of endangering patients is your former employer, the Carlyle Group. You were a partner when this is happening have to assume you are aware of it as carlisle reaped huge profits of this. Do you think a a system that allowed the Carlyle Group to load up a company with debt and extract Management Fees and cut corners and put patients at risk is a good system . I actually was involved in the transaction at all, so im not willing to speak about the details of the transaction. I do think that that its important we have a system of private equity is bringing benefits to the companies that invest in and not otherwise. Weight, not otherwise mean if theyre not bring benefits, they should be, they should not be allowed to do . What do you mean not otherwise . We should have a a system tt creates incentives so investors are improving the companies they invest in. So even though you, i mean, i heard your involvement in the bush administration, you didnt seem to be too responsible for the economy imploding in those years, and now youre saying you at carlyle, the Carlyle Group benefited financially and took a great deal, in its takeover of the company in the manicure in toledo. I guess i would ask this then. What steps do you take now then at the fed to rein in risk and make sure Financial Company are investing in the real economy in crating jobs rather than this financial station and making reckless bets that hurt families . Safety and soundness of the Financial System is the responsibility of the fed. Thats an element of our supervision and examination of firms. And i think an appropriate element. That doesnt seem very proactive. I mentioned private equity because theyre the biggest user of the riskiest kind of leverage loans as you know. Which they dont Want Companies that they got for profit. Its been six months since i raise concerns in letters and inherent overleveraged lending to get shaded from, its not a problem to order edges to we need more data. What specific abuses that are not already happening in leverage led the market would you have to seek to convince you to crack down on these risks . Well, weve taken supervise reaction with respect to leverage lending, senator. Earlier its not the reset its not a problem. I think weve been trying to draw a distinction between his or her Financial Stability risk versus is there a potential contribution to a future Business Cycle downturn of current Underwriting Practices. With respect to the latter, a focus of the last two shared National Grid examination where all the regulars together look at the largest loans, you know, that are shared among a number of institutions has focused on leverage lending. And evolution of Underwriting Practices as to which weve had a concern. I think they are familiar to most people here. In the first cycle we indicated which of those practices we had concerns about, and then in the second cycle if they were continuing, we took appropriae supervisor action against the firms that were underwriting leverage loans in this fashion. I guess, mr. Quarles, because of the background of you and other regulators, because of your experience prior to these jobs in your general support for wall street, i just dont share in the confidence that youre going to proactively do something about this. I understand you say if its risk to the Financial System, to the seville it is one thing but it is more than that. Let me shift to chairman hood. Ncua if independent federal agency, right . Yes, sir, independent. The you agree that you as chair must act without control or influence from the white house . I am deeply committed to maintaining ncua independent as a regulator. On the white house . As an independent regular ages its my duty to uphold that. Including from the white house . I am committed to speed is you dont want to say yes to that, i get it. I sent a letter in october because i were concerned about the photo ops you doing with President Trump at the white house and his golf course and i got this letter from your office this past tuesday. Can you tell me who you are posing with in those pictures that you sent to us . The first picture. Can you tell us, its a letter you sent us, its peculiar preps but response to a measure of the letter is supposed to be a response to my concerts or not. Could you identify the people in that picture . A number of these are speaking engagement. What i sent you was a listing of my activities in my First Six Months the meeting with stakeholders to talk about credit union issues, to foster greater Financial Inclusion and shared prosperity. Theres a picture of me being sworn in it looks like with one of the leaders of the sba, and then my swearing in was conducted by the Vice President of the United States. But those are pictures showing Stakeholder Engagement but then also provided activities of the seven months of activities for weve kept americas Credit Unions safe and sound. The letter was meant to be an opportunity to meet with you to talk about regulatory accomplishments as does any other issues you would like to discuss. I guess im just that you understand what independent regulator means. From your letter back to us, from your statements about not speaking as a body, from the ns from other activities with the present. I hope you come the lesson you take from that, chairman hood, is that you are, in fact, independent from the person who appointed you, the administration, that sponsored you from anybody that might influence on you. Thank you. Senator kennedy. Thank you, mr. Chairman. Thank you, all, for being here and thank you for giving so much to our country. I would like to use my first couple of minutes, madam chair, talking to about industrial loan combinations. They are basically banks but they are not regulated like other banks. They are authorized at the state level. Some of our Largest Companies are starting to use these Industrial Loan Companies to take deposits, for example. And i think competition is good. Competition is moral good, i worry that they are not regulated like the other banks and i have a bill called a limiting corporate shadow banking act, just to make sure that these Industrial Loan Companies are on a level Playing Field with everybody else and are properly regulated, you know, not too hot, not too cold to come just right. Could you give me about a minute of your thoughts on that . I have not had an opportunity to take a look at your bill, and as a former staff its a good one, trust me. I know your staff supported. I believe its probably a good deal. So Congress Gave us the authorities to regulate iocs and, frankly, as we look at the iocs will have a couple dozen in existence right now. Those in after looking different than the probably the applications were getting at this point in time. That is true. At the Deposit Institution of the Congress Gave us ample authority to regulate ilcs. And speedy but are not regular the same as banks, is that correct. As they have different regular structure. Why dont they just have the same regulatory structure . For the witness save money . So from the perspective of the depository institution, the ilcs is making the same as the bank. When Congress Give authorities to approve deposit insurance for ilcs it gives the same statutory standard as a did the banks. Lets talk further about this. I disagree with you on that. I dont think they are regulated the same and they just dont understand why everybody is not treated the same. Im going to go to chairman quarles for a second. I think our Community Banks are doing very well. In large part, or substantial or is a work of most of the number of this committee when we passed senate bill 2155. I am. I am still concerned about our large banks. We all remember 2008. I mean, from my standpoint come in 2008 the leadership of some of our largest banks took their banks to hell, and government road shotgun. They havent been tested. Our economy is much better and it is still healthy but we know at some point we will have a recession. I think if were not passed our jobs and tax cuts we would be in a recession now. I think it was buffett who said you dont know who is swimming naked until the tide goes out, so do we still, mr. Chair, do we still have banks that are too big to fail . I think that the responses, i think the regulatory response post crisis body of regulation will have given future regulators in the event of stress at a Large Institution many more options than they had before to resolve that institution or to take other actions rather than bailing them out. Do you think we still of banks that are too big to fail . I think that, the way that i look at the question is, will regulars in the future, with the government in the future when it faced with stress at a Large Institution have an option other than providing support for the continued lack of that institution. I think those options will exist, yes. Will one of those options be, the congress and we appropriate a bucket load of money to bail them out . I hope it doesnt happen unless i am one of them i will be able to control their future actions as to what they might ask for. I would say now however if they come up and ask you for that you should be aware that they will have any other options in front of them and had at the time of the last crisis. Thank you. Chairman hood, if you have a few minutes, afterwards i would like to get a photo, okay . [laughing] senator menendez. Thank you, mr. Chairman. Chairman mcwilliams i understand that when you first came to the United States you will have 500 in your pocket. I did. And usenet 500 to open a Checking Account and a poorly get a secured credit card. You stated quote with each swipe of the credit card i felt more integrated into the very fiber of american society, close quote. So do banks get credit for offering a secured credit card . I have to go deflation is not, the answers not that simple. You have to go through a complex forms to get what qualifies and not under the cra. According to the gao, banks offer secured credit cards designed to steps or rebuild Credit Histories receive credit under the cra. What we have here is a a reale example of someone benefiting from the cra. You yourself said the security critical opened up quote a world of opportunities for you. So i would hope that you decide to move forward on potential changes to the cra that youll take to heart the need to strengthen the cra so that more americans can benefit from this important civil rights law just as you did when you first came to the United States. So let me relate one concern i have with how things are going. Recently politico reported the fdic could give the Smaller Banks irregulars the choice of opting into this new occ valencia a Regulatory Framework for continuing to be examined under the Current System to that could lead to a situation where banks choose to participate in the model that gives them the best grade and not the one that best measures whether activities are effectively addressing the needs of their communities. If adopted do you know what of fdic regulate banks would have the choice to opt into the occ approach . So the proposal is still being worked on. One of the options they can said was he opt out for small banks sora, opt in to the new regime for keeping the existing machine. The main reason for the opt in opportunity would be to provide an ability for small banks not to have to change the reporting requirements and how they go through the analysis of qualified for the series. Small banks, the number of small banks if you decide to opt in will depend on what threshold we pick for the cut off. So you dont know what number is yet . Its not from privilege of numbers and making speedy i hope we want small banks to have less necessity in terms of paperwork, we dont want them to have less necessity or obligation in terms of creating a portal of opportunities. I agree with you. If most fdic regulated banks would be able to opt in, then argue, if thats what happens, then arent you simply making a political declaration the best protects the interests of the banks, you are charged with regulating those who stand to benefit from a strong cra ruled . Isnt that the round or not. No, it is not. The reason im willing to consider reform to the community with investment act is because the act has not been revisited since 1995 by the regulators and congress. You gave us the authority to take a look at the act to make sure it serves its intended purpose. Currently we have digital delivery challenges for banks are not accounted for appropriate in the Current Assessment areas. The weights the deposit taking up takes places of think its attributed to a branch and now with Digital Channels theres a lot of deposits taking place outside of the stare. We want to make sure under the reform of the cra, those areas with a digital banks are functioning at offering taking deposits and offering services, are served by speedy let me say that age itself is not a reason to review the act. Certainly to improve and strengthen the act is something worthy, but you dont want to at the end of the day use time which the act has not been reviewed to weaken it. So one concern that you all are trying to have it both ways, not fully endorsing the flawed occ plan that allows most of the fdic regulated banks to choose which system there measured under while also not stand up and fighting for a better cra standard than what the controller has proposed. I hope the end result is that im wrong on that, but im going to be looking with incredible intensity. I look forward to prevent iran. I im always happy to be pron wrong when it is to the benefit of consumers. Five years ago you want to follow up on, senator kennedy raised to you about banks, the regulation adopted the liquidity coverage ratio to require banks to Additional Capital that it could draw upon in a crisis and thereby reduce the risk of another taxpayer bailout. But in october the Federal Reserve violates the rule that would reduce the liquidity coverage ratio by 15 or big wall street banks. Now, s. 2155 didnt require the Federal Reserve to reduce the lcr, and the Banking Sector hasnt come to a full Economic Cycle of the previous lcr rule was in place. So at a time in which we see record growth among the banks, fantastic times the Banking Sector reported a 62 billion in profits in the Second Quarter of 2019, a 4. 1 jump from 2018. Why is now not the time to shore up banks liquidity, not reduce it . We saw what happened in the repo market, and i have real concerns that instead of taking the moment of strength to strength in the banks, youre just giving them more running room to get into trouble. Do i have time to respond briefly, chairman. Was yes, please, briefly. So for the large wall street banks we didnt change the liquidity requirements at all, those remain the same for the gsibs. S. 2155 did include while it gave specific instructions for daily under 250, there was was also a mandate that we would tailor for all institutions and so for regional banks are not the large wall street banks but below that we tailored the liquidity requirements and then it goes down so that there are lower liquidity requirement for from the post less risk to the Financial Sector to the concept of tailoring and rethink the instruction and s. 2155 was to evaluate the risks that different categories of institutions pose to the Financial Sector and then tailor for each of those categories of institutions. Its not a dramatic reduction in liquidity. That still all of those institutions still have much, much more liquidity than had before the crisis at a dont think, and the largest institutions, the wall street banks still is every bit of coverage under the lcr that the did before. I hope we dont have to revisit what we did in the Great Recession and then remind you of your comments that instead of strengthening the liquidity reserves, we actually weakened them. Senator tillis. Thank you, mr. Chairman. Mr. Hood, its great to see somebody who hails from my neck of the words in north carolina. I want to thank you for the work youve done on a portal housing, long before you get into your current post as all that work you did for the community that may be proud to have you a of the board of governors. Youre given back to a great educational institution. You do great work. Ive got a picture with you but i would be proud to have another one. Mr. Quarles and chairman mcwilliams, first i want to thank you all for the work in the progress when working on margin. It will free up i think almost 50 billion dollars in capital. Its a long time coming. Somebody went to work hard to make that a partisan issue since the something thats been in place under democrat and republican administrations in the past so thank you for that. I want to go to the Community Reinvestment act and the update. Specifically, under the occ has taken the lead. I should also say im looking for to the work on the volcker rule. Im try to get this done and stay within my times on talking fast. On the rewrite, check worlds, is the fed going to play a role in the cra rewrite along with the fdic and the occ . We have been very actively engage with the occ and the fdic. At the governor level . At the governor level absolute we have been actively engaged, and the proposal that is evolving has benefited from a lot of input. If you look at that, i dont think thats been touched since about 1977, is that about right . About 30 years. I was young back then. So hopefully we can take into account this thing the internet has come aboard, online bankig and a number of other changes in the Banking System that hopefully we can modernize and i look forward to what you will do there. Chairman mcwilliams, i wanted to ask you a question come with god, you you in particular tooa fairly aggressive posture in going to look at all the clutter guidances, one offered 52 letters, secret memos, fax that of long been used to rightly su. Can you give me an idea of where we go from here . Which i took the office of chairman of the fdic, i frankly thought we could do our supervision and in more transparent and accountable manner, and quite often we look at the regulations and instructions we give to companies. And ive been surprised in how many ways to make it with the companies that are regulated entities, not always make that a standard for everybody. But we do like letters here and there. My goal for the staff at the fdic has to come through, tell us what regulations we need updating annulment because of the best the tampa because technology has changed them the way banks to business has changed. Also to take a look at our we transparent and uniform in her application of the law courts to the extent we are not or would have done things that a one off, i believe theres an opportunity to apply the good sunshine policy and the public, solicit public, and move forward with rulemaking and guidances that are applicable to everybody and so we have a clear road map as to how to do business. I appreciate the very thoughtful and assertive approach that youve used up there. I think a model that a number of migratory agencies even outside of the banking space should take note of because its a way be can take needless burdens on business and put that back into making houses more affordable, making banking more affordable and making the private sector grow. Vice chairman quarles you were testifying at a house, on the house side yesterday, and i believe you were asked about the concerns the private sector system could have in discriminatory pricing for the Payment System. The private sector has made a commitment in writing to have flat pricing pic if the fed is concerned about discriminatory pricing, pricing that would disadvantage Smaller Banks, why has the fed refused to make the same commitment to flat pricing for the fed now platform . How does that make sense . So as you know, senator, the Federal Reserve when we come in connection with standing up operations in the Payment System is required by law to recover our costs, and i think as the proposal evolves as as we continue to develop the faster Payment System that we have committed to undertake, we will have a better sense of exactly what will be required in order to recover all of those costs, and at the time we will be able to evaluate what the price will be. Thank you. Yield back three seconds. Thank you. Senator warner. Thank you, mr. Chairman. Great to see the witnesses. Vice chairman quarles, i want to start with you again and pick up on some of the line of questioning about cra. I think youve been quoted as saying you feel like the cia is a little formulaic and ossified, to the degree its 1995 i dont think weve taken a major look at how we need to be modernized. I am concerned as i think of the colleagues are that with the notion that the occ and the fdic would move forward on Regulation Without the feds impact, and to think that would be a huge mistake would leave a series of the community out. Yesterday conquering the house Financial Services committee you asked a question but i dont think i got at least my review of the question i didnt get a full answer about whether you feel like you will be proceeding and will be participate in the occ modernization efforts. I wish mr. Otting was here where he basically said he thought the fed was not going to be involved. So for the record and for my colleagues, can you clear up whether you intend to have the fed involved in this muchneeded reform process . This is a continuing effort to look at cra modernization. This agreement among all the agencies as well as everyone who considered the issue, community groups, the banks. I think among many here that cra, that the implementation of the Community Reinvestment act can be improved, given evolution in the Banking Industry and given as ive said kind of the ossification of practice over time. The Federal Reserve is committed to that and has been working together with the other agencies as part of this process. Now, the issue that is immediately at hand is when will when will a notice of proposed rulemaking, but that is an interim step. At the outset of the process the occ went forward independently of both the fdic and the fed with advanced notice of proposed rulemaking. We all benefited from the information that they received. The fed also had a broad information gathering process at all of our reserve banks at the same time the advance notice of proposed will make it was happening. The fdic had a separate process, and all of that has come into now the consideration of the notice of proposed rulemaking. So while it isnt well, it hasnt 100 been decided yet whether its at this next up the notice of proposed rulemaking all three agencies will go together or so make a separately, in the same as that first step was done separately by each of the agencies that was all part of the joint process, i wouldnt draw too much from if that is again one or two agencies going separate on the notice of proposed rulemaking because we will continue to be working together on trying to get to a final rule, and my expectation is still that when we get to the final rule there will be all three agencies. So. Completely agree. Im going to take your answer as yes, you guys will be involved and there will not be a hodgepodge of rules. There will be a uniform final answer that will include all three of the registry agencies. So thats a yes, if i try to put as many words in your mouth, it will be all three . Well, yes, it would be one of the words that i would say. But, yes, as that is the objective, is that we are aiming to get to a final rule altogether and if it happens that the interim steps happen at different speeds, i wouldnt draw too much from there. One of the things i know of is, as your chair, as your role of chair the Financial Stability board, i know youve been conducting this in depth analysis and obviously, weve seen the numbers grow and we realize, this both has a national, but also International Implications in terms of involved with the g20. When do you think that study is going to be done . When will we get a chance to look at that . We should be making that public very shortly, i think, early in the new year, being circulated among the members of the financial ability board and numbers currently for final signoff. My name expired although i couldnt get away without my colleagues being here and saying theres broad bipartisan work being done on this committee on what we call the illicit cash act, which deals with aml beneficial ownership. I think that the issues long in need of review, the chair and Ranking Member will take the world that weve done and build i dont know it and my strong hope is that we can build sooner rather than later on the long overdue piece of regulation. Thank you, mr. Chairman. Thank you, senator shelby. I pose this question to all the regulators. Whats your Current Assessment of the Overall Health of the u. S. Financial system compared to conditions, say, in 20078 . Well start with you, chairman. Absolutely, its a much healthier Banking System. We have significantly higher levels of capital and liquidity and we have a focus on the resolvability of the too big to fail question that was not there before. Financially, its much stronger. Chairman. And much stronger, both for the larger banks and small banks and in the meantime, the regulators put in a number of liquidity rules on this bank and the capital levels are a healthier level than they were before the crisis. And what about the Credit Unions . Yes, senator shelby, the Credit Union System is strong and robust and capital is now 11. 39 far beyond the Capital Requirement and also, we have a strong and sharing fund of 16. 7 billion which is far beyond the 10 billion coming out of the recession. As regulators of any ever known of financial institution, to fail, to go under, to d debt it well capitalized, well managed and well rregulatewell. With respect to it would be difficult to fail if it were wellcapitalized, absolutely. Wellcapitalized and also liquidity and being liquid at times. Yes. Ms. Mcqueen . Nothing comes to mind. Nothing comes to mind at the moment so theres no substitute for capital, in a sense, when something is under stress or liquid, is that right . Capital is key, although its a useful factor of the post crisis frame work that we also focused on liquid, but we do have that focus now on liquidity and the two together are key. Would you say the Overall Health of our Banking System is as good as youve known it in the last 20 years, almost . I would go farther and say, i think my career has lasted for about 35 years, its as good as its been during that entire time. Better, much better. Do you agree . I agree and im fortunate to be the careful of the fdic. I commend all of you for trying to keep it that way, too. Vicechairman kwaurles, how do we keep the liquidity since its grown so much. How do you balance that . So, i think that, you know, for all the points that youve just raised, because we have such a resilient and strong Financial Sector now, we have the benefit to take some time and to look at the overall structure of regulation and to determine where we can make it simpler and more efficient, while still maintaining that resilience. One of the things we proposed at the Federal Reserve take them and combine them into our stress capital buffer that would be much simpler and yet, retain exactly the same level of resiliency. And you have a comment on that . I think its important that we are able to maintain the level of liquidity and capital that functions well for the markets and the Financial Stability. After all, theres always a balance, a see saw, how much do you need ap how much to you release into the economy because if the economy is not stable, things are not going to be stable so theres a symbiotic relationship and we have to look at the capital and liquidity. For your prior question, i would aed that its capital liquidity and management. I believe Good Management is key to successful things. You have a comment, sir . I would just say i would agree with chairwoman, Balance Sheet management is key. Thank you for what you do, thank you, mr. Chairman. Thank you. Senator schotts. Thank you, mr. Chairman, and thank you for being here. At the last oversight hearing we talked about the risk created by Climate Change and the prospect of the fed joining now a group of 42 central bankers and regulators thinking about and working on accurately accounting for the risks related to Climate Change. Do you have any updates on that . Thank you, senator. As we discussed, as i think i mentioned at that last hearing, we are have been exploring and under their charter that requires some adjustment in order for us to join as an observer, but were continuing to discuss with them how that can be done. In the meantime, we have attended meetings sort of auditing the class before formally registering with the ngfs and i think thats entirely appropriate. Is there a time frame . They have a they have a meeting, their annual general meeting in april which is when they would be able to address some of these governance issues if they are able to address them, so i think its over that time. But what i would stress is that in the meantime, we are engaged with them, you know, to involved in attending working groups, et cetera. The u. K. Regulator recently issued guidance that recommends steps that banks take to demonstrate that they are taking climate risk seriously. Theyre encouraged to assign a senior manager, the responsibility for managing climate risk and demonstrate in writing how they address climate risk. Are you asking banks to do anything similar and if yes, could you elucidate . If not, why not . So we do ask banks that are exposed to Severe Weather events which can be demonstrated by Climate Change to, you know, to account for us, you know, their Risk Management practices around that. And as you know, we, you know, we continue to do a lot of research on the effects of Climate Change and Financial Sectors, how thats likely to evolve and as we continue to learn from that, we incorporate that into our supervisory practices and weve always been very closely engaged i was in london a couple of weeks ago, talking about how theyre looking at Climate Change regulation and supervision. The challenge, i think, for both investigators and for firms is that its not yet apples to apples, right . In terms of how the disclosures go because everybodys puzzling through it and include the fed and the greening of the Financial System. So i think as soon as possible for the sake of investors having clarity across the market, were going to need some kind of common instrument to understand, and i think thats got to come from you, because the companies, firms, investors are trying to figure out how to account for climate risk and doing it in unique ways which makes it super difficult if youre an investor who is accounting for it accurately and how to compare one Investment Opportunity from the other. Yeah, i think that i think those are very good points. One of the things that the Financial Stability board that we have done, its a process that was begun before i began to chair, but i reupped when i took over the championshipship is this tcfd, which is, you know, which is under the aegis of the Financial Stability Board Private Sector Companies are encouraged to think about how what Climate Change risk they may face and then to disclose what theyre you know, how theyre addressing them if they see them. And we are learning from that. Well be able to learn from that. I think well be able to take that information and see, well, okay, are there best practices or a Common Thread that will be helpful to everyone. You agree at some point well need a common platform . I think that would be useful. At the moment i dont know what the for recommend would be or certainly what the content would be of that common platform because as you know, all of this is in pretty even stages and even the bank of england. The bank of england and the dutch central bank, i think, are sort of the most committed or have done the most thinking or farthest along in thinking and even they are in quite early stages how you would concretely address this and youd need something concrete in order to have a common platform. N thank you. Senator cortez masto. Thank you, vicechairman, thank you for visiting with me earlier. We know that russia attacks in order to weaken western democracies and i know just this morning the u. S. And the u. K. Law enforcement officials announced charges against two russians allegedly responsible for what doj deemed two of the worst computer hacking and Bank Fraud Schemes of the past decade. The Foreign Office announced controlled sanctions against the gangs, the two that they dubbed evil corporations the two have taken on, led by one of the russians who pro he provides assistance and enlistment of cyber criminals for its own purposes. My question to you, is if russia does not stop the attacks on our nation, should we work with our allies to ban russian Financial Institutions from using the swift interbank Payment System . I would say i have not given any thought to that question whether that would be an appropriate remedy. We do, in our enforcement practices at the fed with respect to Financial Institutions and the abuse of the Financial System, we work closely with the department of justice frequently and the department of justice actions arrive from referrals from us, with reinspect exhibit to the Financial System. So, thats something that we are, you know, the issue is something that were heavily engaged with, but id be happy to get to more i saw that, and just for a purpose of the chairmans comments with regard to Digital Currency, this is something im very, very interested with as well. Can you talk a little about what you are doing in the space right now or anticipate looking at when it comes to Digital Currency, if anything . So thats at very early stages. I would say that until, kind of the recent International Focus on stable coins, there was a general sense among most of the Central Banks of the advanced national economies, with isolated exceptions except for sweden, that Digital Currencies would not you know, were not really necessary and they werent addressing a serious need in those economies. They would be something that might be more rapidly adopted in emerging markets for a variety of reasons, maybe the same way that emerging markets sort of jumped over land hines to cell phones. But that we would, however, sans the focus on stable coins, we have geared up a process, there are a lot of issues, some technological and some having to do with Monetary Policy and some having to do with regulatory policies that would have to be worked through, International Coordination with respect to it. We are at early stages there in part because up until i would say this summer, it was an assessment and i think the right assessment that it was not a high priority for the United States and most economies shared that view. But its something that here is my concern, i appreciate its in its initial stages, but i dont think its something we can assume nothing is going to happen with. So we have to at least put in resources behind it to start looking at it and addressing this and thats what im hearing youre doing. Absolutely, absolutely. All right. Thank you. Chairwoman mcwilliams, studies show that without the Community Reinvestment act, the Home Ownership rate in our country and especially for latinos and africanamericans would be much lower, and i understand the fdic is considering proposed changes to the Community Reinvestment act. So, how would proposed changes to the cra close the racial, ethnic Home Ownership gap and is that something thats on your radar as you look at making the changes . Its absolutely on my radar as were looking to make the changes. And they can devise to do more for the communities and a whole lot more for rural, family farms, and its not been updated since 1955. And be open minded to see when the changes, if its not in the about p proposal, let us know. Its to elicit comment for congressmen and their constituents and the intent is not to undermine the purpose of the act and what congress intended. In fact, the intent, my personal intent is to strengthen it and to make sure that the things are not exist tent in 95, but help low and moderate income students to get enhanced credits and accounted for appropriately and senator hernandez had a line of questions and i did i was a member of the low and moderate Income Community and its not with any malice or bad intent i would like to take a look at this act, but make sure that the banks, especially large National Banks account for 70 of the activity and doing our part and makes sense in clarity for them, but added benefits to those communities. Thank you. Thank you, mr. Chair. Thank you, senator van holland. Thank you mr. Chair for all of your testimony today. Vicechairman, i know you and i have a difference in this, but ive raised it in all the hearings with your colleagues and i do want to say that i fully support the overall decision of the fed to move forward on a realtime Payment System under the fed now umbrella and i hope that you will all move with speed on that, on that effort. Thank you. Chair mcwilliams, i have some questions related to the issue of rent a bank schemes to evade state usery laws and thats here in this hearing a little bit. I understand that the occ and fdic proposed the rule to provide, supposedly provide clarity on this issue in the wake of the Second Circuit decision in madden versus midland. My view is that its probably premature to move forward. I think in the preamble of that rule you say or the fdc is not aware of any widespread or significant effects of Credit Availability or securitization or on credit or securitizations observed as a result of the madden decision. And what i worry about and i know your fellow commissioner, marte grewenberg shared by concern, you sort of put your foot on the scale in a blunt way which i think will be interpreted by some to give a green light to some of these schemes. You stated in the house yesterday that your only purpose was an address a longstanding principle that Congress Gave, that when a loan is made and the Interest Rates are not userious at the time it was made do not make those loans but my question is this, would it be userous if the purpose of loan was to evade the Interest Rates under state laws of the entitys licensing state . Its a great position and the position weve taken at fdic under our authorities, we basically determine what is the home state for the bank and theres a test that we go through and i think that the people are looking at two separate legal doctrines. The proposal issued, literally, what we had premadden and put it in paper and open it up for Public Comments and thats all we did. Thats based on authorities you, the Congress Gave us in 1980, 65 and the language i quoted yesterday from probably poorly, quoted yesterday from the rates. Here is the issue, if i may. Theres a report and this problem has gotten worse because we have a lot of nonbank lenders now who are taking rang of the Current System. So, its ceo for one of those nonbank lenders on an Earnings Call recently, and i quote, he was talking about a law. It would limit the amount of interest that can be charged on loans from 2500 to 10,000. Similar to our recent experience in ohio we expect to be able to continue to serve california consumers via bank sponsors that are not subject to the same proposed state level rate limitations. Clearly telling folks on the Earnings Call that they were going to use the scheme to evade state laws. So, my question is, why not provide guidance in your rule as to what the test is . Instead of sending a green light that says go for it. Because thats the way a lot of people are interpreting. Why not provide some standard for what you would believe does not constitute a valid loan, a loan that does violate state law. A couple of things and those people saying we gave them a green light go for it are mistaken on legal principle and the regulatory frame work, including the congressional language in 1980. A couple of things, states have an opportunity to opt out under section 27 of the 27a in fact. And gave states the opportunity to opt out of the Interest Rate affordability regime and not an issue for the fdic or to be assured well be addressed in the rule making and the second thing that we specifically said in the preamble to our rule that we look unfavorably on the socalled rent a bank charter as you referenced it. The purpose here is not to evade the law and were not going to allow banks to evade the law. Saying youre going to look at something unfavorably without specifying what standard youre going to apply in determining whether its unfavorable, it seems to me creates a green light. Thats the concern, youre going to look unfavorably, but you dont clarify what the standard there may be. I understand we have, you know, i understand, you know, someone can bring a case and spend a lot of time digging up the evidence, but the rule from all of you would be helpful, it seems to me in clarifying in. Mr. Chairman, i have some questions on the cra, but ill submit them for the record. Senator tester. Thanks for holding the hearing, to you and senator brown, i want to thank you for you and appreciate your work. I say leading off. Im disappointed mr. Otting is not here, i think its critically important that we hear from all the regulators, ive got no doubt or fight with him. I voted for you guys and voted for him, it would be nice to have him here. Its important. So for the last 18 months ive heard from bankers that come into my office that montana being a state where agriculture is the into um one industry, that if things dont change with the egg prices or the farm gate. People are going to be in trouble in the next 18 months. Or at the end of that 18 month period. And we still see egg Commodity Prices in the tank and the silly trade wars i dont think will end up doing anything different than what we had to begin with. Thats the side bar and thats not your problem. What is the problem for us and you is the fact that there are farms right now and i say this is just a matter of fact, that have been in families for generations and generations and generations and its more than a job and its part of who they are as human beings. Theyre going to go broke and the banks are not going to be able to do much about it. But i want to pose a question to you, what can they do about it . I mean, what when the prices are down and your collateral goes down because the land prices go down and they stayed down for a period of time. Is there anything that the banks can do and still remain viable in times where the prices are at lows. Ive been in the business for 42 years and if you want to use it inflation adjusted theyre way, way lower than theyve ever been. Any ideas . Who wants to speak first. Rodney doesnt have to respond because i dont think its in his bali wick, if you want to, go ahead. I mean, obviously, what youre describing is a serious issue. Its one that we do give a lot of thought to at the Federal Reserve as, you know, i think most of you know. You know, i come from the west, i come from an agricultural family thats something that, you know, its something that i think about personally, a lot, as well. We have at Federal Reserve, a long history with the cyclicalalty. We have examiners specially focused on those issues. We are, you know, we stand ready to work with banks that are working with their borrowers during periods, so, its a different its a different sort of response than if we had a bank that had a nonagricultural borrower, you know, different history, different industry, that might be in the same financial position, just as a matter of Risk Management and different response might be appropriate. And so we do, you know, we do have a lot of experience with that, you know, as youve identified the situation is as bad as it has ever been and obviously, if it goes on, you know, if it goes on long enough, the institution will be, you know, it will be required to take the steps that it needs to in order to recover on the loan, but we do not recover agricultural banks to do that without any sort of consideration of the circumstances and again, with a lot of long experience and how to handle that cyclicality. I have a couple of things i can add to the discussion. We do quarterly banking profile and we report from banks on quarterly basis and seen a modest decline in the Agricultural Sector and some of the ag businesses and farmland businesses have gone from net depositors to net borrowers. And we look at what can be done and theyre encouraging them to do workouts and safety and standards and also, an opportunity for us under the existing frame work that congress has given us to do a little bit more, provide more credit for the investments that go to small farms, family farms, rural areas, small business, Indian Country so theres more we can do i think frankly for farmers through the cra and thats one of the staff is considering proposals. What im concerned about here, moving forward is the whole viability of our food system and family farm agriculture is the basis to you know that. And as we cut bigger checks and farmers become more dependent on the federal government, which i dont think any of them want to do, we can talk socialism all we want and thats socialism and thats just not healthy and thats not you have to deal with the results of poorly thought out trade wars, but the fact of the matter is when it comes to losing the farm, its a big deal. Ive got some question i want to give to the record on Affordable Housing because i think its one of the biggest bar barriers in this country today and theres a lot going on. Your opinion on what we can do to make Affordable Housing more available across the board. Its a big issue in rural areas, thank you, mr. Chairman. And senator brown will have five minutes for questioning. I am with what mr. Tester said. And 155 to deregulate the biggest banks, the chairman, the Federal Reserve chairman powell promised a bill that did not require a route on foreign banks, and youre loosen rules on deutsche bank, which by accounts is President Trumps atm. Did the bill require you to loosen the rules for the bank . Yes or no. The fdic has only provisions for the largest banks, including foreign banks, i look at liquidity rules, sections referenced and to the extent that the agency rely on say, the authorities in section 165 this will be with the Federal Reserve on those rule makings to tell me theres an opportunity to or amended, to amend those rules as well. Mr. Vicechairman, did the bill require you to do that with 2155 did not itself instruct or require that we make such adjustments. Other elements of the banking law require that we take National Treatment into account, but in taking into account, that doesnt mean that the frame works will be the same and they are not identical. There are some material differences between the two frame works for domestic and foreign banks although again, in accordance with the law, we have tried to ensure that it is, you know, that we do take National Treatment into account with respect to those frame works. I think a lot of us were surprised by that action, especially after chairman powell said to a number of us personally and said to the committee that. Let me ask about followup. One of my colleagues asked about too big to fail and the two of you, you had recently relaxed requirements for living wills and largest banks living wills, taken credibly under normal bankruptcy procedures without harming the economy. Do you believe every bank, j. P. Morgan chase, citi, can be resolved in an ordinary bankruptcy without harming the economy . I think that the honest answer to that has to be similar to the answer i gave to senator kennedy earlier. I believe there are many more options for the resolution, and even at the largest institutions than existed before. I think the work done on resolvability has been useful and i think that it could be possible. They are complex institutions and you know, in this situation, in which that issue would arise in the future is difficult to describe precisely and so, i wouldnt want to say that you would always be able to do it, but i think were closer to being able to do it. Much closer than before. Bankruptcy is a preferred route, a statutory mandate and we have to consider bankruptcy first. Congress gave us additional authority, doddfrank, with the liquidation fund, and i hope never to use to resolve the large banks. Generally bankruptcy would be the route and we have increased bankruptcy judges, how that would be done to large entities. The point with the law made a decade account was to make them simpler and smaller and they going through bankruptcy. The point wasnt to make it more complicated or special for mega banks. Were seeing the banks not only bigger before this, theyve approved another merger and it creates a bank twice as large as Washington Mutual was at that time when it causes the biggest lost to the deposit fund and i think we need to be cautious and one last statement, mr. Chairman, i heard the comment earlier about the most that is the bank, 35 years experience, mr. Quarles and he said the Banking System is bigger, stronger, more stable. Its certainly more profitability, but more profitable shouldnt be the measure of my any of our work. It should be the measure of the safety and soundness of the Financial System with all that that means as you continue to love towards less regulation, its hard to believe its making it stronger. It seems to me your agencies are making market less competitive by weakening rules for the largest banks, allowing them to make risky leverage bets rather than require them Banking Services and where its needed most. In weakening, gutting regulations and you claim to be making the economy work better for Small Businesses and farmers and workers and small banks, but your actions paved the way for mega banks and wall street to make the same risky bets that shuttered those and those actions i think betrays the economy. Thanks again. And thanks to the witnesses for the issues you brought here today and as ive said at the outset, i appreciate what youre doing to implement bill 2155 and basically frame our approach in the ways that strengthen our economy, strengthen our opportunities for strong housing and for jobs and benefits and growth in our economy. And look forward to the next time we have an opportunity to bring you before us. Again, thank you for being here. Thank you. [inaudible conversations] [inaudible conversations]. [inaudible conversations] [inaudible conversations] here is a look at todays schedule here on cspan2. Next, a u. S. Chamber of commerce look at the future of the space economy. What the jobs will be and how to find people who will work in space. Thats followed by acting customs and border commissioner mark morgan on issues hes dealing with on the southern border. Then, the librarian is talking to congress ton whats being done to the national library. And then a hearing on health care of elderly americans. How its going and what needs to be done. Thats today on cspan2. Week nights this week, were featuring book tv programs, tonight, we take a look at books by members of congress. Well start with House Minority whip louisiana representative Steve Scalise and back in the game, countless heroes and the fight for my life. Senator Kamala Harris in the truth we hold and thats followed by Senate Majority leader mitch mcconnell, the u. S. Senate and the commonwealth. Enjoy book tv in prime time this week and all day every weekend on cspan2. Hi, everyone, my name is adam cook, im a 2018 cspan student cam winner. Im here to encourage you to wrap up this competition as the deadline is close. Dont worry, you still have time. This is about the time i started filming my documentary the first time i entered it. Im here in washington d. C. , cspan camera opportunity to express my thoughts and views on the Political Climate and connecting with state and local leaders and political office. Im extremely excited you all are interested in this and pursuing this. Its a once in a lifetime and im so excited you all are taking it. Theres still time to enter the cspan video competition. You have until january 20th for a five to six minute documentary to explore what you want the candidates to address during campaign 2020. Were giving away a total of 100,000 in cash prizes and the grand prize. And go to student cam. Org. Next, a look at the potential for commerce in space. Chamber of commerce ceo Thomas Donohue joined officials from the f. A. A. And