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EXAMINING LEGISLATIVE PROPOSALS 

TO REDUCE REGULATORY BURDENS ON 

MAIN STREET JOB CREATORS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS 

AND CONSUMER CREDIT 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

OCTOBER 21, 2015 

Printed for the use of the Committee on Financial Services 

Serial No. 114–55 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

ROBERT HURT, Virginia 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

DAVID SCHWEIKERT, Arizona 

FRANK GUINTA, New Hampshire 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

RANDY NEUGEBAUER, Texas, Chairman 

STEVAN PEARCE, New Mexico, Vice 

Chairman 

FRANK D. LUCAS, Oklahoma 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

ROBERT PITTENGER, North Carolina 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

FRANK GUINTA, New Hampshire 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

MIA LOVE, Utah 

TOM EMMER, Minnesota 

WM. LACY CLAY, Missouri, Ranking 

Member 

GREGORY W. MEEKS, New York 

RUBE ́ N HINOJOSA, Texas 

DAVID SCOTT, Georgia 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

STEPHEN F. LYNCH, Massachusetts 

MICHAEL E. CAPUANO, Massachusetts 

JOHN K. DELANEY, Maryland 

DENNY HECK, Washington 

KYRSTEN SINEMA, Arizona 

JUAN VARGAS, California 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

October 21, 2015 ............................................................................................... 1 

Appendix: 

October 21, 2015 ............................................................................................... 41 

WITNESSES 

WEDNESDAY, OCTOBER 21, 2015 

Ireland, Oliver, Partner, Morrison & Foerster LLP ............................................. 6 

Kupiec, Paul H., Resident Scholar, American Enterprise Institute .................... 4 

Stanley, Marcus, Policy Director, Americans for Financial Reform (AFR) ......... 7 

APPENDIX 

Prepared statements: 

Ireland, Oliver .................................................................................................. 42 

Kupiec, Paul H. ................................................................................................. 50 

Stanley, Marcus ................................................................................................ 58 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Neugebauer, Hon. Randy; and Tipton, Hon. Scott: 

Written statement of the Credit Union National Association ...................... 65 

Written statement of the National Association of Federal Credit Unions .. 69 

Tipton, Hon. Scott: 

Letter from the American Bankers Association, dated July 6, 2015 ........... 71 

Written statement of the Independent Community Bankers of America .... 72 

(1) 

EXAMINING LEGISLATIVE PROPOSALS 

TO REDUCE REGULATORY BURDENS ON 

MAIN STREET JOB CREATORS 

Wednesday, October 21, 2015 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

AND CONSUMER CREDIT, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 10 a.m., in room 

2128, Rayburn House Office Building, Hon. Randy Neugebauer 

[chairman of the subcommittee] presiding. 

Members present: Representatives Neugebauer, Pearce, Lucas, 

Posey, Luetkemeyer, Stutzman, Mulvaney, Pittenger, Barr, 

Rothfus, Guinta, Tipton, Williams, Love, Emmer; Clay, Meeks, 

Hinojosa, Scott, Maloney, Sherman, Delaney, Heck, Sinema, and 

Vargas. 

Ex officio present: Representatives Hensarling and Waters. 

Also present: Representatives Hultgren, Stivers, Messer, and 

Green. 

Chairman NEUGEBAUER. The Subcommittee on Financial Institutions and Consumer Credit will come to order. Without objection, 

the Chair is authorized to declare a recess of the subcommittee at 

any time. 

Today’s hearing is entitled, ‘‘Examining Legislative Proposals to 

Reduce Regulatory Burdens on Main Street Job Creators.’’ 

Before I begin, I would like to thank the witnesses for traveling 

to 2128 Rayburn, and making yourselves available for our questions. I also ask unanimous consent that any members of the full 

Financial Services Committee who are not members of the subcommittee be allowed to participate in today’s hearing. 

Without objection, it is so ordered. 

I now recognize myself for 3 minutes to give an opening statement. 

Good morning. Today, we continue the subcommittee’s focus on 

providing regulatory relief for Main Street job creators. Throughout 

this Congress, we have seen examples and heard testimony about 

how regulatory impediments prohibit job creation, cause consolidation of community financial institutions, and decrease the choices 

for our consumers. 

Some of the proposals we have already considered have received 

bipartisan support. Many of the bills before this subcommittee 

today are no different. For example, Representative Stivers introVerDate Nov 24 2008 18:40 Oct 05, 2016 Jkt 099753 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\99753.TXT TERI
2 

duced H.R. 2121, the SAFE Transitional Licensing Act, which will 

ensure that workers who originate mortgages at depository institutions are able to move to nondepository institutions with a minimal 

amount of work disruption. This bill has very broad bipartisan support on the committee and in the House. 

H.R. 2473, introduced by Ranking Member Clay and I, will ensure that small credit unions are able to more easily access the secondary mortgage market to ensure their members get competitive 

prices and robust credit availability. This bill is especially important in light of the Federal Housing Finance Agency’s (FHFA’s) 

proposed rule changing the membership requirements of the Federal Home Loan Banks. 

While not yet bipartisan, H.R. 3340, from Representative 

Emmer, is another important bill to be considered today. It would 

provide much needed congressional control over the budget of the 

Financial Stability Oversight Council (FSOC). While I may not always agree with FSOC, it is perfectly positioned to help coordinate 

multi-agency regulatory issues. I have become increasingly disappointed that FSOC has failed to provide that coordination and 

has instead become dominated by the Treasury and the Federal Reserve. 

Some will argue that this bill will undercut FSOC’s work, but 

that is really not the case. H.R. 3340 preserves the funding stream 

for FSOC in the Office of Financial Research (OFR), but requires 

congressional approval on how they spend the money. 

Several other great bills are before our committee today to demonstrate the hard work of several of our members, and I look forward to hearing from our witnesses about how these bills will work 

from a mechanical standpoint, and how they will also help us 

achieve the policy objective of reducing regulatory burdens for our 

job creators. 

I now recognize the ranking member of the subcommittee for as 

much time as he may consume. 

Mr. CLAY. Thank you, Mr. Chairman. 

And thank you to each of the witnesses for your insight and for 

your testimony today. 

Much of our work in this subcommittee has been dedicated to 

finding common ground on regulatory relief. We have been partially successful in doing so, and today’s hearing includes a number 

of proposals that provide real relief for Main Street, including H.R. 

2473, as the chairman mentioned, a proposal that we have cosponsored. 

I would caution my colleagues against proposals that have failed 

to attract bipartisan support and that undermine the implementation of the Dodd-Frank Act, like H.R. 2896 and H.R. 3340, or like 

H.R. 2287, which seeks to pressure the National Credit Union Association (NCUA) into shrinking its budget just as credit unions become more complex. Regulatory relief is a worthy objective, but it 

should always be balanced against broader considerations, such as 

ensuring the safety and soundness of our financial system, protecting the independence of our financial regulators, and supporting the implementation of Dodd-Frank. 

Thank you again to each of today’s witnesses. And I yield back 

the remainder of my time. 

3 

Chairman NEUGEBAUER. I thank the gentleman. 

And now, the Chair recognizes the gentleman from Colorado, Mr. 

Tipton, for 2 minutes. 

Mr. TIPTON. Thank you, Mr. Chairman. I would like to thank the 

ranking member for holding this hearing. 

Reducing the regulatory burden for Main Street job creators like 

small banks and credit unions is certainly an important topic and 

should continue to be a consistent bipartisan goal of this committee. I would like to thank our witnesses for taking the time to 

appear before the committee today as well. 

I ask for unanimous consent to enter into the record letters from 

the American Bankers Association, the Independent Community 

Bankers of America, the Credit Union National Association, and 

the National Association of Federal Credit Unions supporting the 

Taking Account of Institutions with Low Operational Risk (TAILOR) Act. 

Chairman NEUGEBAUER. Without objection, it is so ordered. 

Mr. TIPTON. H.R. 2896, the Taking Account of Institutions with 

Low Operational Risk, or the TAILOR Act, which I introduced with 

Representative Barr, is a legislative relief effort designed to give financial regulators the ability to appropriately tailor regulations to 

fit a bank or credit union’s business model and risk profile. 

Banks and credit unions are currently regulated under a onesize-fits-all approach, regardless of the size or risk profile. This 

means that regulations designed and intended for big banks are 

also applied to small community and independent banks or credit 

unions imposing compliance regimens and costs that many of them 

find unbearable. This legislation has the support of 37 cosponsors 

and over 55 State bank and credit union associations. 

Additionally, several regulatory agencies recognize that banks 

and credit unions which engage in traditional banking activities 

should have their regulatory burden eased. That is exactly what 

this legislation is intended to do. FDIC Chairman Thomas Hoenig 

noted that for the vast majority of commercial banks that stick to 

traditional banking activities, and conduct their activities in a safe 

and sound manner, with sufficient capital reserves, the regulatory 

burden should be eased. 

Tailoring regulations to account for the business model, risk profile, and cumulative impact ensures a strong regulatory model that 

minimizes burdensome regulations. Research has also shown that 

one-size-fits-all regulations have made it harder for community 

banks’ customers to obtain loans, as well as making banking and 

credit services more expensive for small businesses, those living in 

rural communities like the Third District of Colorado which I represent, and millions of American consumers and businesses that 

are more challenging to reach or more expensive for larger banks 

to service. 

This legislation will reverse that trend and help small banks and 

credit unions focus on their communities again so that Main Street 

can access the credit it needs for sustainable economic growth. 

Thank you, and I yield back my time. 

Chairman NEUGEBAUER. I thank the gentleman. 

I will now introduce our panel. Dr. Paul Kupiec serves as a resident scholar at the American Enterprise Institute. Dr. Kupiec’s 

4 

work focuses on the study of systemic risk and the management of 

and regulations of banks and financial markets. 

Mr. Oliver Ireland serves as a partner in the law firm of Morrison & Foerster. Mr. Ireland’s practice focuses on retail, financial 

services, and bank regulatory issues. 

And Mr. Marcus Stanley serves as policy director at Americans 

for Financial Reform. Dr. Stanley’s work focuses on all aspects of 

financial regulations with a focus on Dodd-Frank law. 

Each of you will be recognized for 5 minutes to give an oral presentation of your testimony. And without objection, each of your 

written statements will be made a part of the record. 

Dr. Kupiec, you are recognized for 5 minutes. 

STATEMENT OF PAUL H. KUPIEC, RESIDENT SCHOLAR, 

AMERICAN ENTERPRISE INSTITUTE 

Mr. KUPIEC. Chairman Neugebauer, Ranking Member Clay, and 

distinguished members of the subcommittee, thank you for convening this hearing. It is an honor for me to testify here today. 

My testimony will consider the merits of seven separate bills that 

are currently under consideration. In my opinion, none of these 

bills will magnify financial sector risks, nor will any of these bills 

dilute the Dodd-Frank Act’s requirement for heightened supervision and regulation of systemically important financial institutions (SIFIs). 

Many of these bills propose commonsense improvements to existing legislation. For example, the SAFE Transitional Licensing Act 

of 2015 creates a 120-day grace period during which a licensed 

mortgage loan originator may continue originating loans while 

changing jobs and applying for a new license. 

The National Credit Union Administration Budget Transparency 

Act will approve accountability and management of the NCUA by 

requiring public disclosure and soliciting comments as part of the 

annual budgeting process. 

The Community Bank Capital Clarification Act amends Section 

171 of the Dodd-Frank Act so that all bank holding companies with 

less than $15 billion in consolidated assets will be exempt from the 

Dodd-Frank Act mandatory holding company leverage and riskbased capital regulations. Bank holding companies below the $15 

billion threshold as of December 2009 were exempted in the DoddFrank Act because they were not seen as a threat to financial stability. I do not see why similarly sized institutions would pose a 

threat today. 

The Preserving Capital Access and Mortgage Liquidity Act of 

2015 allows credit unions under a billion dollars to join the Federal 

Home Loan Bank (FHLB) System without meeting the FHFA’s proposed mortgage threshold rules. This amendment would merely put 

the FHLB membership requirements for credit unions on par with 

those of small banks. 

The Financial Stability Oversight Council Reform Act places the 

Office of Financial Research under the normal congressional appropriations and oversight process. The OFR should have been subject 

to these procedures from the beginning. 

Two proposed bills are more involved and require a bit more explanation. The TAILOR Act of 2015 requires bank regulatory agenVerDate Nov 24 2008 18:40 Oct 05, 2016 Jkt 099753 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 K:\DOCS\99753.TXT TERI
5 

cies to modify their supervision and regulation practices so that 

they are appropriate for the risk profile of smaller institutions. 

There is a legitimate concern in Congress that the Dodd-Frank Act 

includes new heightened standards for supervision and regulation 

that were intended for larger institutions but instead are being applied to all regulated depository institutions. 

The TAILOR Act requires regulators to modify their one-size-fitsall approach to regulation and reduce regulations and processes 

that are burdening smaller institutions with unnecessary and unproductive compliance costs. Regulators must explicitly recognize 

the need to tailor regulations and supervisory processes and reflect 

this tailoring in their examination manuals and notices of proposal 

rulemaking. 

The final bill I will discuss, H.R. 2209, requires the banking 

agencies to amend their Liquidity Coverage Ratio (LCR) rule to 

give low-risk, highly liquid, State and municipal bond obligations 

treatment that is consistent with their liquidity characteristics. 

The LCR requires large banks and bank holding companies to hold 

a sufficient quantity of highly liquid assets (HQLA) to enable them 

to survive a hypothetical month-long bank run. The LCR has specific requirements that determine which bank assets count as 

HQLA. The final LCR rule does not recognize State or municipal 

bonds as HQLA, so they have no value toward satisfying the LCR 

requirement. 

Many public comment letters recommended that investment 

grade liquid, State, and municipal securities be included in HQLA. 

The reasons for counting State and muni securities in HQLA include the fact that many of these bonds are at least as liquid as 

the corporate bonds that are eligible for HQLA treatment, many 

have higher ratings and better liquidity than some of the foreign 

bonds that are also eligible for Level 1 and Level 2 assets in the 

HQLA, and many asset-specific characteristics for the Level 2 and 

Level B requirements are met by many State and municipal bonds. 

There is concern that the exclusion of State and municipal bonds 

from the definition of HQLA will damage muni market liquidity as 

banks will no longer favor holding these issues. In May 2015, the 

Federal Reserve Board proposed amending its LCR rule to recognize State and municipal bonds as Level 2 assets, which would 

count as HQLA. 

H.R. 2209 will require the Federal banking agencies to revise the 

final LCR rule to include qualifying State and municipal bonds as 

Level 2A assets in the definition of HQLA. This change is appropriate and consistent with the public interest. I would go further 

and recommend that State and municipal bonds that satisfy the 

characteristics required by Level 2B assets should also be recognized in HQLA. 

Thank you, and I look forward to your questions. 

[The prepared statement of Dr. Kupiec can be found on page 50 

of the appendix.] 

Chairman NEUGEBAUER. Thank you. 

Mr. Ireland, you are recognized for 5 minutes. 

6 

STATEMENT OF OLIVER IRELAND, PARTNER, MORRISON & 

FOERSTER LLP 

Mr. IRELAND. Thank you, Chairman Neugebauer, Ranking Member Clay, and members of the subcommittee. I am pleased to be 

here today. My name is Oliver Ireland. I am a partner in the financial services practice at Morrison & Foerster here in town and previously was an Associate General Counsel with the Federal Reserve Board. I was with the Federal Reserve System for 26 years 

before joining private practice. I currently have more than 40 years 

experience dealing with bank regulatory issues. 

Today, the subcommittee is considering seven different proposals 

that cover a broad range of issues. My testimony will touch on each 

of them. I look forward to questions and to drilling down on details 

at the subcommittee’s pleasure. 

The TAILOR Act, H.R. 2896, would address the problem of regulatory burdens on smaller institutions due to requirements designed for larger and more complex institutions. Many of the provisions of the Dodd-Frank Act tried to differentiate between larger 

and smaller institutions, some of them in the statute, some of them 

in the regulations, but there is nevertheless a trickle-down effect 

on smaller institutions. 

Smaller institutions remain subject to some very complex rules, 

including things such as the Volcker Rule, and while in practice it 

shouldn’t apply to any of their activities, they still have to understand the Rule in order to be sure that it doesn’t. So I think the 

TAILOR Act is another step to try to address regulatory burden on 

smaller institutions. I think it is an important step. 

H.R. 2987, the Community Bank Clarification Act, would expand the grandfather for capital instruments for under-$15 billion institutions. This is a technical change to the current statute. Drafting 

legislation, particularly in a response to a crisis such as the recent 

financial crisis, and creating the Dodd-Frank Act is hard work. 

There are bound to be technical issues. This is one of the technical 

issues, it is a cleanup, and I can’t see why there should be any controversy with respect to that provision. 

H.R. 2473, Preserving Capital Access and Mortgage Liquidity, 

expands credit unions’ access to Federal Home Loan Bank membership and Federal Home Loan Bank borrowing and should promote 

credit union lending to smaller businesses, smaller farms, and community development organizations, and I think that is also desirable. 

H.R. 2121 is the SAFE Transitional Licensing Act and deals with 

mortgage originator licensing under the SAFE Act and facilitates 

the movement of mortgage originators, individuals, from depository 

institutions to nondepository institutions and between States. I understand that there is perhaps a subsequent discussion draft of 

that bill, and there may be technical issues that need to be worked 

out, but I think the thrust of the proposal is good and will improve 

competition among mortgage originators, and competition improves 

quality. 

H.R. 2287 deals with budgetary transparency for the NCUA. I 

understand that bank regulators don’t necessarily like to have 

their budgets scrutinized. I lived as a bank regulator for a long 

time, and I think at least the bank regulatory budget ought to be 

7 

something that people are aware of and understand the purposes 

of and understand what is going on, and I am for budgetary transparency. 

H.R. 2209 deals with municipal obligations under the Liquidity 

Coverage Ratio. I think that the failure to include municipal obligations as high-quality liquid assets in the current rules will adversely affect the liquidity of those obligations and will almost inevitably adversely affect the pricing of those obligations, making it 

more difficult and more expensive for States and municipalities to 

raise funding going forward. And as my colleague Dr. Kupiec pointed out, the risks of expanding high-quality liquid assets to pick up 

these assets are minimal. 

The Financial Stability Oversight Council Reform Act again is 

budgetary transparency and budgetary accountability for the Office 

of Financial Research. I think the people of the United States have 

a right to know how their money is being spent and oversight over 

that money, unless there are serious issues that the political process will impair those functions, which I don’t see here. 

Thank you. I look forward to your questions. 

[The prepared statement of Mr. Ireland can be found on page 42 

of the appendix.] 

Chairman NEUGEBAUER. I thank the gentleman. 

Now, Mr. Stanley, you are recognized for 5 minutes. 

STATEMENT OF MARCUS STANLEY, POLICY DIRECTOR, 

AMERICANS FOR FINANCIAL REFORM (AFR) 

Mr. STANLEY. Thank you. Chairman Neugebauer, Ranking Member Clay, and members of the subcommittee, thank you for the opportunity to testify before you today. 

AFR opposes H.R. 2287, H.R. 2896, and H.R. 3340. We also have 

some concerns regarding H.R. 2209. We have no views on the other 

bills under consideration today. 

The TAILOR Act would mandate that Federal banking regulators tailor regulations to the risk profile of regulated institutions. 

We view the specific requirements in this legislation as unnecessary, as regulators are already scaling rules to the business model 

of affected institutions. 

We also view several of the provisions in this bill as potentially 

harmful. H.R. 2896 requires Federal financial regulators to limit 

the regulatory impact costs and burdens to regulated institutions. 

This broad and vague mandate prioritizes reducing the cost of regulation over the offsetting benefits gained for consumers and the 

general public. It would apply to all regulated entities and is not 

limited to community banks. 

While the requirements in H.R. 2896 sound reasonable in the abstract, their practical effect would be to layer additional requirements on an already lengthy and cumbersome rulemaking process 

and to create numerous litigation opportunities for the financial industry to challenge regulation in court based on the extremely 

broad and vague mandates in this legislation. 

H.R. 3340 would eliminate the independent funding for the Financial Stability Oversight Council and its research arm, the Office 

of Financial Research, and also require that the OFR provide an 

advance comment period prior to issuing any report. 

8 

The FSOC and the OFR were created as a direct response to the 

grave weaknesses in the financial regulatory system that were revealed in the 2008 financial crisis. The inability to provide unified 

and coherent oversight of nonbank financial institutions, as well as 

the financial system as a whole, contributed directly to the financial crisis of 2008 and its disastrous impact on the U.S. and world 

economy. 

Political independence is crucial to the work of the FSOC and the 

OFR. While there are many checks and balances built into the 

process of FSOC designation, including multiple appeal opportunities and the ability to challenge FSOC designation in court, the potential micromanagement of financial risk assessment through the 

congressional appropriations process should not be one of them. 

The importance of impartial risk assessment is the reason why 

all of our major bank regulators, including the FDIC, the OCC, the 

Federal Reserve, and the CFPB, are independently funded outside 

of the congressional appropriations process. 

The bill’s requirement that the OFR solicit public comment prior 

to issuing reports on financial risk would also limit the independence of the agency and its ability to objectively assess risk, free of 

outside pressures. 

H.R. 2287 would require the National Credit Union Administration to make drafts of their agency budget publicly available for 

comment and to respond to or incorporate such public comments in 

their final agency budget. We believe the budgetary requirement in 

H.R. 2287 is inappropriate for a public regulatory entity. The 

NCUA has the crucial role of safeguarding the taxpayer guarantee 

of publicly insured credit union deposits. It requires independence 

from those it regulates. 

While credit unions certainly did not cause the 2008 crisis, it is 

still important to remember that significant public action was required during that period to rescue the credit union system. This 

included the seizure and closure of several large credit unions and 

the issuance of over $30 billion in government-guaranteed bonds to 

stabilize the system. 

H.R. 2209 would mandate that banking regulators classify investment grade municipal debt obligations as liquid assets under 

the Liquidity Coverage Ratio. AFR shares concerns regarding the 

treatment of municipal debt in the LCR rule and raised similar 

concerns in our comment to regulators. However, we believe that 

given existing regulatory efforts to address this issue, and the apparently quite limited impact of the LCR rule on the municipal 

debt market, it is more appropriate to leave this issue to regulatory 

action rather than act through statute. 

In relation to the FSOC, which is related to the H.R. 3340 bill 

being discussed today, I would also like to mention another piece 

of legislation, H.R. 1550, that while not included in today’s legislation, may also be marked up by the committee soon. This legislation would at least double the time it takes for the Council to designate a large financial firm from the current 2 years to at least 

4 years, and it could create a situation where a large financial firm 

that is skilled at manipulating the process could delay increased 

regulatory oversight almost indefinitely. 

9 

FSOC designation is already a multiyear process that includes 

some 10 major steps and multiple opportunities for appeal. Given 

the importance of the FSOC, Congress should reject legislation like 

H.R. 1550 that would bog down operations even further. 

Thank you. 

[The prepared statement of Mr. Stanley can be found on page 58 

of the appendix.] 

Chairman NEUGEBAUER. I thank the gentleman. 

I will now recognize myself for 5 minutes for questions. 

I want to go to H.R. 2209, the municipal securities as high-quality liquid assets. It was mentioned that in the current rule that 

high-quality investment grade municipals would not be HQLA. And 

so I think one of the questions that comes from that is—and I will 

start with you, Dr. Kupiec—what are the consequences to these 

municipals and to States if these investment grade municipals are 

not allowed to be high-quality liquid assets? 

Mr. KUPIEC. Thank you. Any rule that limits a large set of financial institutions’ ability to hold these kind of instruments cannot be 

a good thing for the State muni bond markets. It has to increase 

the rates they pay on new issues. The liquidity rules singling out 

types of instruments that can’t be used to satisfy a liquidity requirement is like a feedback loop. If you can’t buy the bonds, banks 

aren’t going to buy the bonds, and the liquidity in the bond market 

will go down. There will be ramifications. 

The bill under consideration—all it asks for is that if the bonds 

actually satisfy the specifications in the rule that would make them 

eligible for Level 2A or 2B status, they ought to be recognized. The 

rule is very explicit about the liquidity criteria. So if the bonds 

meet the liquidity criteria, why aren’t we recognizing them? It 

seems to me a fairly straightforward way to improve the Liquidity 

Coverage Ratio. 

Chairman NEUGEBAUER. Mr. Ireland, you said in your testimony 

that the demand for these securities generated by the designation 

would create liquidity and result in lower cost of funding. Can you 

also elaborate, then, on how this designation can increase the demand by the banks for these municipal securities? 

Mr. IRELAND. I think a key feature is looking at the market liquidity and banks’ investment incentives under the Liquidity Coverage Ratio in conjunction with other rules. For example, the leverage ratio in the capital rules, and particularly the supplemental leverage ratio for larger institutions, to the extent that it is binding, 

tends to discourage institutions from holding lower-yielding highquality bond assets because it places the same capital charge on 

those assets as it places on higher-yielding loan assets, for example. 

So as you are looking at your balance sheet, the larger banks are 

discouraged, essentially, from holding municipal securities because 

of some of the capital rules, and they will have an incentive, however, to hold securities that satisfy the Liquidity Coverage Ratio 

rules, and things that are similar but aren’t listed in the Liquidity 

Coverage Ratio rules will suffer significantly. And I think you are 

going to start to see a cliff effect at the line between those eligible 

high-quality liquid assets and things that aren’t. And so you are 

making the market through the rules, and if you leave the munis 

10 

out of the rules, I think it is inevitable, as Dr. Kupiec has said, 

going to cost municipalities and States money and their funding. 

Chairman NEUGEBAUER. It appeared to me that there were really 

kind of two losers, and that one is the States and municipalities, 

but also the banks. In this very-low-interest rate environment, a 

few basis points makes a big difference. And obviously, the municipals have two advantages to them, one a little bit higher yield, and 

the other is the tax consequences of not being taxable also enhance 

that yield a little bit. 

Mr. IRELAND. I think it adversely affects everybody concerned. 

Chairman NEUGEBAUER. Mr. Stanley, you mentioned in your testimony that there were some important safeguards in H.R. 2209 

that you were complimentary of, so would you elaborate a little bit 

on those? 

Mr. STANLEY. Yes. Dr. Kupiec mentioned those safeguards, that 

the legislation does specify that in order to be eligible muni bonds 

would have to satisfy the rules for liquidity, marketability, and 

being investment grade. And I thought it was good that that was 

specified in the statute. 

Chairman NEUGEBAUER. I thank the gentleman. I don’t really 

have enough time for another question, so I am going to recognize 

the gentleman from Missouri, the ranking member of the subcommittee, Mr. Clay, for 5 minutes. 

Mr. CLAY. Thank you, Mr. Chairman. 

Mr. Stanley, could you describe the regulatory capture concerns 

that are created by a process where credit unions are shaping their 

regulators’ budget? 

Mr. STANLEY. Yes. The concern is that the regulated entities, in 

this case credit unions, would have an incentive to take risks with 

insured deposits, and the NCUA, of course, is in a supervisory role 

to ensure that they don’t do that. So there are differing interests 

there. And if regulated entities could effectively punish their regulator for stringent supervision, for preventing them from taking 

risks that might profit the credit union but risk those insured deposits, then they could use the budget process to do that. 

Mr. CLAY. So H.R. 2287, if adopted, sets a dangerous precedent 

for other prudential regulators? 

Mr. STANLEY. Absolutely. These are not self-regulatory bodies. 

They are public regulatory bodies protecting the public interest and 

protecting potential taxpayer exposure on insured deposits, and it 

is very important to keep that line clear. 

Mr. CLAY. What lessons did we learn from the financial crisis 

concerning the dangers of captive regulators and excessive industry 

influence on the budgets of prudential regulators? 

Mr. STANLEY. I think there were many, many lessons. Regulators 

clearly ignored a massive buildup of systemic risk throughout the 

financial system. There appears to have been this kind of bidding 

process between different regulators where agencies like the Office 

of Thrift Supervision let it be known that they were more lenient 

as regulators in order to get the budgetary advantages of supervising particular entities. 

And in retrospect, the failures of risk management and the failures of regulators to spot these risks building up in the system 

were just egregious, and there is a lot in Dodd-Frank instructing 

11 

and requiring regulators to take stronger action, and we need to 

not roll that back. 

Mr. CLAY. Is there any reason to believe that the credit union industry won’t seek the same kinds of reductions in the NCUA supervisory resources that they sought from 2001 to 2009 when the 

NCUA held predecisional budget hearings? 

Mr. STANLEY. Yes, that is a great example. I was speaking more 

broadly about the financial crisis, but in the specific case of credit 

unions, the NCUA actually had fewer supervisors in 2009 than 

they did in the year 2000, despite the growth of the financial sector, and we had a major crash of the credit union system in 2009 

and 2010 which required large-scale public intervention. So that is 

a lesson we need to learn from. 

Mr. CLAY. All right. At this point, Mr. Chairman, I have no further questions and I yield back. 

Chairman NEUGEBAUER. I thank the gentleman. 

I recognize the gentleman from New Mexico, the vice chairman 

of the subcommittee, Mr. Pearce, for 5 minutes. 

Mr. PEARCE. Thank you, Mr. Chairman. 

I appreciate each of you and your testimony. 

Now, one of the things that we have been wrestling with in our 

State is that the Dodd-Frank regulations were intended for the 

large institutions but they bleed down to the smaller ones because 

it’s impossible in the mindset of regulators to have two different 

mindsets when you walk in, so they are going to hold to the tighter 

regulations. 

Mr. Kupiec, are you familiar with any of the effects that this is 

having on financial institutions in the smaller rural States, ones 

without the big megabanks? 

Mr. KUPIEC. I am familiar with the general process you described, having worked for a bank regulatory agency for many 

years. I am not particularly familiar with anything that is going on 

in any particular institution. 

Mr. PEARCE. Thank you. 

Mr. KUPIEC. The process, though, is kind of very natural. Within 

the bank supervisory community, the supervisors who are in 

charge of the largest institutions are generally thought to be sort 

of the best and the brightest. They are the top of the class, the ones 

who get promoted, the ones who move up in the agencies. And this 

sort of creates this standard that all the other examiners want to 

do exactly what the guys in the big institutions and women in the 

big institutions are doing. 

There is this very natural process where the regulations imposed 

on the—the most complicated regulations are the ones that everybody wants to use because it sort of promotes the examiner’s career 

path. So there is a real sort of social force here that makes the 

more complex regulations feed down into the smaller institutions. 

It is pervasive in the way the examination process works. 

Mr. PEARCE. If you have been inside the room doing the process, 

then maybe I would like to hear your observation on Mr. Stanley’s 

assertion that tailored rules will limit the regulatory compliance 

impact, cause liability, other budgets, and it will mandate the 

prioritization of the cost of regulations to financial institutions over 

the offsetting benefits to the consumers. 

12 

Because I see that playing out exactly the opposite way. There 

is nobody from a big institution in New York who is going to come 

out and give a loan for a mobile home in my district, and 50 percent of the houses in my district are mobile homes. And so, there 

are people like Mr. Stanley who would say, no, they all have to 

come by the same rule, and it is not really unfair to the small people. Banks are closing at an alarming rate in the smaller States, 

in the smaller rural communities, and there is nobody coming from 

Washington, D.C., to give small business loans and to lend money 

for trailer houses. 

So I would like your observations on his comments that that 

would somehow disenfranchise the consumers out there. It looks 

like putting them under the bigger regulatory standards of the big 

institutions is actually what is disenfranchising the consumers. 

Would you like to comment? 

Mr. KUPIEC. I would say a good example of this is the rules that 

were promulgated by the Consumer Financial Protection Bureau 

(CFPB) on the mortgage underwriting standards, where small 

bankers in small towns have to adopt what were essentially the 

same practices that the largest banks would use to document all 

kinds of processes when, in fact, in a small town those things may 

not be the right way to underwrite mortgages, that they took basically a computer-driven underwriting standard that would apply in 

the largest shops and forced those standards to be reflected in the 

smaller banks. So that is exactly the kind of problem that these 

rules cause, and it does force smaller banks out of the business. 

Mr. PEARCE. But you as a former regulator confirm that your observation is that the people who percolate to the top in the regulatory field are going to be the ones who come from the big institutions, and they have that bias towards everyone following the same 

rule, and so you are confirming that. 

Mr. Stanley, I would love to hear your observation as to why we 

in the small community shouldn’t be screaming at the process 

which is eliminating our access to capital. The poor people in New 

Mexico are not going to be able to get a loan off of Wall Street, believe me. When you succeed, and people with your viewpoint succeed in shutting us down, we have nothing else. So I would appreciate your observations. 

Mr. STANLEY. Let me say, first of all, to take the case of the 

CFPB, the CFPB did provide extensive exemptions for small banks 

and banks in rural communities from those underwriting provisions, the qualified mortgage provisions that Dr. Kupiec refers to. 

And I would also say, if our concern is, say, banks under a billion 

dollars, which make up a very substantial portion of community 

banks and are, I think, the community banks where we have the 

economic issues, let’s limit these bills to banks under a billion dollars; let’s put size limitations on these bills. 

Mr. PEARCE. Mr. Chairman, before I yield back, and I appreciate 

that, but those safeguards that were put into the bill you hear are 

being routinely ignored because the bias inside the agency says so. 

Again, I yield back. And I appreciate your response, sir. 

Chairman NEUGEBAUER. The gentleman’s time has expired. 

I now recognize the gentleman from Texas, Mr. Hinojosa, for 5 

minutes. 

13 

Mr. HINOJOSA. Thank you, Chairman Neugebauer and Ranking 

Member Clay, for holding this hearing. 

And thank you to those distinguished panel members for your 

appearance and testimony here today. 

Small businesses and Main Street are the lifeblood of our economy. We should be doing everything we can to ensure that Main 

Street America is able to prosper. 

Sadly, however, this Congress is going down a path fundamentally hurtful to Main Street. While this committee examines legislative proposals aimed at helping Main Street, the House today 

considers H.R. 692, the Pay China First Act. This H.R. 692 is nothing but default by another name. Moreover, adding insult to injury, 

H.R. 692 mandates that we pay foreigners instead of American 

servicemembers and veterans. 

Rather than acting responsibly, this Congress prefers to play 

Russian roulette with our economy and the lives of millions of 

Americans. Raising the debt ceiling does not increase the deficit 

nor authorize new spending. It merely pays the bills this Congress 

has already authorized. Raising the debt ceiling is the only responsible thing to do, in my opinion. 

My first question goes to Paul Kupiec. H.R. 2209 would consider 

muni bonds that are liquid and readily marketable, as well as investment grade to be treated as Level 2A liquid assets. The banking regulators appear to have been unable to fairly or effectively 

differentiate between municipal securities. 

So by skirting the regulatory process, is Congress essentially 

picking winners and losers between financial asset holdings for 

banks and financial institutions? 

Mr. KUPIEC. Thank you very much for the question. 

I don’t think that Congress is necessarily stepping in to pick winners and losers. What I think they are doing is stepping in to encourage the bank regulators to actually pay attention to this problem. 

As I mentioned, in May the Federal Reserve Board introduced a 

notice of proposed rulemaking to allow munis to be considered as 

Level 2B assets, even though they passed the final rule the prior 

October and didn’t permit muni assets in. So, the Federal Reserve 

Board has started to rethink the rule and change the rule. And 

what the committee has merely said was, this is a good idea, speed 

it up, but if they qualify as Level 2A assets, why aren’t you counting them as 2A assets then? 

Mr. HINOJOSA. Let me ask you then, of the more than 90,000 municipal insurers—that includes States, cities, schools, and hospitals—which municipalities do you think would qualify as liquid, 

readily marketable, and investment grade? Give me a few examples. 

Mr. KUPIEC. I couldn’t give you names right off, but I am sure 

that you want me to say it is the larger municipalities and States, 

and I would have to agree, that is probably the case. 

Mr. HINOJOSA. Those in small communities like mine and that 

of the former speaker, I think that we are very concerned that the 

small ones would be hurt. 

Let me ask you this last point. NCUA, did they voluntarily between 2001 and 2009 lead to a substantial reduction in the NCUA 

14 

budget during that period and leave the agency insufficiently 

resourced to respond to the credit union failures during that 2008 

financial crisis? 

Mr. KUPIEC. I am not versed in what happened internally in the 

NCUA over that time, but I would say that all of the financial regulators were unable to respond to the crisis. So I don’t think it was 

particularly a unique situation in NCUA, and I am not sure just 

allowing budgets to be produced without any public accountability 

or with public knowledge fixes the problem. 

Mr. HINOJOSA. Mr. Oliver Ireland, the TAILOR Act would require the Federal regulators to engage in additional—is my time 

up? I yield back. 

Chairman NEUGEBAUER. I thank the gentleman. 

The gentleman from Missouri, the chairman of our Housing and 

Insurance Committee, Mr. Luetkemeyer, is recognized for 5 minutes. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. 

I would like to start out with talking about H.R. 2987, the Community Bank Capital Clarification Act, and I think basically it is 

kind of a unique piece of legislation, because I think it addresses 

a unique problem here from the standpoint that within DoddFrank, there is a problem that has arisen with regard to trust-preferred securities that are used as Tier 1 capital or count toward it. 

Dodd-Frank stuck in there a date of any bank holding company 

that is $15 billion or more at that point in time goes into a separate set of rules and those under don’t. And what happens if the 

institution gets rid of its Tier 1 trust-preferred securities is they 

get to fall back, and there is no provision for that to allow to happen, so they are kind of stuck in limbo here, is my understanding. 

And so, Mr. Ireland, I want to ask you if my interpretation of 

that is correct, and what kind of institutions are going to benefit 

from this bill? 

Mr. IRELAND. First of all, I think your interpretation is correct. 

I think it is basically a drafting glitch in the original Dodd-Frank 

Act. And an institution that downsized since 2009, the 2009 grandfather date in the bill, and was above $15 billion in the holding 

company before that and became below $15 billion afterwards because perhaps they sold off some of their units or for other reasons, 

they are now a smaller institution, but they don’t get the same 

treatment as other smaller institutions. And I just don’t see the 

logic to that difference. 

Mr. LUETKEMEYER. Mr. Stanley, is there any meaningful advantage to examine the bank’s capital adequacy at a date back in time 

like this? 

Mr. STANLEY. Excuse me, I didn’t quite hear the question. 

Mr. LUETKEMEYER. Is there a meaningful advantage to examining a bank’s capital adequacy going back in time to a historic 

date like this? 

Mr. STANLEY. We don’t have views on this legislation and we 

don’t have an objection to it, I don’t think. 

Mr. LUETKEMEYER. You realize then it is a glitch, and we need 

to fix the problem so that those banks which are inadvertently 

caught in this trap can get this thing fixed? 

15 

Mr. STANLEY. I think that $15 billion line is one example of 

many, many places in Dodd-Frank where there was an attempt to 

restrict the impact of these new rules and regulations to larger 

banks. And if you have a bank that is now legitimately a smaller 

bank, I think that it makes sense not to apply it. 

Mr. LUETKEMEYER. I appreciate your support. Thank you. 

I know that the gentleman from Colorado has a great bill I think 

here, the TAILOR Act, and I don’t want to steal his thunder, but 

I do have one comment about this bill because I think it is extremely important that, in my judgment, what he is trying to do 

here is within 3 years, have the agencies revisit the rules that they 

have implemented since the passage of Dodd-Frank. And to me, 

this is just common sense. 

Any time you do anything in the business world, you are constantly reviewing to make sure that the decisions you made are accurate, the decisions you made actually work. In this situation, 

what we are trying to do is take a commonsense approach to these 

rules and have the regulators go back and take a look at them. 

Maybe they need to be strengthened. Maybe they need to be weakened because they are too tough. But we won’t know unless we review them and find out the impact, because none of these rules 

were created with an impact statement, with any sort of cost-benefit analysis, they were all just thrown out there in this bill. And 

it has been 5 years, so let’s stop and think about this. 

So I know, Mr. Kupiec and Mr. Ireland, both of you had some 

very positive statements to say about the TAILOR Act. I wonder 

if you would like to, Dr. Kupiec, make a couple more judgments on 

it? 

Mr. KUPIEC. I just think it is a good idea to move forward, to put 

the regulatory agencies on notice that you do expect the rules to 

reflect the risk profile. And I can’t see why this isn’t a good idea. 

Mr. LUETKEMEYER. It is interesting, because I think the regulators, when they go in and examine, they are going to require that 

the banks review their loan files, their loan documents, on a regular basis, so why shouldn’t the regulars go back and look at the 

rules on a regular basis? It makes sense to me. 

Your opinion, Mr. Ireland? 

Mr. IRELAND. This is an old problem. We have had this for decades that the regulatory system focuses on the larger bank problems, the burdens trickle down to the smaller banks, and the regulators, trying to solve the bigger problem, don’t adequately adjust 

for the impact on smaller banks. There are numerous examples of 

legislation trying to fix the problem, but it is still here and we 

haven’t fixed it. And I think everything Congress does to draw attention to it is beneficial to small banks, small businesses, and the 

customers they serve. 

Mr. LUETKEMEYER. Thank you. And I yield back the balance of 

my time, Mr. Chairman. 

Chairman NEUGEBAUER. I thank the gentleman. 

And now, the Chair recognizes the gentleman from Georgia, Mr. 

Scott, for 5 minutes. 

Mr. SCOTT. Thank you very much, Mr. Chairman. 

These seven legislative proposals that we are considering today 

serve, in my opinion, as a positive step to help reduce many of the 

16 

regulatory burdens. But I am particularly supportive of H.R. 2287, 

which would require the National Credit Union Administration 

Board to submit a detailed draft of their budget to the Federal Register for comment and hold public hearings. 

Now, I think it was about a month or so ago that NCUA Chair 

Debbie Matz appeared before this committee and gave us some 

very interesting testimony. But the record will reflect that her testimony revealed a very severe need for our particular legislation, 

because our legislation would simply have the NCUA be held accountable for its budget and would allow the credit unions that 

they represent to take a more active role in its budget decisions. 

And I believe that our bill, with Representative Mulvaney providing the leadership, will do just that. It is very necessary, from 

her testimony, to really show how crucial it is to do this so that 

we can build a more positive relationship between the NCUA and 

the credit unions that it represents. 

And so I wanted to make that clear, Mr. Chairman, because this 

is one time that a hearing has produced a great need for legislation, and this committee has, under the leadership of Representative Mulvaney, provided just that leadership, and I am proud to 

work with him on it. 

Mr. Ireland, I am concerned about smaller banking institutions 

and the larger banking institutions. Could you explain more about 

the stratification that smaller banking institutions experience regarding trying to implement risk-based models compared to our 

larger banking institutions? 

Mr. IRELAND. Sure. The problem, and we have seen this now, we 

have seen constant consolidation in the banking world. Banks keep 

getting bigger over time. One of the things driving this is the regulatory cost of being a bank and doing compliance. And if you are 

a smaller bank, you have to understand the regulations you have 

to comply with and you have to put in place compliance programs, 

and that is even if the rules, like the Volcker Rule, are designed 

for much larger banks, you are still not completely exempt. And 

then you have to spread the cost of that regulatory compliance effort over a much smaller base, and so it drives up the cost to the 

smaller banks and makes it less economic for them to operate. 

A $500 million bank can’t proprietary trade under the Volcker 

Rule. How can a $500 million bank tell whether or not it is proprietary trading, since it doesn’t have the money to sit down and read 

that 800-page Federal Register notice and sort out the 2,500 or 

3,000 footnotes in it? So the burden on smaller banks is disproportionate to the burden on larger banks. 

Mr. SCOTT. And there is another bill that I think is also very important, and that is Representative Stivers’ H.R. 2121 concerning 

the difficulties that loan originators face when moving to another 

State or seeking a license. Could you give me some examples of 

those difficulties, Mr. Ireland or Mr. Kupiec or Mr. Stanley, any of 

you? 

Mr. IRELAND. I would be happy to address that. One of the problems is that you have to become licensed as a loan originator if you 

are not in a bank. You have to be registered if you are in a bank. 

So if you are in a bank, if you work for a bank as a mortgage loan 

officer and you want to move to a nonbank, you have to become liVerDate Nov 24 2008 18:40 Oct 05, 2016 Jkt 099753 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 K:\DOCS\99753.TXT TERI
17 

censed, and there is going to be a delay in that process. And what 

this bill would do is provide a 120-day transition period so you can 

work while you get the license as you move to the nonbank provider, and the same kind of things work in moving from one State 

to another. 

Fostering mobility among individual loan originators, people who 

work in the business, fosters competition and is going to make the 

system work better. And so I think this kind of thing makes a lot 

of sense. There are in this bill and in the other bills some details 

that may need to be worked out, but I think moving in this direction is something that the committee wants to do. 

Mr. SCOTT. Thank you, Mr. Ireland. 

Chairman NEUGEBAUER. I now recognize the gentleman from 

South Carolina, Mr. Mulvaney, for 5 minutes. 

Mr. MULVANEY. I thank the chairman and the ranking member. 

I also thank Mr. Scott for his input on H.R. 2287, which I want 

to review very briefly. I wish Mr. Hinojosa was still here. He had 

asked a question earlier about the NCUA budget from 2001 

through 2009, and I think he implied in his question that the budget had gone down to the point where the NCUA was not able to 

deal with the financial crisis. 

I am looking at the numbers from 2002 through 2009, and they 

didn’t go down, and I haven’t heard anybody here claim that they 

were unable to deal with the financial crisis. In fact, everything I 

have heard about the credit unions is they weren’t really part of 

the financial crisis to begin with, that they may have faced some 

challenges that came with the larger overall declining economy, but 

certainly they were not at the epicenter of the difficulties. 

I wish that he was here to hear that because I think that concern—and the reason he raised it, by the way, for those of you who 

follow H.R. 2287, is that the NCUA is now claiming that if we have 

to go back to the system we had between 2001 and 2009, they 

won’t have enough money, that additional insight and oversight by 

the folks who pay the bills will effectively drive the regulator out 

of business. 

That is simply not the case with the historical numbers from the 

period of time when they used to do that. They used to have that 

type of oversight, from 2001 to 2009, and when Chair Matz came 

in, she stopped that process. So just to set the record straight, we 

don’t have a problem historically. There is no correlation between 

oversight and participation and the NCUA not being able to do its 

job. 

Now with that, there is another complaint, Mr. Ireland, that 

Chair Matz is making now, which is that if you go back to the old 

system it will cause the agency to—will jeopardize the agency’s policy independence. How would you respond to that, sir? 

Mr. IRELAND. I don’t think transparency without control jeopardizes their independence. So if what you are saying is you are going 

to make your budget public, you are going to solicit comments on 

your budget, and you are going to respond to your budget, that 

puts you through a discipline to justify what you are doing. It 

doesn’t cede control of the budget to somebody else. It doesn’t mandate reductions in the budget. I think that adds discipline to the 

budgetary process, and I think the NCUA and, quite frankly, the 

18 

rest of the bank regulators in their bank supervisory activities can 

only benefit from that kind of discipline. 

Mr. MULVANEY. And again for people who are not familiar with 

the issue, the money to run the NCUA right now comes from the 

credit unions. Since credit unions are owned by their members, it 

is actually the members’ money that is going to fund the oversight. 

And without the participation of the credit unions, there is actually 

nobody there watching after the members’ money. Not us and not 

them. It is sort of the reason we have introduced H.R. 2287. 

I do want to point out for the record that Chair Matz has offered 

to have a public hearing. She just announced it this past Friday. 

But I understand she will not be publishing the budget before that 

hearing. Even though she said she would welcome questions about 

the budget, she is not going to publish it. 

By the way, when she was here last time, she promised us that 

would be on the website, and I don’t know how you reconcile those 

two things. If it is not available before the meeting, I am not sure 

what the meeting is. I also understand that at least one board 

member was not made aware of that meeting. And that is the type 

of atmosphere that I think is unhealthy when we have Federal regulation. 

Mr. Stanley, I will press you on one issue, because you have 

checked in on the other side of this issue, which is you think the 

NCUA should be outside of what you call—should be free from politics, I think were your words. If I am misstating that, please let 

me know, but that is what I have in your testimony, that it should 

be free from politics. 

Let me ask you a question. Let’s put FSOC and NCUA aside. 

What other Federal agencies would you like to see free from politics? 

Mr. STANLEY. I am not sure it was free from politics exactly, but 

I think the issue is that the entities that an agency regulates are 

only a small portion of the entire public interest. They are just one 

aspect of our economy and of our public. And there is often—there 

is a broader public interest. For example, the NCUA has oversight 

over insured deposits, and there may be exposure to the U.S. 

Treasury if there are sufficient losses on those insured deposits. So, 

there is a public interest that is different there. 

Mr. MULVANEY. I am not disagreeing with you, but how would 

more transparency and participation in the budget process put that 

in jeopardy? 

Mr. STANLEY. I think there is already extensive transparency in 

the NCUA budget. They put up a very extensive justification of 

their budget and all the details of their budget numbers on their 

website. I think what this bill seems to call for is the involvement 

of regulated entities. 

Mr. MULVANEY. It is not available to the folks before this meeting next week. How can you say that? 

Mr. STANLEY. I think that when they finalize their budget, it is 

available. People can see what that budget is and what that justification is, and certainly they can raise an issue. I think the issue 

is bringing regulated entities into the process of setting the budget 

in advance. 

19 

Mr. MULVANEY. Fair enough. We are a regulated entity. We represent the taxpayers, and we bring the taxpayers into the process 

of looking at their regulators’ budgets every single day. It seems to 

have worked for the last 240 years. Not well all the time, but it 

does seem to work. 

With that, I will yield back the balance of my time. Thank you. 

Chairman NEUGEBAUER. I thank the gentleman. 

The Chair recognizes the ranking member of the full Financial 

Services Committee, the gentlewoman from California, Ms. Waters, 

for 5 minutes. 

Ms. WATERS. Thank you very much. 

I would like to pose a question to Mr. Stanley. 

Mr. Stanley, H.R. 3340 would eliminate the independence of the 

Financial Stability Oversight Council and the Office of Financial 

Research by subjecting their budgets to the appropriations process. 

In your opinion, what would be the effect of this legislation? What 

are the benefits of having an independent counsel to monitor systemic risk as well as an independent research office to support that 

mission? 

Mr. STANLEY. I think this kind of relates to the previous question 

that was asked. I think we have all seen in Washington, D.C., that 

there can be a narrow interest with money at stake that can hire 

lobbyists to influence the process and have an untoward influence 

on the process. And those narrow insider interests can come to 

dominate processes like financial regulation. 

I think the benefit of having some independence for these financial regulatory agencies is that they can make their own calls on 

the risks to the broader public, the potential risks to the broader 

financial system and the public, including risks to people who 

maybe are not the insiders here in Washington, D.C., who don’t 

have the ability to hire lobbyists to monitor all these issues constantly. And these regulators need the independence to make the 

right call for the public interest even if it could cost a regulated entity some money over the short term. 

And we saw in the lead-up to the financial crisis the price we pay 

when that doesn’t happen, including for entities like credit unions. 

Five of the major corporate credit unions failed, and there was $30 

billion in U.S. Government bonds put out to support them. 

So I think FSOC independence is very important to make those 

calls. 

Ms. WATERS. Would you agree, Mr. Stanley, that FSOC is an extremely important part of Dodd-Frank reforms? It is in Title I. And 

you have just alluded to the management of risk. Would you agree 

that this agency should be absolutely independent and not be interfered with again by special interests or politics, that if we are to 

deal with the subprime meltdown and the crisis that was created, 

that we absolutely need to have FSOC being able to identify a risk 

and to deal with it? 

Mr. STANLEY. Yes. I do think the FSOC is one of the absolutely 

central elements of Dodd-Frank, because when you look at so many 

of the entities that were involved in the financial crisis, they were 

not traditionally regulated commercial banks. They were investment banks who were following a capital markets model who at 

20 

that time were not regulated as commercial banks. They were insurance companies like AIG. 

And as our financial sector morphs and evolves, free of the limits 

that were once put on it by Glass-Steagall, you get a lot of lending 

and financial activities taken over by nonbanks, and it is crucial 

to be able to monitor that process and spot emerging risks. Regulators fell far, far behind in that process, and we can’t let it happen 

again. 

Ms. WATERS. Thank you. 

And I would also like to ask another quick question. H.R. 3340 

would also require the OFR to first solicit public comment before 

issuing a proposed report, rule, or regulation. Are you aware of any 

agency that is required to first seek public comment on the substance of a report they haven’t yet published? What would be the 

effect of imposing this requirement on the OFR? Is there any harm 

in allowing the OFR to first publish a proposed report prior to 

seeking comment? 

Mr. STANLEY. I am not familiar with any requirement that reports be somehow pre-cleared with interested parties before even 

putting that report out to the public. A report is not a regulation. 

A report is something that is an attempt to inform the public and 

inform the public debate. And if people disagree with that report, 

they are perfectly free to contend with it after it is out there in the 

public and produce new information and data. And we have seen 

that happen with OFR. And I think to some degree the idea that 

you are going to preclear these reports would impoverish the public 

debate. It is almost an attempt to allow that it could result in censorship of information before it reaches the public, and I think that 

is a problem. 

Ms. WATERS. I thank you very much. 

And I yield back the balance of my time. 

Chairman NEUGEBAUER. I thank the gentlewoman. 

The gentleman from North Carolina, Mr. Pittenger, is recognized 

for 5 minutes. 

Mr. PITTENGER. Thank you, Mr. Chairman. 

And I thank each of you for being with us today. 

I would like to thank Congressman Emmer for his role on the 

FSOC reform bill, particularly as it relates to the budget process 

or lack thereof and the need for greater transparency and accountability. 

Dr. Kupiec, do you believe that there is any limitation at all in 

the funding opportunities for FSOC and OFR? 

Mr. KUPIEC. Limitation. So in terms of the— 

Mr. PITTENGER. Could they, for example, double their budgets 

every year if they wanted to? 

Mr. KUPIEC. I think they have a revenue stream, so I am not 

sure of the size of their budget relative to their revenue stream at 

the moment. 

But in terms of the FSOC and the OFR, this notion that they are 

independent is insane, as far as I can tell, because the Secretary 

of the Treasury is the head of the FSOC. And the head of the OFR 

has an office in the Treasury and meets with the Secretary of the 

Treasury all the time. I don’t know how that would be considered 

independent in any world that I am aware of. 

21 

So this whole notion that they are completely independent of politics and their budget must be completely independent of politics 

doesn’t make any sense to me. They are part of the political system, very much so, and the notion that their budget should be outside the regular government appropriations is strange to me. 

My understanding is the proposed bill would not affect the way 

that financial institutions have to fund the OFR, but it would affect 

how much of those resources the OFR were allowed to spend, it 

would be subject to the normal congressional process. And I don’t 

see why they have any particular role or are absolved from politics 

in any way at all and shouldn’t be subject to the congressional 

budgetary process and oversight. 

Mr. PITTENGER. How about disclosures? Do they disclose less information than comparable entities like the Fed? 

Mr. KUPIEC. I am mostly familiar with OFR studies that they 

put out and comment on them, and many of them have been very 

political in nature. And I think part of the reaction in this bill is, 

in fact, that before an OFR study becomes final, that people should 

be able to weigh in and claim foul if they think the OFR is producing political research instead of dispassionate research. And I 

think that is my opinion about the reaction to this, and it is exactly 

because the OFR and the FSOC are not independent agencies. 

Mr. PITTENGER. Mr. Ireland, would you like to comment? 

Mr. IRELAND. I think on the report issue, there was an example 

where the OFR put out a report on asset managers, and the SEC 

subsequently went to the lengths to solicit public comment on it. 

You only got public comments through the SEC, and there were 

valuable comments submitted. I think there were a lot of misunderstandings in that report and perhaps some factual errors. 

I would also point out that the members of the FSOC all have 

their own budgets. We are not talking about the FSOC members 

having their budgets cut or the actual regulators having their 

budgets cut. We are talking about transparency and the appropriation process for a research arm that supports essentially the Secretary of the Treasury. And Federal Reserve Chair Yellen has her 

own research people who can research FSOC issues and do research FSOC issues. 

So you are not really impairing the operation of FSOC. You are 

dealing with part of the Treasury, and putting part of the Treasury 

in the appropriations process like most of the rest of the Treasury. 

Mr. PITTENGER. How about openness as it relates to public notice 

of meetings? Are they required to give any public notice? 

Mr. IRELAND. Their meetings are generally not public, and there 

is substantial litigation by one of the entities that has been designated as systemically important based on the reasonableness of 

the process that we have gone through, and I think some transparency into that process would be beneficial for all concerned 

going forward. 

Mr. PITTENGER. Mr. Kupiec, do you have any comments? 

Mr. KUPIEC. I agree with Mr. Ireland. The FSOC meetings, there 

is a closed portion and sometimes an open portion that is available 

for the public. I am not aware if the law requires them to be announced ahead of time or not. I am not that familiar with the details of that part of it. 

22 

Mr. PITTENGER. Thank you very much. My time has expired. 

Chairman NEUGEBAUER. I thank the gentleman. 

Now, the gentleman from New York, Mr. Meeks, is recognized for 

5 minutes. 

Mr. MEEKS. Thank you, Mr. Chairman. 

Mr. Chairman, we often speak of providing regulatory relief for 

small banks, and I think if we are serious about it we should start 

by making quick fixes wherever possible where we can offer some 

immediate relief. So I introduced H.R. 2987 along with Representative Maloney, Representative King, and Representative Luetkemeyer, to provide a technical correction to Section 171 of DoddFrank to allow small banks with less than $15 billion in assets to 

be able to continue to use their trust-preferred status as part of 

their Tier 1 capital. 

The intent of this section of Dodd-Frank was to make sure that 

the large banks have high-quality capital while providing an exemption for smaller banks with assets under $15 billion. But I believe it was a mistake to set in law a fixed date of December 31, 

2009, as a permanent judgment date for determining which banks 

had less than $15 billion in assets to qualify regardless of what 

happened to the size of the institutions in the future. 

This is inconsistent with other legislation that uses asset thresholds like the CFPB’s $10 billion threshold or the SIFIs $50 billion 

threshold. All these thresholds are based on the size of the institution today. It is also unfair to institutions that are currently as 

small as $6 billion today but are still regulated like large banks 

with over $15 billion. 

This bill would allow banks that have assets of less than $15 billion today to be treated fairly and therefore be eligible for the exemption that was meant to be available for such small institutions. 

And in this bill we make sure that the intent of Dodd-Frank is entirely preserved, so if the bank’s assets go back to above $15 billion, 

then they lose that exemption. So this bill would provide relief for 

institutions that go below $15 billion for as long as they remain 

below that level. 

This is a simple fix, Mr. Chairman, and is also logical, and these 

banks need the relief, and they need relief now. 

Mr. Chairman, I hope we can have this included in our next 

markup and approve this legislation as soon as possible. And I am 

pleased that this is one of the pieces of legislation that we were 

able to do in a completely bipartisan manner. We have over 40 cosponsors, about half and half: 50 percent Republicans; and 50 percent Democrats. And I want to thank my colleagues on both sides 

of the aisle for their hard work on this legislation. 

Lastly, I believe that high-quality municipal bonds, some of 

which are more liquid and less risky than highly rated corporate 

bonds, should be included in the definition of Level 2A high-quality 

liquid assets in the LCR. This is critically important for cities like 

my little City—New York, a little, small City on the coast—and is 

another important improvement that we need to approve. 

So in the time I have left, I will just ask to the witnesses whether or not you think that banks should be regulated today based on 

the size of their assets back in 2009, or do any of the witnesses beVerDate Nov 24 2008 18:40 Oct 05, 2016 Jkt 099753 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 K:\DOCS\99753.TXT TERI
23 

lieve that banks under $15 billion pose a systemic risk to the financial services industry? 

Gentlemen? 

Mr. KUPIEC. I agree with your statements. It makes a whole lot of sense that the $15 billion is changed not to reflect a given date 

in the past. 

Mr. MEEKS. Mr. Ireland? 

Mr. IRELAND. I would agree. I think that the $15 billion should be an ongoing number, and if you are below $15 billion, you get the 

benefits, and if you are above $15 billion, you don’t. And I am hardpressed to think of a $15 billion institution as systemic. 

Mr. MEEKS. Mr. Stanley? 

Mr. STANLEY. We don’t have a position on this bill. We do feel 

there were a lot of problems in the trust-preferred securities market, and it is positive that regulators took action. But it is possible 

that certain banks are caught up inappropriately in that. We 

haven’t examined the issue closely enough. 

Mr. MEEKS. We want you to research it and come back and give 

the same answer as Mr. Ireland and Mr. Kupiec. 

I yield back the balance of my time, Mr. Chairman. 

Chairman NEUGEBAUER. I thank the gentleman. 

The gentleman from Colorado, Mr. Tipton, is recognized for 5 

minutes. 

Mr. TIPTON. Thank you, Mr. Chairman. And I would like to 

thank our panel again for taking time to be here. 

One of the primary concerns I hear out of my district from small, 

locally-owned banks and credit unions is the cost of compliance. 

Dr. Kupiec, you mentioned in your testimony the tendency for 

banking regulators to apply best practice supervision on supervised 

institutions. If you would speak to, how does this impact those institutions. And as well, the TAILOR Act will require regulators to 

examine potential unintended impacts of examination manuals or 

other regulatory directives, and that works in conflict with tailoring the regulatory actions. Will this alleviate some of that impact? 

Mr. KUPIEC. Yes. Thank you. 

The tendency for a large bank, the examination and regulation 

of the largest banks, is really to adopt a very data-intensive approach where you have large databases and comb through the data 

and use models and apply all kinds of fancy statistical techniques 

which may or way not work. But we have a tendency to like to do 

that in the largest institutions, to create very complex regulations. 

And this permeates down through the examination team of examiners. If you want to move up in the world, you want to be a 

big bank examiner, not a small bank examiner. And what is the 

best way to do that? You try to learn what the big bank examiners 

are doing, and you try to impose it on the banks you are examining 

so that you get experience in the field, you get recognized. 

I think it is a natural problem with the system. And then it 

starts imposing more and more data requirements, more and more 

data processing, the need for more and more vendor models, all 

kinds of things for small banks that probably really aren’t necessary and don’t have a benefit. 

So that is my experience working in a bank examination agency. 

24 

Mr. TIPTON. Essentially, Mr. Stanley had asserted that there 

were exemptions that were created for small banks. You are stating that is not really the reality. We are seeing the unintended consequences of regulations that are impacting small banks, and just 

having regulations that the TAILOR Act would require that are 

going to be sculpted for those institutions would make good common sense? 

Mr. KUPIEC. I think what Mr. Stanley says is technically correct. 

There are lots of places in the law that differentiate between the 

size of the institutions. However, there is never a clean break between a certain size and another size. It depends on the business 

practices and what kinds of loans they are making and what kind 

of area it is. There are all kinds of considerations. 

And I think the TAILOR Act speaks more to a duty and requirement of the regulators to pay attention to these differences, whereas the very sharp limits in the current law are really not up to the 

task of differentiating between risk profile and the best public interest of what is really required. 

Mr. TIPTON. Thank you. 

One of the frustrations that we hear—I have had the opportunity 

to be able to serve on a small local bank and used to be able to 

make what were called ‘‘character loans,’’ knowing the people that 

you actually work with. And I would like to be able to give you one 

example from my district. 

I have a small business in Vail, Colorado. It is a ski and bike 

rental shop. I have had it for over 20 years. This gentleman applied 

to refinance his primary residency, but based on a 2-year average 

of his 2013–2014 tax returns, he didn’t qualify. His 2015 profit, 

however, P&L statement, showed that his net income was in excess 

of the 2014 tax return, but it could only be used to be able to support the 2-year average unless he paid thousands of dollars to be 

able to have an accountant review his 2015 financials. In the end, 

he had to be able to pay off a couple of auto loans that he had to 

his detriment in order to be able to qualify. 

This signals to me the loss of that relational banking that I think 

is so important in our community banks. Mr. Ireland, will tailoring 

regulations to community banks and credit unions—would this 

model enable these institutions to increase consumer and commercial access to credit? 

Mr. IRELAND. It should. I think that is the intent, and if the regulators respond appropriately to it, they should lessen the burdens 

on smaller institutions, and character loans should come back. We 

saw this problem in the 1990s in response to the thrift crisis, that 

character loans dried up. We are seeing it again. The regulators try 

to do things risk-based, but risk-based often means we are going 

to increase the scrutiny on the bigger guys, we are not going to reduce the scrutiny on the smaller guys. 

And the scrutiny trickles down. It just does. We tell banks to 

look sort of one layer up in the regulatory tiers in doing their own 

planning just to be safe, because that is what the examiners tend 

to do. That is the standards they tend to hold them to. 

Mr. TIPTON. Thank you. My time has expired. 

Chairman NEUGEBAUER. I thank the gentleman. 

25 

The gentlewoman from New York, Mrs. Maloney, is recognized 

for 5 minutes. 

Mrs. MALONEY. I want to thank you for holding this hearing on 

these important bills. And I have two that I am particularly concerned about. 

I would like to ask Paul Kupiec about H.R. 2209, which Mr. 

Messer and I introduced earlier this year, that would level the 

playing field for our cities and States by requiring the banking regulators to treat certain municipal bonds as liquid assets, just like 

corporate bonds. And as a former city council member, I know the 

importance of muni bonds to allow States and cities to finance infrastructure and schools, and to pave roads. 

Unfortunately, in the banking regulators liquidity rule, which requires bank to hold a minimum amount of liquid assets, the regulators chose to allow corporate bonds to qualify as liquid assets but 

completely excluded municipal bonds, even municipal bonds that 

are just as liquid as corporate bonds. And this makes no sense and 

threatens to raise borrowing costs for municipalities across this 

country. 

The Fed has already recognized this error and is amending its 

rule to allow certain muni bonds to count as liquid assets, but the 

OCC is still refusing to amend its rule and insists on favoring corporations over municipalities. 

So I would like to specifically ask you, Mr. Kupiec, if you considered two identical bonds, same size, same maturity, same everything, both bonds are liquid enough to satisfy all of the liquidity 

criteria in the OCC’s rule, but one bond was issued by a corporation, and one was issued by a local government, and under the 

OCC’s rule the corporate bond would be considered a high-quality 

liquid asset, but the muni bond would not, even though they had 

the exact same liquidity, do you think that is a fair outcome? 

Mr. KUPIEC. No, I support the law. 

There is another issue here that the Fed is considering Level 2B 

treatment, which is pretty limiting. You are only allowed to count 

50 percent of the market value of the bond and only up to 15 percent of your total LCR requirement. 

So the Fed’s proposal, which they haven’t put out any final information on, they just put out a notice of proposed rulemaking, 

would still limit muni treatment for those that satisfy at least 

Level 2B criteria to Level 2B. But there are many muni bonds and 

State bonds that satisfy Level 2A criteria, and the bill under consideration would require the regulators to recognize those liquidity 

characteristics. I do not. 

I think the LCR rule has a lot of issues with it. It is causing a 

lot of difficulties in a lot of places, including large banks not wanting to take deposits anymore. So I think that it certainly is a rule 

that merits some attention from Congress, and I think this is a 

good idea. 

Mrs. MALONEY. Thank you. 

I would like to ask Mr. Ireland if you would comment on the 

Community Bank Capital Clarification Act, which I have cosponsored with Mr. Meeks in several Congresses. In Dodd-Frank we allowed community banks with less than $15 billion in assets to keep 

counting certain securities they had already issued as capital. For 

26 

some reason, Dodd-Frank said that in order to qualify for this relief, you had to be less than $15 billion in assets on December 31, 

2009, even though we didn’t pass Dodd-Frank until 6 months later 

in 2010. And I can tell you that was not intentional. We did not 

update that date to reflect it then. 

So this bill simply states that for banks that were only briefly above $15 billion in assets on December 31, 2009, but have fallen 

below that threshold and continue to be below that threshold, that 

they should be treated like other banks below that threshold as 

community banks. 

I would like to ask you if you think there is any reason why we shouldn’t treat banks that are currently under $15 billion, and will 

continue under $15 billion, as community banks for capital purposes? 

Mr. IRELAND. I can’t identify any. 

Mrs. Maloney. Pardon me? 

Mr. IRELAND. I can’t identify any reason why you wouldn’t adopt 

this provision. 

Mrs. MALONEY. Why we would adopt it? 

Mr. IRELAND. Why you wouldn’t adopt it. 

Mrs. MALONEY. Why we wouldn’t. I agree. I think it is just common sense. 

Mr. IRELAND. It is just common sense. I can’t see why you 

wouldn’t do this. 

Mrs. MALONEY. Thank you. Thank you for that statement. And 

we have many Members of Congress who feel very, very much the 

same way. 

I would like to follow up, Mr. Kupiec, with you. The OCC has 

been able to distinguish between liquid corporate bonds and illiquid 

corporate bonds. Do you think it would be possible to distinguish 

between liquid and illiquid municipal bonds as well to be able to 

distinguish as the Fed has proposed? In other words, why don’t we 

treat the municipal bonds fairly? 

Mr. KUPIEC. My understanding is that the public comments on 

the rule have done analysis and identified many State municipal 

bonds that are more liquid than the corporate bonds that are given 

Level 2B treatment now. So the answer is that you can distinguish, 

and I think they should include them. 

Mrs. MALONEY. My time has expired, and I thank you for your 

wisdom and your comments and your support for these bills. Thank 

you. 

Chairman NEUGEBAUER. I thank the gentlewoman. 

The gentleman from Texas, Mr. Williams, is recognized for 5 

minutes. 

Mr. WILLIAMS. Thank you, Mr. Chairman. 

And thanks to all our witnesses for being here today. 

I am a small business owner in Texas. I am a car dealer. And 

you can imagine what I think of the CFPB and how they are 

issuing laws and so forth. But also it is quite evident that they 

have largely ignored congressional intent. 

As a member of this subcommittee, I am proud to have cosponsored many of the proposals we are discussing today, including 

H.R. 2121, H.R. 2897, and H.R. 3340. All of these proposals will 

help reduce the regulatory burdens facing so many families and 

27 

small businesses in America today, and again speaking of Main 

Street. 

I want to take a second to focus on H.R. 3340, sponsored by my 

good friend, Congressman Emmer. His proposal, which ultimately 

brings the budgets for the Financial Stability Oversight Council 

and the Office of Financial Research under appropriations, will no 

doubt provide for greater transparency where it is sorely needed. 

My first question to you, Mr. Kupiec, is the following: Has the 

FSOC been transparent through the process of designating 

MetLife, Prudential, General Electric Capital, and American International Group as nonbank SIFIs? 

Mr. KUPIEC. No, I don’t think they have been. 

Mr. WILLIAMS. Mr. Ireland, what do you think about that? 

Mr. IRELAND. I would agree with Dr. Kupiec. I don’t think they 

have been transparent either. 

Mr. WILLIAMS. Mr. Stanley? 

Mr. STANLEY. They provided a public justification of their decision that was fairly extensive, and I believe the FSOC process provides extensive transparency to the companies that are being designated. A lot of that information and that process is not made 

public because there can be trade secrets involved. 

Mr. WILLIAMS. Next question to you, Mr. Kupiec and Mr. Ireland, 

how has the nontransparent designation process for nonbank SIFIs 

been harmful to consumers and taxpayers? 

Mr. KUPIEC. I think any process where you can impose new 

sweeping regulations with no justifiable cause creates two problems. It could create the impression that the government has decided that these nonbank SIFIs are truly too-big-to-fail and they 

will get special assistance should they get into trouble. The people 

who passed Dodd-Frank say, no, that would never happen. I disagree. I think it creates a class of institutions that are identified 

as being different and more important than the other institutions, 

which isn’t a good idea. 

And the other thing is the extra regulations involved are costly 

and problematic. MetLife has spent huge resources trying to defend 

itself against this case. The FSOC has the unlimited resources of 

all the agencies on board, including the New York Federal Reserve 

and the Federal Reserve Board and their staff of economists, to create arguments and ideas, and MetLife has to defend itself against 

that. It is tremendously expensive. 

Mr. WILLIAMS. Mr. Ireland, can you add something to that? 

Mr. IRELAND. Yes, let me add one other point here. By being designated a SIFI, you become regulated by the Federal Reserve 

Board, which is a bank regulator and understands the bank regulatory model. And whether that model is appropriate for GE, a 

large, diversified company, or an insurance company, of which 

there have been a number of designations, is really debatable. The 

expertise and the usefulness of that model for that purpose, I think 

is questionable, and I think that FSOC would have been better 

served to think more carefully about the tools it has and the classes of people it designated rather than going through the sort of ad 

hoc designation process that they have used. 

So I think greater transparency in the overall process would be 

better for the designation process and provide more certainty to 

28 

market participants and give them more confidence in going forward in the economy. 

Mr. WILLIAMS. A final question to again Mr. Kupiec and Mr. Ireland, have these SIFI designations made the American economy 

safer? 

Mr. KUPIEC. Definitely not. One of the unfortunate aspects of 

SIFI designation is we are designating nonbank SIFIs before there 

are any rules or regulations that have been written to suggest how 

they are going to be regulated. What is the regulation that is actually needed by their SIFI designation? We are designating them 

first, and there is no standard for regulation that has been put out 

yet. 

Another issue that is significant is that in Section 600 in the 

Dodd-Frank Act, there is a power that gives the Federal Reserve 

Board the right to draft prompt corrective action rules for the components of designated SIFIs. So the Federal Reserve Board, right 

now there is—prompt corrective action applies to banks. There is 

no prompt corrective action per se by any Federal regulator for an 

insurance company, or for a broker-dealer. The SEC has rights 

there. But one of the sections of the Dodd-Frank Act gives the Federal Reserve Board the power to draft prompt corrective action 

rules over these nonbank SIFIs it regulates. 

So it comes back to Ollie’s point of what expertise does the Federal Reserve Board have in exercising prompt corrective action 

rules and judgments over things that it really hasn’t regulated over 

time? 

Chairman NEUGEBAUER. The time of the gentleman has expired. 

Mr. WILLIAMS. Thank you for your testimony. 

I yield back. 

Chairman NEUGEBAUER. The Chair now recognizes the gentleman from California, Mr. Sherman, for 5 minutes. 

Mr. SHERMAN. Thank you, Mr. Chairman. 

We have a lot of bills under discussion today, and most of them 

are pretty good. The first is the Community Bank Capital Clarification Act, and I think that the importance of this bill, its fairness, 

could be illustrated by the fact that if you had two $14 billion institutions even 10, 20 years from now, they just happened to be at 

$14 billion apiece, and one of them would have one rule, but the 

other would have a different rule because back in 2009 it was $16 

billion. 

Obviously, we ought to treat identical banks identically, and if 

the bank is below the threshold it ought to be below the threshold. 

The idea that you would have a mark—I don’t know what the mark 

would be on the forehead of the bank—because it was over the 

threshold decades ago would treat identical institutions in a nonidentical manner. 

I have cosponsored the National Credit Union Administration 

Budget Transparency Act because I think it does make sense for 

an organization to publish its budget and to hear from folks who 

comment on it. There is some concern that all of the comments will 

be to tell the NCUA to do less regulation. People who raise that 

fear have never met anyone from the ICBA, but I am confident 

that the ICBA will have comments about the Credit Union Administration’s budget. 

29 

I think the witnesses have already talked about the importance 

of allowing mortgage professionals to move from one job to another 

and to bring their skills. It is the unskilled mortgage professionals 

that can get us into trouble, and that is why I think Mr. Stivers 

has a good bill, the Safe Transitional Licensing Act of 2015. 

Let’s see, a fourth bill is Preserving Capital Access and Mortgage 

Liquidity. The FHFA says we need to fix this problem, we need to 

extend parity for credit unions under a billion dollars in assets, and 

I look forward to cosponsoring that bill. 

And I would go on at length about H.R. 2209, Mr. Messer’s bill 

to require the Federal banking agencies to treat certain municipal 

obligations as Level 2A liquid assets, but the gentlelady from New 

York did such an excellent job of explaining the importance of that 

bill that I don’t have to. 

I will ask the witnesses whether they have any comments on 

those four bills, and if not, I may shock my colleagues and yield 

back my time before I have gone over time. 

Mr. KUPIEC. I have one comment on H.R. 2209. I would also recommend that the committee consider Level 2A and 2B treatment, 

that the ones that qualify for 2A as the bill is written should be 

allowed as 2A. I don’t understand why you wouldn’t also want 

things that qualify as Level 2B assets to be recognized as Level 2B 

assets. If they meet the standard, why not recognize them? 

Mr. SHERMAN. Maybe that is something we will do in this bill. 

Maybe it is something we will do later. I look forward to working 

with the author on that and deciding whether we try to get it all 

done in one bill or not. 

And seeing no further comments from our distinguished witnesses, I yield back with over a minute left. 

Chairman NEUGEBAUER. I thank the gentleman. 

And now, the gentleman from Kentucky, Mr. Barr, is recognized 

for 5 minutes. 

Mr. BARR. Thank you, Mr. Chairman. 

With respect to H.R. 3340, Mr. Emmer’s Financial Stability 

Oversight Council Reform Act, of which I am a cosponsor, and I appreciate the leadership of Mr. Emmer on this important transparency measure, my question to the witnesses is in response to 

Mr. Stanley’s argument for the need for political independence. I 

believe Mr. Stanley’s phrase was the reason why FSOC’s funding 

is not subject to the appropriations process or congressional review 

of how these fees are used is the need for political independence. 

Of course in the Declaration of Independence, Thomas Jefferson 

talked about the fact that governments are instituted among men 

deriving their just powers from the consent of the government. And 

I think Mr. Jefferson as a Founder of our country would be troubled to find that so many of the regulatory agencies in our country 

are not instituted among the American people based on the consent 

of the governed, but instead on this principle of the need for political independence. That, to me, resembles more the institutions 

that we saw in the Soviet Union instead of a democratic society 

where governing entities are subject to the consent of the people. 

I would be interested to hear from the witnesses about Mr. Stanley’s argument for the need for political independence and why 

more transparency is not a good idea. 

30 

Dr. Kupiec? 

Mr. KUPIEC. Yes. First of all, I am not going to comment on your 

comparison of the FSOC to a Soviet-style agency. I will leave that 

one alone. 

The FSOC is not an independent agency. It is chaired by the Secretary of the Treasury, who is—I think he works for the President, 

last time I checked. The head of the OFR has an office in the 

Treasury, meets with the Secretary of the Treasury by his own volition all the time in regular meetings. It is essentially functioning 

as a research arm of the Treasury. I do not see this as an independent agency the way it is run, so I think this argument of independence holds no water. 

And I share your concern about this notion that some of the 

banking agencies’ budgets should be completely off limits from public scrutiny because they have to be independent. I think they work 

for the public. The public has a right to know things about the 

budget and what things cost, and I think that is all part of the 

process. 

Mr. BARR. Mr. Ireland? 

Mr. IRELAND. I agree with Dr. Kupiec. I would add that the Secretary of the Treasury is not just the Chairman of FSOC. The Secretary of the Treasury’s vote is required for many of FSOC’s actions. The Secretary of the Treasury is a head of an Executive 

Branch agency and is subject to removal by the President for policy 

disagreement. So the idea that FSOC is some sort of wholly independent agency, I just don’t think is true. 

And I would agree with the thrust of your comments. I think 

there may be places—I came out of the Federal Reserve and would 

be a little bit concerned about lack of budgetary independence for 

monetary policy because I think there is some potential abuses 

there. But I don’t think that same argument applies, for example, 

to the Federal Reserve’s bank supervisory functions or the other 

bank supervisory functions. It is nice for them to be independently 

funded, but for them to justify why they are spending their money 

or maybe they should be spending more money on other things that 

would be evident to the public process, I think is probably in the 

public interest. 

Mr. BARR. Mr. Stanley, why is it that the American people 

shouldn’t expect accountability to them through their elected Representatives in Congress? 

Mr. STANLEY. If I could just defend myself against the charge of 

Soviet tyranny, I do believe that the American people should expect 

accountability, and I do believe—I may not have expressed myself 

as well as I could have in my written testimony—because I do believe that everything we do here in Washington, D.C., does have a 

political component to it and appropriately does have a political 

component to it. 

But the question is, how do we design our political institutions 

so that the public interest is respected as opposed to a narrow special interest? And in the world of financial regulation there is enormous amounts of money at stake and there are narrow special interests with a lot of money at stake. So we try to insulate, to provide some insulation from those— 

Mr. BARR. Thank you, Mr. Stanley. 

31 

Since my time is expiring, if the witnesses could also speak to 

Mr. Stanley’s argument with the TAILOR Act as to his assertion 

that the existing regulations already tailor, and what about the inadequacy of those existing tailoring efforts by the regulators? 

Dr. Kupiec? 

Chairman NEUGEBAUER. I am going to have to ask the gentleman to ask the witnesses to respond— 

Mr. BARR. My time has expired. I’m sorry. We won’t be able to 

get to that question. 

Thank you. I yield back. 

Chairman NEUGEBAUER. I now yield to the gentleman from Minnesota, Mr. Emmer, for 5 minutes. 

Mr. EMMER. Thank you, Mr. Chairman. 

And I especially thank the panel for being here today. 

I am sure that most of us on this committee can agree that financial regulators play an important role. I expect that most of us will 

also agree that financial regulations are best administered when 

there is the appropriate and necessary balance between Congress, 

the industry, and regulators. As one of you has testified, ‘‘Significant disruptions to our banking system almost always trigger legislation designed to address the problems that led to those events as 

they are perceived at the time. Later on, with the benefit of hindsight, it often becomes apparent that our bank regulatory system 

has become unnecessarily complex and constraining, whether due 

to the remedial legislation or to the normal evolution of banking 

services and markets.’’ 

In fact, as elected Representatives, we should not only be doing 

anything within our constitutional authority to address any issues 

that can trigger serious disruptions to our banking system, but we 

should also be doing everything in our power to prevent bailouts 

with taxpayer dollars. 

The Financial Stability Oversight Council, also known as the 

FSOC, and the Office of Financial Research, more commonly 

known as the OFR, were created by the Dodd-Frank Wall Street 

Reform and Consumer Protection Act. The question for our hearing 

today is how we can improve the function and the ability of the 

FSOC and the OFR to achieve their statutory mission by enacting 

reform that recognizes the importance of congressional oversight to 

enhance transparency and accountability of these government-created entities to allow for better stakeholder participation. 

If we agree that this committee should be working with both the 

financial services industry and regulators to prevent future crises 

and bailouts, and most importantly, to better protect consumers 

and taxpayers, we should also be able to agree that minor changes 

at the FSOC and the OFR will not only enhance their ability to 

perform, but would create a more open environment where the benefits and the costs of FSOC’s actions can be examined and debated 

in the open. 

H.R. 3340, the FSOC Reform Act, reaffirms the constitutional 

principle of checks and balances. Congress has and should have responsibility for oversight of government-created institutions to ensure that the regulation these institutions put in place actually 

help and not harm Americans. 

32 

FSOC and OFR are no exception. I believe the FSOC Reform Act 

will provide am important and necessary check and balance, and 

with appropriate congressional oversight and enhanced transparency, the FSOC and the OFR will be better able to perform for 

our financial industry and for our consumers. 

And with that, I would ask Dr. Kupiec, it is a very simple bill, 

can you tell me, going to this argument about independence— 

which, by the way, we are dealing with an organization that we 

have just heard testimony, you have the Secretary of the Treasury 

who sits on it, sits on the FSB. You literally have every one of 

these heads of these agencies, the 10 voting members are appointed 

by the President, and I expect they are card-carrying Democrats. 

So I don’t know how you take the political aspect out of this institution. 

Dr. Kupiec, if the OFR is still going to be able to collect the assessments, how would this impact, if we are not talking about 

budgetary constraints, we are just talking about an appropriations 

process, how would this impact, if at all, the independence, the socalled independence of this agency to do its job? 

Mr. KUPIEC. I think the independence argument is kind of a 

bogus argument. I think what the bill would do would be to put 

the OFR budget under oversight and supervision where it belongs. 

The Congress would have a say. I do not think, since the OFR 

budget funds the FSOC, the notion is somehow this would squeeze 

the FSOC’s budget. I very much doubt that. And for one reason, 

the FSOC is staffed in large part by staff of places like the Federal 

Reserve Board and the New York Fed who can second people there 

and pay them Federal Reserve Board salaries and Federal Reserve 

Board benefits. 

So the FSOC is not going to be starved for talent by this. It is 

merely the process that government agencies should be put under. 

Congress should appropriate their budgets. My understanding is 

that the assessments would still accumulate. It is just that Congress would decide how much of those they can spend and for what 

reasons through a process, a give-and-take process. So I don’t really 

see a big problem with it. I think it is a big step forward. 

Mr. EMMER. Thank you. 

My time has expired. I yield back. 

Chairman NEUGEBAUER. I thank the gentleman. 

Now the gentleman from Pennsylvania, Mr. Rothfus, is recognized for 5 minutes. 

Mr. ROTHFUS. Thank you, Mr. Chairman. I appreciate the conversation we are having about regulatory relief for our local Main 

Street institutions. 

I would like to turn a little focus, Mr. Ireland, if I could—when 

you appeared before this committee in June, we had the opportunity to discuss a piece of bipartisan legislation that I had introduced, H.R. 1660, the Federal Savings Association Charter Flexibility Act. As you may recall, the bill permits a Federal savings association to elect to operate subject to supervision by the Office of 

the Comptroller of the Currency with the same rights and duties 

of a national bank. 

You spoke favorably about the bill, stating that it would save 

time and money, streamline our regulatory system, and would apVerDate Nov 24 2008 18:40 Oct 05, 2016 Jkt 099753 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 K:\DOCS\99753.TXT TERI
33 

propriately balance caution and restraint with the ability to innovate and to provide financial services to consumers and businesses. 

Am I correct in understanding that you still hold those views? 

Mr. IRELAND. You are correct. 

Mr. ROTHFUS. Thank you. 

Today, I would like to continue that discussion about thrifts and 

mutual institutions and talk about the regulatory burdens that 

these institutions face and their ability to grow to meet the needs 

of their local communities. On a basic level, can you please describe 

how mutual banks differ from other types of financial institutions 

and how they are going to raise capital? 

Mr. IRELAND. Mutual organizations derive their funding from 

their customers and build their capital base through retained earnings, and stock organizations obtain their capital by issuing securities into the markets. The growth of capital in a mutual organization is a much slower process, and to adjust to significant capital 

changes, for example, as have been flowing out of Basel III, is more 

difficult for a mutual organization. 

In addition, I think that many of the capital rules are designed 

to deal with problems as they were observed in stock companies— 

and this particularly goes to the capital instruments issue that I 

think you are referring to—and how those rules affect mutuals, I 

think is a separate question. 

And the assumptions you make about the market effect of Tier 

1 capital, Tier 1 common equity capital, in a stock company simply 

may not apply to a mutual. You may not have the same kinds of 

concerns in the mutual that you have in the stock company. And 

I think tailoring capital rules to mutuals is something that ought 

to be done and the regulators ought to look at that very, very seriously. 

Mr. ROTHFUS. I am glad you raised that, because I have introduced another commonsense bipartisan piece of legislation, H.R. 

1661, the Mutual Bank Capital Opportunity Act of 2015, which 

would provide mutual institutions with the option of issuing a mutual capital certificate to raise additional capital without sacrificing 

their structure. By statute, the certificates would qualify as Tier 1 

common equity capital and share many of the same qualities as 

preferred stock. Do you have any comments about this proposal? 

Mr. IRELAND. I would support that proposal. I think that there 

could be details that need to be worked out as you go forward, but 

I think that something needs to be done to accommodate the mutual organizations. Otherwise, ratcheting up Tier 1 capital may 

simply strangle them and put them out of business. 

Mr. ROTHFUS. Dr. Kupiec, at a recent roundtable discussion in 

Pittsburgh, one of my local community bankers stated that the current regulatory environment is ‘‘as harsh as it has ever been. 

Harsher.’’ Another local banker described the Federal regulatory 

environment as, ‘‘death by a thousand cuts,’’ and pleaded that community institutions—and he emphatically said this—need help 

now. 

In this Congress, the committee has already marked up a long 

list of bills that would help fix this, and we are considering more 

good bills today. In your opinion, what is the one proposal that 

34 

Congress could pass tomorrow that would make the most difference? 

Mr. KUPIEC. Of these seven? 

Mr. ROTHFUS. Or any of the bills that we have done to date, 

these seven. 

Mr. KUPIEC. I wouldn’t have all of them off the top of my head, 

right? So— 

Mr. ROTHFUS. Would you agree with the assessment that the environment is harsh? 

Mr. KUPIEC. Yes, I would, and I think the bills asking for relief, 

or requiring relief, are fully appropriate. 

Mr. ROTHFUS. And do you see the same kind of urgency for regulatory reform that this community institution would have been telling me about? 

Mr. KUPIEC. I think they are telling you the truth. 

Mr. ROTHFUS. Mr. Ireland, do you have any idea on what one 

proposal that Congress could pass tomorrow that would make the 

most difference for community institutions? 

Mr. IRELAND. I don’t have the time to list them all. I can’t get 

it down to one. I think you have very serious problems right now. 

Mr. ROTHFUS. I yield back. 

Chairman NEUGEBAUER. I thank the gentleman. 

The gentleman from New Hampshire, Mr. Guinta, is recognized 

for 5 minutes. 

Mr. GUINTA. Thank you, Mr. Chairman. 

I would also like to thank the panel for the discussion today of 

these legislative initiatives. 

I have two areas of focus, one very quickly on H.R. 2987 for Mr. 

Ireland. Can you specifically state how many institutions H.R. 2987 

will benefit at present? 

Mr. IRELAND. I haven’t had the time to go back and examine the 

historic call report or reports—it is not call reports, it is the holding company reports that you would have to look at—to identify 

those. I understand that there are at least two of them. And I don’t 

think the number is what really matters. I think the statute is just 

drafted wrong, and you want to fix that glitch in the statute. That 

is not the way you ought to draft grandfathers. 

They have grandfathered the instruments. They don’t want new 

trust-preferred issued. But the institutions that have issued them, 

whether they are above or below $15 billion is a completely separate issue and doesn’t promote in any way evasion of the purposes 

of the capital rules. 

Mr. GUINTA. Okay. Thank you. 

I want to move on to a different issue now, on H.R. 2287. The 

NCUA operates independent of the congressional appropriations 

process. Their annual operating budget is used to carry out a list 

of duties, such as examination and supervisory authority. However, 

a substantial portion of the NCUA operating budget is funded by 

a fee from federally-insured credit unions across the Nation. This 

fee is based upon the prior year asset balance and rates that are 

set internally by the board. 

Our Federal agencies, I think, need to be transparent. They need 

to be accountable. I don’t see much problem with that. I also took 

35 

a look at the budgeting over the last decade, and it appears for the 

most part that the budget has gone up. 

I took a look at the testimony earlier this year, on July 24th, I 

think it was, by Chair Matz, and I want to talk about that testimony a little bit. And I want to talk to Mr. Stanley about this. 

Back on that date, she testified, and I believe the gentleman 

from Georgia, Mr. Scott, was asking the questions, and she made 

a statement, and the statement was this: ‘‘I don’t believe that the 

credit unions necessarily represent the members, and if they did, 

they wouldn’t be asking us to cut our budget because I think the 

members would like us to protect their life savings and would like 

us to have the resources that we need to do that adequately.’’ 

That was her statement. I, in full disclosure, am a member of a 

credit union. I wonder if I could first ask you one question. Do you 

know a woman by the name of Barbara Cunningham? 

Mr. STANLEY. I do not. 

Mr. GUINTA. Do you think Chair Matz knows Barbara 

Cunningham? 

Mr. STANLEY. I couldn’t say, but possibly not. 

Mr. GUINTA. I will tell you who Barbara Cunningham is. I know 

her. She is the loan officer at St. Mary’s Bank, which is the oldest 

credit union in the Nation, that helped my wife and I get into our 

home. I trust her. I don’t trust a faceless bureaucracy in Washington. 

So I have significant problems with that one statement that 

Chair Matz made, because it suggests that the bureaucracy in 

Washington cares more about me than the person who lives in my 

community, who works with me to try to find a way to get a mortgage for a home for my wife and my two children. That is the fundamental problem I have with this notion that Washington knows 

better than people back home. 

I served as a State representative, I served as a mayor, I served 

as a city alderman. I have known the people that I do business 

with for years, and I have a relationship with them. That is the 

fundamental obligation and responsibility that I think people feel 

when they, as customers, go into a credit union and have that direct relationship. 

So when your statement earlier suggested that the transparency 

is not necessary, I find that hard to believe would be problematic 

in order for NCUA to do their job. I think they can do their job, 

they can show the public how they are spending their money, and 

the consumer also can have a relationship, and a good one, with 

their credit union. 

So, unfortunately, my time has expired, and I can’t get your response, but I will send you a written letter and ask for your response, because I do want to give you the opportunity to respond. 

And I yield back. 

Mr. STANLEY. Absolutely. Thank you. 

Mr. NEUGEBAUER. I thank the gentleman. 

And now, I recognize the gentleman from Indiana, the chairman 

of the Republican Policy Committee, Mr. Messer, for 5 minutes. 

Mr. MESSER. Thank you, Mr. Chairman. 

I want to join the chorus of support for H.R. 2209. I thank Mrs. 

Maloney for her work on this legislation. I want to thank both 

36 

Chairman Neugebauer and Chairman Hensarling for their willingness to bring this bill forward. Others have talked about it, so I 

won’t repeat the statements made by others, but the bill is aimed 

at this remarkable situation that we have where Federal banking 

regulators have excluded all American municipal bonds from being 

treated as high-quality liquid assets under the LCR rule, creating 

the remarkable situation where not only corporate bonds, but certain foreign subsovereign bonds qualify for liquid assets when 

American municipal bonds don’t qualify. 

By the way, I should apologize for my voice. I was part of the 

12th man at the Colts-Patriots game this week. We are proud of 

our Colts, and obviously disappointed in the outcome. 

That approach, as others have testified, doesn’t make any sense. 

These are great assets. They are among the safest investments in 

the world. They are often not traded because people want to keep 

them once they invest in them, but they are highly liquid in the 

sense that in times of financial crisis, folks can flip them, if needed, 

as others have also testified, by discouraging these bonds from 

being treated in the way that reflects their true value. It drives up 

the cost of borrowing, which doesn’t make any sense. 

I want to direct my question to Mr. Kupiec and potentially Mr. 

Ireland, not to go over what others have said, but maybe to make 

sure we get it on the record. Do you see any reason why these assets should be discounted or why the Fed, for example, should—because, as you know, the Fed has come up with this rather Byzantine way of looking at it—do you see any reason why those assets 

should be discounted or should they be treated as face value? 

Mr. KUPIEC. No. I think if you set a specific criteria that the liquidity of the asset has to meet to qualify as a Level 1, Level 2A, 

or 2B asset, if they meet those requirements, they ought to be 

counted. 

And I would differ a little bit. The Federal Reserve is the only 

agency that has actually made a movement towards including some 

municipal bonds, so I think they are ahead of the rest of the regulatory agencies in at least realizing the problem. 

But I think the bill points in the right direction. If they qualify, 

if they have all the characteristics of a Level 2A asset, why aren’t 

you counting them as a Level 2A asset? And I would add, if another segment of them qualifies as Level 2B, then count them as 

Level 2B. 

Mr. MESSER. I appreciate that advice and I will actually try to 

work with the committee and Mrs. Maloney to see if we can include 

that. 

I will get back to Mr. Ireland in just a second. I want to just follow up with Mr. Kupiec very quickly. Could you comment just for 

a second about the problem with the Fed, the OCC, and the FDIC 

having different approaches to these kinds of bonds? 

Mr. KUPIEC. The Federal Reserve rule would apply to any Federal Reserve bank that they supervise and holding companies. And 

so it would apply at the holding company level, whereas the OCC 

would apply at the bank level. So you might have a situation where 

if the rules don’t all agree, the bank might have to have a different 

set of liquid assets than would count at the holding company level, 

which would just be unnecessarily complex. 

37 

So I think it is better that the rules all agree, which is why this 

bill is also important. It tells all the agencies to come with this solution, and I think it is the right one. 

Mr. MESSER. Mr. Ireland, do you have anything else to add? 

Mr. IRELAND. I would agree with Dr. Kupiec. If the assets meet 

the tests for liquidity and quality, they ought to get treated in the 

appropriate category. And it makes absolutely no sense and will 

just distort markets and cause all kinds of problems to have different rules for different institutions. You need a consistent rule 

here, and picking and choosing by issuer as opposed to character 

of the asset, I think is inappropriate. 

Mr. MESSER. Thank you. I yield back. 

Mr. NEUGEBAUER. I thank the gentleman. 

The gentleman from Ohio, Mr. Stivers, is recognized for 5 minutes. 

Mr. STIVERS. I thank the chairman for allowing me to sit in on 

this panel. I am not on this subcommittee, so I appreciate the opportunity to be here. 

I appreciate the witnesses for sticking with us for a long time 

and a lot of questioning. I think the bills today are a lot of commonsense bills. Something Dr. Kupiec just said really made me 

think, as we were talking about H.R. 2209. 

Dr. Kupiec, why do we have one set of accounting principles? 

Mr. KUPIEC. So we can compare across companies, if they are 

comparable. 

Mr. STIVERS. Inside a company and across companies and compare apples to apples. Is that an appropriate way of saying it? 

Mr. KUPIEC. Sure. You want every yardstick to have the same 

length, yes. 

Mr. STIVERS. So shouldn’t that also apply here when you are 

talking about across companies and inside companies with regard 

to assets, and if something meets the characteristics of a certain 

type of asset, shouldn’t it be included in the asset and shouldn’t we 

have consistency so that we can compare inside a bank holding 

company at the bank level and across companies? 

Mr. KUPIEC. I think it makes a lot of sense to have one rule, yes. 

Mr. STIVERS. So that is the kind of commonsense stuff we have 

here. One of my bills that two of you have talked about, and I 

think it is possible that Mr. Stanley does not have a position on 

it because he didn’t mention it, is H.R. 2121, the SAFE Transitional Licensing. I think Mr. Ireland did a great job of explaining 

it to one of the other Members of Congress who asked a question. 

I appreciate that. 

We are continuing to work with interested parties, and we have 

a new discussion draft that I think even makes the bill better. Instead of just a straight 120-day period, the new bill basically says 

the application or the transitional authority—and we make it an 

authority, not a license so that the regulators actually can clamp 

down on folks if they need to—but it is good until the application 

is approved, denied, or withdrawn, or in the event that it is incomplete, the limit is 120 days if the application is incomplete. 

We also create the ability for the regulators to deal with bad actors. We make sure that we allow the regulators to require a background check if they want one. There is already something that 

38 

says if you have been convicted of a felony, if you have been subject 

to a cease-and-desist order, or you have been denied or revoked or 

suspended for your license, this process wouldn’t apply. And I think 

Mr. Ireland talked about it pretty well. 

But, Dr. Kupiec, do you want to talk about why we need the ability for folks in labor markets to move from employer to employer 

or State to State, if they need to, and how that is good for consumers? 

Mr. KUPIEC. I think, historically, one of the features of the mortgage business in the United States has been its ability to sort of 

expand quickly when it needs to and contract quickly when it 

needs to. Mortgage banking is—the business is volatile. And this 

may or may not be a good thing, but sometimes real estate is more 

in fashion than others, and these people need to change jobs and 

move States. And my understanding of the law is, in order to be 

under this 120-day grace period or however you may improve that 

in the new bill, that you actually have to be on the national registry. 

Mr. STIVERS. That is correct. 

Mr. KUPIEC. And consumers would have access to your information on that registry while you were waiting for your new license. 

So to the extent that the information is for consumer protection, 

my sense of this is that the consumers would have access to that 

underwriter’s originator’s information on the national registry. 

Mr. STIVERS. Exactly. 

Mr. Ireland, do you want to talk a little bit about how this is an 

unintended consequence of a two-tiered system. So we had a tiered 

system for State-regulated folks who had to have a license, and 

then the other folks who are at a bank who didn’t need to have a 

license. And so when you want to change between them, you have 

to get licensed, but it was kind of an unintended consequence that 

people then, if they want to change from a bank entity, a federallyregulated entity to a State-regulated entity, wouldn’t be able to 

work for a number of months. That is pretty hard for most people 

to feed their family on, and it is clearly an unintended consequence. 

Mr. IRELAND. Oh, I think so. I think it makes it very hard to 

move from a bank to a nonbank, and provides a very great deterrent in that regard and cuts down on competition between banks 

and nonbanks. And I think this is in the interests of the originators. I think it is also in the interests of the efficiency of the market. 

Mr. STIVERS. And the consumers. 

Mr. IRELAND. And the consumers. 

Mr. STIVERS. Mr. Stanley, you didn’t have a position on this bill. 

Do you like what you hear? 

Mr. STANLEY. I like what I heard in the last 5 minutes, but since 

I have 200 members in my organization, freelancing on endorsements is tough. 

Mr. STIVERS. I didn’t ask you to endorse anything. I asked you 

if you liked what you heard. 

Thank you. I yield back the balance of my time. 

Mr. NEUGEBAUER. I thank the gentleman. 

39 

The gentleman from Indiana, Mr. Stutzman, is recognized for 5 

minutes. 

Mr. STUTZMAN. Thank you, Mr. Chairman. And I appreciate the 

witnesses being here today. I apologize for being late and catching 

up here on a couple of things. 

But I want to talk a little bit about—I don’t know if you all 

talked about the municipal bonds already, but if you have, I will 

move over to H.R. 2473, the Preserving Capital Access and Mortgage Liquidity Act of 2015. Can some of you talk a little bit about 

why H.R. 2473 is necessary and related to the community financial 

institution definitions, if any of you could be able to discuss that 

a little bit? 

Mr. KUPIEC. I think the issue is that the Federal Housing Finance Agency has issued rules about how large the mortgage activity has to be in an institution before you can gain Federal Home 

Loan Bank membership and be able to use Federal Home Loan 

Bank loans pledging collateral. And I think this bill, there is a 

carve-out, I believe, for small banks under a billion dollars, and I 

think the new rulemaking by the Federal Housing Finance Agency 

would not allow credit unions to have the same access to the Federal Home Loan Bank as small banks. And I think my impression 

is this rule just kind of levels that playing field, so that if a small 

bank had access to the Federal Home Loan Bank, then a credit 

union would have access too if they are under a billion dollars. 

Mr. STUTZMAN. Do you think there is a sound policy reason for 

not including credit unions in that definition? 

Mr. KUPIEC. No, I think credit unions are appropriately, if they 

do mortgage business and they have mortgage collateral, I think 

the Home Loan Bank, that is their mission, to provide liquidity. 

And in a lot of places, credit unions are becoming more and more 

important. We heard earlier that they gave some of the members 

their mortgages, and I think small credit unions would benefit from 

accessing the consumers as well. 

Mr. STUTZMAN. Mr. Ireland or Mr. Stanley, would you like to 

comment on that? 

Mr. IRELAND. I would just like to point out that I think the effect 

of this legislation goes beyond mortgage loans. I think it goes to 

small business loans and agricultural loans and community development loans as well and those activities of credit unions. And I 

think it is strongly in the interests of the credit unions and the 

communities that they serve that they have access to the additional 

source of funding through the Home Loan Banks. 

Mr. STANLEY. I have no comment. 

Mr. STUTZMAN. All right. Thank you. 

Could any of you mention or discuss a little bit about the possibility that the lack of exemption for small credit unions increases 

the possibility that current members in good standing will risk 

having their membership involuntarily terminated? 

Mr. KUPIEC. I think if you had a credit union, and it was a member of the Home Loan Bank and it had loans from the Home Loan 

Bank, and for some reason during the year its business activity, its 

membership didn’t want the loans or the mortgage loans that 

would meet the limit, they would—I think they have 2 years, it actually has to be an average over 2 years—but if the membership 

40 

stopped providing a service, even though the Federal Home Loan 

Bank lending may have been an important part of funding the 

credit union, they could face being cut out of the Home Loan Bank 

access. 

Mr. STUTZMAN. Has the cap on asset size for community financial 

institutions been increased before? 

Mr. KUPIEC. In my preparation, I looked back at the old laws, 

and there is a 1999 amendment to the Federal Home Loan Bank 

law that for the community investment institutions, there was a 

$500 million cap and it was indexed to inflation. And so there is 

that limit, but I think the limit that this particular bill is trying 

to address is one that is being imposed by a proposed Federal 

Housing Finance Agency regulation and not a Federal Home Loan 

Bank legal rule. 

Mr. STUTZMAN. Do you think Congress is the best place to address this issue? 

Mr. IRELAND. I think this is a necessary change to the statute. 

Aside from the Federal Housing Finance Agency’s actions, I think 

if you look at the statute, this looks like it makes sense. 

Mr. STUTZMAN. Thank you, Mr. Chairman. 

Mr. NEUGEBAUER. I thank the gentleman. 

And I would like to thank our witnesses for their testimony 

today. 

Without objection, I would like to submit the following statements for the record: the Credit Union National Association; and 

the National Association of Federal Credit Unions. Without objection, it is so ordered. 

The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous 

materials to the Chair for inclusion in the record. 

With that, this hearing is adjourned. 

[Whereupon, at 12:15 p.m., the hearing was adjourned.] 

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