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IMPROVING RESPONSIBLE LENDING 

TO SMALL BUSINESSES 

FIELD HEARING 

BEFORE THE

SUBCOMMITTEE ON 

OVERSIGHT AND INVESTIGATIONS 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

NOVEMBER 30, 2009 

Printed for the use of the Committee on Financial Services 

Serial No. 111–90 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

CHARLES WILSON, Ohio 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

BILL FOSTER, Illinois 

ANDRE ́ CARSON, Indiana 

JACKIE SPEIER, California 

TRAVIS CHILDERS, Mississippi 

WALT MINNICK, Idaho 

JOHN ADLER, New Jersey 

MARY JO KILROY, Ohio 

STEVE DRIEHAUS, Ohio 

SUZANNE KOSMAS, Florida 

ALAN GRAYSON, Florida 

JIM HIMES, Connecticut 

GARY PETERS, Michigan 

DAN MAFFEI, New York 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

BILL POSEY, Florida 

LYNN JENKINS, Kansas 

CHRISTOPHER LEE, New York 

ERIK PAULSEN, Minnesota 

LEONARD LANCE, New Jersey 

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III) 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

DENNIS MOORE, Kansas, Chairman 

STEPHEN F. LYNCH, Massachusetts 

RON KLEIN, Florida 

JACKIE SPEIER, California 

GWEN MOORE, Wisconsin 

JOHN ADLER, New Jersey 

MARY JO KILROY, Ohio 

STEVE DRIEHAUS, Ohio 

ALAN GRAYSON, Florida 

JUDY BIGGERT, Illinois 

PATRICK T. MCHENRY, North Carolina 

RON PAUL, Texas 

MICHELE BACHMANN, Minnesota 

CHRISTOPHER LEE, New York 

ERIK PAULSEN, Minnesota 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

November 30, 2009 ........................................................................................... 1 

Appendix: 

November 30, 2009 ........................................................................................... 47 

WITNESSES 

MONDAY, NOVEMBER 30, 2009 

Adams, Dave, Chief Executive Officer, Michigan Credit Union League ............. 26 

Anderson, Thomas E., Ph.D., MBA, Senior Director, Automation Alley ............ 10 

Andrea, Dave, Vice President, Industry Analysis & Economics, Original 

Equipment Suppliers Association ....................................................................... 8 

Carnrike, Tammy, Chief Operating Officer, Detroit Regional Chamber ............ 6 

Chaffin, H. Douglas, President & Chief Executive Officer, Monroe Bank & 

Trust; and Immediate Past President, Michigan Bankers Association ........... 24 

Dingell, Hon. John D., a Representative in Congress from the State of Michigan ......................................................................................................................... 4 

Greenlee, Jon D., Associate Director, Division of Banking Supervision and 

Regulation, Board of Governors of the Federal Reserve System ..................... 35 

Johnson, Arthur C., Chairman & CEO, United Bank of Michigan; and Chairman, American Bankers Association (ABA) ....................................................... 22 

Kus, Michael A., Kus, Ryan & Associates, PLLC; and Legal Counsel, Michigan Association of Community Bankers ............................................................ 25 

Lowe, M. Anthony, Director, Chicago Region Office, Federal Deposit Insurance Corporation (FDIC) ..................................................................................... 36 

Otto, Bert A., District Deputy Comptroller, Office of the Comptroller of the 

Currency (OCC) .................................................................................................... 37 

Peters, Hon. Gary C., a Representative in Congress from the State of Michigan ......................................................................................................................... 3 

Ross, Ken, Commissioner, Office of Financial and Insurance Regulation, State 

of Michigan ........................................................................................................... 39 

Schauer, Hon. Mark H., a Representative in Congress from the State of 

Michigan ............................................................................................................... 5 

Staebler, Ned, Vice President, Capital Access and Business Acceleration, 

Michigan Economic Development Corporation .................................................. 11 

Trute, Herbert W., President & CEO, T & W Tool & Die Corporation; and 

Chairman, Tooling, Manufacturing & Technologies Association (TMTA) ....... 13 

APPENDIX 

Prepared statements: 

Moore, Hon, Dennis .......................................................................................... 48 

Adams, Dave ..................................................................................................... 49 

Anderson, Thomas E. ....................................................................................... 62 

Andrea, Dave .................................................................................................... 68 

Carnrike, Tammy ............................................................................................. 191 

Chaffin, H. Douglas .......................................................................................... 195 

Greenlee, Jon D. ............................................................................................... 201 

Johnson, Arthur C. ........................................................................................... 215 

Kus, Michael A. ................................................................................................ 226 

Lowe, M. Anthony ............................................................................................ 231 

Otto, Bert A. ...................................................................................................... 244 

Ross, Ken ........................................................................................................... 258 

Staebler, Ned .................................................................................................... 276 

Page

VI 

Prepared statements—Continued 

Trute, Herbert W. ............................................................................................. 283 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Moore, Hon. Dennis: 

Letter from the National Association of Federal Credit Unions (NAFCU), 

dated November 25, 2009 ............................................................................. 290 

Dingell, Hon. John D.: 

Written responses to questions submitted to Anthony Lowe ....................... 292 

Written responses to questions submitted to Bert Otto ................................ 296 

(1) 

IMPROVING RESPONSIBLE LENDING 

TO SMALL BUSINESSES 

Monday, November 30, 2009 

U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON OVERSIGHT

AND INVESTIGATIONS, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The subcommittee met, pursuant to notice, at 11 a.m., at Lawrence Technological University, 21000 West 10 Mile Road, Southfield, Michigan, Hon. Dennis Moore, [chairman of the subcommittee] presiding. 

Members present: Representative Moore. 

Also present: Representatives Peters, Dingell, and Schauer. 

Chairman MOORE OF KANSAS. This hearing of the Subcommittee 

on Oversight and Investigations of the House Financial Services 

Committee will come to order. 

Our field hearing today is entitled, ‘‘Improving Responsible Lending to Small Businesses,’’ and I would encourage everybody, if you 

have a cell phone on you, please turn it off or a Blackberry or 

whatever you have, please turn it off so we can have this hearing. 

I want to—this is our 8th Oversight and Investigations Subcommittee hearing this year and our 2nd field hearing. Our field 

hearing today is entitled, ‘‘Improving Responsible Lending to Small 

Businesses,’’ which I think is of great concern to everybody in this 

room. Field hearings allow us to get out of Washington, D.C., and 

see and hear for ourselves the economic conditions that confront 

business owners in our country, the banks, and the credit unions. 

Before we get started, I want to thank Congressman Gary Peters 

for inviting our subcommittee to the Detroit area for today’s hearing. I also want to thank his staff for their hard work, and President Lewis Walker, the president of the Technological University, 

for hosting us today. Thanks, also, to Congressman John Dingell, 

a wonderful, long-term serving Member of Congress, and to Mark 

Schauer, Congressman Schauer, for being here today, as well. 

We will begin with members’ opening statements, and then we 

will hear testimony from our first panel of witnesses. Members will 

have up to 5 minutes to question our witnesses. We will repeat this 

for our other panels. The Chair advises members that I will be 

keeping everyone, including myself, to 5 minutes, as we want to 

keep things moving so we can wrap up no later than 1:50 this 

afternoon. 

Keep in mind that unanswered or partially answered questions 

can also be followed up in writing for the record. We will get you 

2 

information about that later. Also, if you don’t have time to give 

all the information you want to, we would encourage you to make 

a written submission later. Without objection, all members’ opening 

statements will be made a part of the record, and I now recognize 

myself for up to 5 minutes for an opening statement. 

Just last week, we learned from the FDIC that lending by U.S. 

banks plunged by 3 percent in the third quarter, the largest drop 

since at least 1984 when this kind of information was first collected. This represents the 5th consecutive quarter in which banks 

have reduced lending. According to the report, banks reduced the 

amount of money extended to their customers by $210 billion between July and September, cutting back in almost every category 

from mortgage lending to business lending. 

What is most frustrating, I think, to a lot of us about this report 

is that the largest banks, the ones that received tens of billions of 

taxpayer dollars, were responsible for a disproportionate amount, 

nearly 75 percent of the lending decline, and this is happening in 

a quarter when banks posted an aggregate profit of $2.8 billion. 

More than any other time, the banking industry needs to be reinvesting those profits in communities and local businesses in the 

Detroit area and throughout our country so we can turn around 

this economic decline. 

Economists say small businesses account for up to 60 percent of 

new jobs. It’s time to put people back to work and invest in the 

small businesses that can be an engine of economic growth. I look 

forward to hearing from the business community here in Michigan 

so we can have a better understanding of the obstacles small and 

mid-sized firms continue to face in finding credit. 

We will also hear testimony from banks and credit unions on the 

challenges they face, and I know they face challenges, as well, in 

increasing prudent lending while remaining safe and sound. Finally, we will hear from regulators responsible for supervising 

these firms as they work hard to curb the rise in bank failures. 

Improving responsible lending to small businesses, which is the 

title of today’s hearing, is not an easy thing to do in the current 

economic environment, but I am hopeful this hearing will help Congress better appreciate the challenges and allow us to consider new 

ideas and solutions to address this problem. 

In a joint statement released over a year ago, bank regulators 

warned, ‘‘If underwriting standards tighten excessively or banking 

organizations retreat from making sound credit decisions, it would 

lead to slower growth and potential damage to the economy.’’ 

FDIC Chairman Sheila Bair said recently, ‘‘We need to see banks 

making more loans to their business customers.’’ I completely 

agree, and I hope this hearing will drive home a clear message to 

all stakeholders, banks, credit unions, regulators, and the business 

community. We are all in this together, and until we see more responsible lending out the door, I fear the economic recovery that we 

all want and our country desperately needs will take too long to 

happen. I look forward to taking the lessons we learn from today’s 

hearing back to Washington, D.C., this afternoon and working with 

Republicans and Democrats on thoughtful, bipartisan solutions to 

this significant challenge. I yield back my time. 

3 

I now recognize, for an opening statement, Congressman Gary 

Peters for 5 minutes. 

STATEMENT OF THE HONORABLE GARY C. PETERS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN 

Mr. PETERS. Thank you, Chairman Moore, and thank you for 

traveling today to Michigan for this important hearing. I know all 

too well how little time you get to spend back home in Kansas with 

your family and with your constituents, and so I appreciate you 

traveling here this morning to hold the Oversight Subcommittee 

hearing here. 

I would also like to thank two of my colleagues from Michigan, 

Chairman Dingell, and Mr. Schauer—my colleague from the west 

side of the State—for coming over here to join us in this very important hearing talking about the challenges of businesses here in 

our State. We deal with these issues on a global basis in Washington. It’s important for us to focus on the unique challenges for 

us here in Michigan. 

I would also like to thank our witnesses for taking time to testify 

to bring that first-person perspective to the challenges that we are 

facing, but I would also like to thank our host, Lawrence Technological University, for allowing us to use these facilities and for 

your hospitality. 

It has now been a year since we entered the greatest economic 

decline since the Great Depression. Last fall, as the stock market 

rapidly deteriorated and the health of our entire financial sector 

was called into question, some institutions were deemed ‘‘too-bigto-fail,’’ and the government acted very quickly to save them. Many 

of these large financial institutions have now returned to profitability and are repaying the TARP funds that have kept them solvent during this crisis; however, lending has continued to decline. 

In fact, as Chairman Moore indicated in his comments, the FDIC 

recently reported that lending by U.S. banks declined by $210 billion in the third quarter of this year. This represents the largest 

drop in lending since 1984 and the 5th consecutive quarter in 

which banks have reduced lending. 

While the largest banks are, again, posting profits and paying 

record bonuses, there have been 124 bank failures so far this year, 

and hundreds more banks around the country are at a high risk 

of insolvency. While there is no doubt that some of these institutions are paying the price for poor management and risky investments, many well-run banks are fighting to survive because of the 

economic environment. Nowhere is that more evident than right 

here in the State of Michigan. 

Many banks in our State are struggling due to declining property 

values caused by the huge numbers of job losses that we have suffered, and as the unemployment rate in the City of Pontiac, in my 

district, has gone from 6.4 percent in 2000 to a staggering 35 percent today, the median home price has dropped from $104,000 to 

just $10,000. 

For small banks operating under these economic conditions, new 

sources of capital are very hard to come by. While the worst of this 

economic crisis may now be behind us, American businesses across 

4 

the country continue to struggle with unemployment, and businesses continue to suffer from a lack of lending. Real recovery will 

not come until job creation is back on track, and having a strong 

network of lenders in our communities is critical to achieving that. 

I believe this hearing represents an important opportunity for 

businesses, financial institutions, and regulators to begin a dialogue and hopefully come up with a new solution to this intractable 

problem. I look forward to hearing today from our witnesses about 

their ideas to help promote business lending and increase capital 

assistance to these financial institutions. 

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

Chairman MOORE OF KANSAS. Thank you, sir, and the Chair now 

recognizes the Honorable John Dingell, Congressman John Dingell. 

STATEMENT OF THE HONORABLE JOHN D. DINGELL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN 

Mr. DINGELL. Mr. Chairman, I thank you for your courtesy, and 

I thank you very much for bringing the subcommittee here today. 

Your efforts in this regard are deeply appreciated by all of us here 

in Michigan, and I want to pay tribute to my colleague, Mr. Peters, 

for his leadership in arranging that this should occur today, and 

we’re very proud of him and his service, and I want to thank my 

good friend, Mark Schauer, an outstanding Member, for being here 

today and to say how proud I am to have these two fine Members 

as my neighbors. 

I want to also thank Lawrence Tech for making this opportunity 

available to us by hosting us in their fine facilities. It’s a great educational institution, Mr. Chairman, and we’re very proud of them 

and their leadership in keeping Michigan a great and strong industrial State. 

Mr. Chairman, thanks again for convening this hearing. It’s very, 

very important to our small businesses, particularly around Michigan. The present recession, which erupted last year nationwide and 

worldwide, has created enormously difficult conditions for Michigan, some of which were caused by irresponsible lending practices, 

irresponsible risk-taking by members of the financial industry. 

In 1999 and for decades before, I fought to keep the GlassSteagall Act in place and to prevent the kind of rascality that contributed so heavily to the misfortunes of the country today. Unfortunately, due to the repeal of that protection, we face now a situation where failed banks and other banks are creating a virtual 

credit market freeze. 

There now exists no mean degree of hesitation among banks to 

continue lending, especially due to tight credit markets and ever 

growing public scrutiny of their activities, but this hesitation must 

not be allowed to persist as a hindrance to broader national recovery, and particularly to our people here in Michigan. I hear regularly from small businesses in my district not far from here in 

Southfield, as I’m sure you do and my other two colleagues here 

do, that cannot get access to credit to keep their doors open and 

their employees on the payroll. 

Responsible lending is a vital component in our efforts to facilitate the economic recovery of the Nation and must be encouraged 

5 

while, at the same time, Congress must impose adequate and fair 

oversight mechanisms to ensure that the rascality that caused us 

the current financial crisis never again occurs, and that’s one of the 

reasons that your presence here, Mr. Chairman, is so important. I 

hope our discussion today will prompt the development and implementation of the policy initiatives, it will help deserving small businesses get the loans that they so desperately need to provide jobs 

and opportunities to our people, and I look forward to the witnesses 

who are here today and thank them for their presence. Your presence here, gentlemen and ladies, is extremely important to the recovery of our State and the Nation, and I thank you for your being 

here today. 

Chairman MOORE OF KANSAS. Thank you, Congressman Dingell. 

And the Chair next recognizes Congressman Mark Schauer for 5 

minutes. 

STATEMENT OF THE HONORABLE MARK H. SCHAUER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN 

Mr. SCHAUER. Thank you, Chairman Moore, Representative 

Peters, thank you for hosting us for all of you coming to testify 

today, and certainly to our host, Lawrence Tech. I serve as—well, 

first of all, I live in Battle Creek. I represent seven counties that 

extend as far east to the Washtenaw/Wayne County line. 

The story of businesses in my district is the story of businesses 

in Michigan and certainly in the industrial Midwest. I serve on the 

Transportation and Infrastructure Committee and the Agriculture 

Committee. It’s an honor, Mr. Chairman, to be able to participate 

in this subcommittee hearing today. I’m here because we face in 

Michigan the deepest economic crisis of any State in our country, 

and I have counties in my district with unemployment rates close 

to 20 percent. 

Quite candidly, we have an intractable problem here in Michigan 

that needs to be solved. Whether we use terms like red-lining or 

not, we are seeing industries in this State that absolutely cannot 

get credit. Mr. Chairman, I actually told the President directly that 

our recovery in Michigan has one hand tied behind its back. We 

have industries throughout this State that have survived that are 

attempting to diversify from automotive to military to clean energy 

jobs to automotive, aviation, aerospace. 

These are stories I hear within my district from businesses every 

day, and the common theme is these businesses are being starved 

for credit, and it is unsatisfactory to me to hear anyone else suggest that we need to continue to winnow within this economy. In 

Michigan, we have winnowed enough. It is time to start rebuilding, 

not just our industrial sector but rebuilding small business. 

While I appreciate the opportunity to be here today, I will not 

be satisfied, Mr. Chairman, unless we collectively leave here today 

with answers and leave here with real solutions. This is a problem 

that we can solve, and it is a problem that we must solve. No State 

more than Michigan knows the hardship of this recession, but no 

State is better positioned to create jobs and grow jobs simply by 

solving this problem. Thank you for the opportunity, and I reserve 

the balance of my time. 

6 

Chairman MOORE OF KANSAS. Thank you, Congressman. 

And I am now pleased to introduce our first panel of witnesses. 

First, we will hear from Ms. Tammy Carnrike, chief operating officer for the Detroit Regional Chamber of Commerce. Next, will be 

Mr. Dave Andrea, vice president of industry analysis and economics for the Original Equipment Suppliers Association, testifying on 

behalf of the Motor and Equipment Manufacturers Association. 

Third, we will hear from testimony from Mr. Thomas Anderson, 

senior director for Automation Alley. After him, will be Mr. Ned 

Staebler, vice president of capital access and business acceleration 

for the Michigan Economic Development Corporation. Finally, we 

have Mr. Herbert Trute, president of T & W Tool & Die Corporation, who is also the chairman of the Tooling Manufacturing & 

Technologies Association. Without objection, your written statements will be made a part of the record. 

Ms. Carnrike, you are recognized for 5 minutes to provide a summary of your statement, and again, I thank all of our witnesses for 

coming today. Ms. Carnrike? 

STATEMENT OF TAMMY CARNRIKE, CHIEF OPERATING 

OFFICER, DETROIT REGIONAL CHAMBER 

Ms. CARNRIKE. Thank you very much, and I would like to take 

the opportunity, Chairman Moore, to say thank you— 

Chairman MOORE OF KANSAS. Sure. 

Ms. CARNRIKE. —and welcome to Michigan on behalf of all of us 

in the room— 

Chairman MOORE OF KANSAS. Thank you. I am glad to be here. 

Ms. CARNRIKE. —and to thank Congressman Peters for arranging 

this. This is a very critical and timely issue for discussion, and I’m 

also recognizing that Lawrence Tech is more than just a fine educational institution; it is a partner in entrepreneurship and small 

business development. So thank you very much, Mr. Chairman, 

members of the committee, and our honorable Members of the 

Michigan delegation for the opportunity to testify regarding the 

concerns of small business today and getting access to capital. I am 

Tammy Carnrike, the chief operating officer of the Detroit Regional 

Chamber. 

With over 20,000 members, the Detroit Regional Chamber is the 

largest Chamber of Commerce in the country. The Chamber’s mission is to power the economy of southeast Michigan, and it’s carried 

out through business attraction efforts, advocacy, strategic partnerships, and valuable benefits and services to our members. 

Our members range in size and scope and sector, and they contribute significantly to the vitality of our region. Approximately 75 

percent of our member firms are small businesses with 50 employees or less. Recognizing the impact of staying connected with that 

small business sector and its needs, we maintain a small business 

advisory committee made up of members who volunteer their time 

to make sure we’re kept abreast of the issues impacting small business. 

We have received a very clear message through focus groups, 

small business representatives who have shared their experiences 

that the credit crunch and cash flow challenges have placed increased stress on their daily operations. Access to capital has been 

7 

a strategy on our small business agenda for over 5 years. This has 

been a long-standing issue, and it has been compounded by the financial crisis that struck the State of Michigan and the entire Nation over the past year. 

Without question, the economic crisis we are in is stunning. Increased availability of capital to small business can support retaining jobs and also provide opportunity for job growth, as well as expansion. 

Our country is in the midst of the largest entrepreneurial surge 

ever witnessed. Considering the Small Business Administration 

projections of more than 1.3 million new companies with employers 

started in just the last 2 years, this represents one of the largest 

growth rates in our history, even outpacing the height of the dotcom craze. 

When it comes to the vitality and economic prosperity of our 

country, there is nothing small about small business. The pace of 

change in the banking industry is being matched by the unprecedented growth of small business, and we find ourselves in a situation that requires attention. 

As of August, there were 80 bank closures nationally, and analysts are predicting more than 300 bank failures over the next couple of years. Yet, we believe that this crisis does present an opportunity. 

Today we’re here to discuss southeast Michigan’s small business 

community and their need for access to capital, but we also want 

to recognize that there are many supportive lending institutions 

that contribute regularly to small business success in this region. 

Besides their programs and services, these institutions also provide 

support and resources to our small business programs. They serve 

on committees, boards, they’re engaged in economic and community 

development activities and focus on our region’s needs for the appropriate diversification of the automotive supplier industry. We 

need both our small business sector, as well as our banking industry, to be successful in order to strengthen our economy and to create jobs, create an opportunity for solid working relationships between both sectors, and organizations like ours to commit to be 

there to provide similar end connection to resources. 

The Detroit region is more economically stressed than many 

other areas of the Nation. Just look at our high unemployment 

rates and the staggering loss of jobs. Regardless of where the job 

loss occurs, it ultimately impacts our small business community. 

Michigan lost more private sector jobs just since the year 2000 

than any other State, nearly half of all private sector jobs lost in 

the United States during this time. 

The Detroit Regional Chamber, along with many other business 

organizations, are focused on a need for transformation of our economy, and this will happen through new targeted sectors for growth 

and for helping small businesses to diversify their business and 

support these new sectors. Additional resources for supplier diversification would have a significant impact and help expedite economic transformation efforts. Small businesses can and will create 

jobs with available resources. 

We recently reached out to a targeted segment of our leadership. 

Based on sur— 

8 

Chairman MOORE OF KANSAS. I’m sorry, but I’m going to have 

to ask you to wind up. We have kind of a set time here. If you 

would wind up— 

Ms. CARNRIKE. Sure. 

Chairman MOORE OF KANSAS. —and I would remind each of the 

witnesses, as well, that your written statements will be made a 

part of the record. So if you would, please, Ms. Carnrike, thank 

you. 

Ms. CARNRIKE. Probably importantly from the survey is that over 

70 percent of these small businesses will be accessing and will need 

capital and credit in the coming 12 months. It’s very important, 

and so at this time, we must say that this is where it becomes very 

important for America and Detroit, and it has always been a time 

of crisis and challenge, this is one of them, but it offers us an opportunity for change, innovation, and to ultimately make a difference. Thank you. 

[The prepared statement of Ms. Carnrike can be found on page 

191 of the appendix.] 

Chairman MOORE OF KANSAS. Thank you very, very much for 

your testimony. 

Mr. Andrea, you are recognized, sir, for 5 minutes. 

Mr. ANDREA. Good morning, Mr. Chairman. 

Chairman MOORE OF KANSAS. Good morning, sir. 

STATEMENT OF DAVE ANDREA, VICE PRESIDENT, INDUSTRY 

ANALYSIS & ECONOMICS, ORIGINAL EQUIPMENT SUPPLIERS 

ASSOCIATION 

Mr. ANDREA. Thank you for the opportunity to testify in front of 

the subcommittee. My name is Dave Andrea, and I am the vice 

president of Industry Analysis and Economics for the Original 

Equipment Suppliers Association, an affiliate of the Motor and 

Equipment Manufacturers Association, and I’m testifying today on 

behalf of each association. 

Motor vehicle parts suppliers are the Nation’s largest manufacturing sector, directly employing over 685,000 workers and contributing to over 3.2 million jobs across the country. Suppliers are responsible for over two-thirds of the value of the vehicle today and 

nearly 30 percent of the $16.6 billion in automotive research and 

development investment. Over the past year, unprecedented government and industry actions prevented a collapse of the U.S. auto 

industry, a collapse that would have affected all vehicle manufacturers and suppliers and all related capital equipment and service 

providers. Without a doubt, the actions taken in the General Motors, Chrysler and numerous supplier bankruptcies, the selective 

restoration of credit, and the improving economy have stabilized 

the industry. 

However, continued progress to restore credit availability and to 

incentivize technology and development throughout the entire supply chain is essential to ensure the financial viability and economic 

contribution the suppliers—of the supplier sector, as well as commercialization of advanced fuel economy and emission control technologies. To weather the production volume reductions of 40 to 60 

percent this year, a majority of our members instituted mandatory 

shutdowns, furloughs, and reduction in work weeks, as well as reVerDate Nov 24 2008 15:19 Apr 27, 2010 Jkt 055816 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 K:\DOCS\55816.TXT TERRIE
9 

duced salaries and—and reduced employer matches of 401(k) contributions. 

In addition, OESA has identified 48 U.S. suppliers that have 

filed for bankruptcy in 2009; although, we know that there are 

hundreds of other suppliers who have filed but were not reported 

in the press, were simply liquidated saving the cost of going 

through bankruptcy. It appears that credit is selectively becoming 

available to suppliers. However, I want to emphasize it is selectively becoming available. Credit availability, terms, and costs remain a significant and serious issue, particularly for smaller suppliers. 

According to the OESA September Automotive Supplier Barometer Survey, smaller suppliers have actually experienced tighter 

lending terms, and conversations as current as last week with 

members indicate difficulty in securing capital to invest in new 

tooling for new vehicle programs. Simply put, the auto supply base 

continues to face significant headwinds as it ramps up for higher 

production levels and launches essential new products and technologies. The supply base needs collective action that will deepen 

the industry’s human, financial, and intellectual capital base. 

Governmental efforts to date from the U.S. Treasury Supplier 

Support Program to the U.S. Department of Energy Advanced 

Technology Vehicle Manufacturing Loan Program have primarily 

focused on the vehicle manufacturers and the largest suppliers. We 

encourage Congress and the Administration to broaden their attention through the entire supply chain, particularly with the smaller 

suppliers who have shown greater uncertainty over their ability to 

finance plant and equipment investment, merger and acquisitions 

for industry rationalization, and program consolidation actions. 

Smaller suppliers—and given the scale that the industry operates on, we define small as being under $250 million in revenue— 

remain a critical source of new technology and cost competitive 

components for the industry, so MEMA and OESA recommends 

that the Congress and the Administration focus on two different 

issues. 

First, for smaller suppliers, given the industry’s significant capital requirements and the general mismatch of funding, a steady 

access to lines of capital and asset-backed loans is essential for the 

survival of the supply base, and second—and MEMA and OESA 

fully support the recent announcements by the Administration to 

expand existing SBA programs, and second, in technology funding, 

the supplier industry is working with customers to develop a wide 

range of new technologies that promote increased safety and improved fuel economy. 

So here MEMA and OESA support additional programs such as 

S. 1617 and the IMPACT Act to help additional investment in the 

industry. Thank you. 

[The prepared statement of Mr. Andrea can be found on page 68 

of the appendix.] 

Chairman MOORE OF KANSAS. Thank you, Mr. Andrea, and 

again, your remarks will be received in the record, your written remarks. 

Mr. Anderson, you are recognized for 5 minutes. 

10 

STATEMENT OF THOMAS E. ANDERSON, Ph.D., MBA, SENIOR 

DIRECTOR, AUTOMATION ALLEY 

Mr. ANDERSON. Thank you, Mr. Chairman. My name is Tom Anderson, and I am senior director and director of entrepreneurism 

at Automation Alley. 

I want to express my sincere thanks to Congressman Peters for 

arranging this morning to talk about the severe issue of credit for 

small and emerging technology companies. Automation Alley acts 

as a catalyst to enhance the image and growth in southeast Michigan’s technology driven economy, and since our founding in 1999, 

our membership has expanded to include over 1,000 businesses, 

educational institutions, and government entities from the City of 

Detroit and the surrounding eight counties. We promote regional 

prosperity through entrepreneurial and exporting assistance, workforce development, and technology commercialization assistance. 

It’s a pleasure to offer testimony this morning specifically focusing on our business accelerator and seed investment program. To 

date, we have made 25 investments from our 3 seed investment 

funds totaling just under $5 million. In addition, those companies 

have attracted venture capital and other private investment exceeding $38 million, and employment is just over 150 currently. 

We are an active investor. We stay in touch with our companies. 

I serve on the board of several of those companies and other members of our investment committee are on the board. We also have 

a small business technology development centers counselor at our 

facility who works with those companies, and occasionally, we engage with those companies with repurposing discussions on strategy and approach to market because things don’t always go as you 

originally plan. I have profiled a number of those companies in the 

written testimony, and I want to highlight just a few that target 

today’s question, access to capital. 

ElectroJet is a small company based in Brighton that has received funding from the MEDC’s 21st Century Jobs Fund, as well 

as from our seed fund, and they have successfully taken a product 

to market and developed customers in China for an export product. 

The problem has been finding funds to fulfill those purchase orders, getting the working capital they need to build the product to 

deliver it in a timely fashion. As a result, they have had to go to 

the capital markets to raise those funds rather than the banks, 

selling a portion of the company in the process. 

Limo-Reid Technologies has developed a novel hydraulic hybrid 

technology for the drive train of medium-duty and heavy-duty 

trucks. They have received funding from us and they have also received funding from the 21st Century Jobs Fund and from private 

venture capital. They are currently well-funded as they move 

through the development phase, but they are moving to a stage 

where they will need to begin to manufacture product and could 

anticipate difficulty in funding. 

Ventech is a third company that has developed a novel heating 

technology approach for school buses. They have in hand over 

40,000-unit purchase orders and are having a difficult time finding 

funding for the working capital to buy the raw materials to manufacture the heaters to sell them to the industry. 

11 

So there’s a theme, and the theme is that it’s particularly difficult for companies that are manufacturing a product to find the 

working capital for work in progress in order to fulfill purchase orders that they can achieve. Automation Alley supports the Obama 

Administration’s proposal to support further economic recovery and 

job creation by ensuring that credit is available for small businesses, and of particular interest are the measures that would 

raise lending limits on the SBA 7(a) and 504 programs from $2 million to $5 million, raise the manufacturing company limit to $5.5 

million, and raise the lending limits on the microloan program from 

$35,000 to $50,000. 

For companies that are looking to diversify, the value of the existing plant and equipment has fallen, and is often inadequate to 

support the credit lines needed to move into new markets. Supplier 

diversification funding from the Federal Government has enabled 

a way to guarantee that gap, and move funds to those companies. 

Many new economy companies also need some support of that gap, 

and I would suggest that perhaps an expansion of that loan guarantee to include startup technology companies might be helpful, as 

well. The capital needed to move from seed stage to venture capital 

or bootstrap capable funding is scarce, and perhaps a subordinated 

debt fund would also meet that gap. 

In conclusion, we find for our companies, the largest gap is in the 

funding continuum moving from seed stage to venture funds or to 

operating the business. The State has done an admirable job of expanding the pool of pre-seed capital and of venture capital, but it’s 

that gap in between, the $500,000 to a $1.5 million that is really 

difficult to obtain. Companies that are beginning to generate revenue but are not yet profitable and who may never be a good candidate for venture capital because they’re a good solid $500,000 to 

a $1.5 million business. 

In conclusion, we’re very appreciative of the attention received by 

Congress and Federal agencies during this time and in our State 

and believe that a continuum of local funding and support for technology entrepreneurs is a vital piece in the economic development 

puzzle. Thank you. 

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

62 of the appendix.] 

Chairman MOORE OF KANSAS. Thank you, Mr. Anderson. 

And the Chair next recognizes Mr. Staebler for 5 minutes, sir. 

STATEMENT OF NED STAEBLER, VICE PRESIDENT, CAPITAL 

ACCESS AND BUSINESS ACCELERATION, MICHIGAN ECONOMIC DEVELOPMENT CORPORATION 

Mr. STAEBLER. Good morning, Mr. Chairman, and distinguished 

Members of Congress. My name is Ned Staebler, and I am the vice 

president of capital access and business acceleration at the Michigan Economic Development Corporation, the State’s economic development agency. I sincerely appreciate the opportunity to testify 

today on this important subject. Thank you very much for coming 

here. This is really a critical juncture in our State and also in our 

Nation. 

Manufacturers in the United States face considerable uncertainty. While some firms are cautiously optimistic about the overall 

12 

economic recovery, the persistent lag in credit markets continues to 

pose a serious and permanent threat to manufacturers and to our 

country’s industrial capacity as a whole. While there was an uptick 

reported in manufacturing output over the summer months, recent 

data has shown that this has largely disappeared in September and 

October, and while conditions are somewhat improved from the 

lows seen in the first quarter of 2009, U.S. manufacturing output 

is still very weak compared to historical levels, and utilized capacity remains at or very near all-time lows. And the corollary, of 

course, is that excess capacity is at or very near all-time highs. 

In Michigan, and from our view at the MEDC, the State of the 

market is clear. Unemployment in the State is over 15 percent. A 

recent University of Michigan report projected the State will have 

lost nearly a million jobs by the time we reach bottom. Over half 

of those losses are coming in the manufacturing sector alone. A.T. 

Kearney estimates that 50 percent of tier 1 automotive suppliers 

are still at risk of bankruptcy. Perhaps most troubling is that the 

automotive industry has one of the largest economic multipliers of 

any sector in the U.S. economy, a reminder that other non-auto 

jobs are tightly linked to the success or failure in manufacturing. 

Even with the interventions of TARP, which was designed to improve the health of the banking sector and, thereby, increase available capital to businesses, commercial and industrial lending across 

the United States has fallen 15.4 percent year over year in the last 

12 months. Clearly, the recovery plan has not done enough to increase the flow of credit from private lenders. 

This juncture is critical for three reasons: One, manufacturers 

need capital to reorganize and consolidate efficiently and in an orderly fashion; two, those manufacturers who have right-sized and 

are now seeking to fill new orders are finding that with their reduced borrowing bases, it is difficult to access capital to scale back 

up; and three, those manufacturers seeking to utilize their core 

competencies in other non-traditional verticals like wind, solar, 

medical device, or homeland defense are increasingly unable to finance this transition. We applaud many of the efforts of Congress 

and the Obama Administration to address these issues. Increasing 

access to, cost of, and timeliness for capital to manufacturers will 

be an essential part of our Nation’s economic recovery. 

Increasing SBA guarantee levels, reducing fees, and reducing administrative hurdles and bureaucracy should continue to be congressional and Administration goals. We urge this committee to 

continue to support them. However, we feel that these measures 

overlook the deep interdependence between the health of banks 

and the health of borrowers. 

TARP and many of the SBA adjustments I have discussed fail to 

fully address the problem; they only focus on the health of banks. 

We agree that banks need to be healthier, and access to cheaper 

capital certainly helps, but to grow our deflated manufacturing sector, borrowers must be made healthier, as well. We’re not suggesting that underwriting standards be lowered at all, quite the 

contrary. 

Rather, the best way to widen the scope of lenders to include 

manufacturers and other historically healthy firms in this difficult 

environment is to enhance borrowers’ financial qualifications from 

13 

a commercial loan underwriter’s perspective. This requires mechanisms targeted specifically at borrowers’ shortcomings, namely, 

cash flow and collateral. 

In recognition of this fact, the MEDC created the Michigan Supplier Diversification Fund, which has been very successful in inducing new loans that were otherwise unqualified from the bank’s perspective, many of which provided funds for diversification into 

emerging green technologies. Crucial is that this program targets 

the support of both banks and the borrowers at the individual loan 

request level. This ensures that projects move forward at the time 

of the deployment of funds. In essence, the program self-regulates 

by ensuring that the lending activity happens right away in contrast with TARP, where following lending has severely lagged. 

MSDF, or the Michigan Supplier Diversification Fund leverages 

the market expertise, prudent risk management practices, and financial capacity of private lenders who source, underwrite, lead, 

and service the deals while injecting public—targeted public dollars 

at the level of individual loan requests. So far, every $1 in public 

funds has leveraged more than $3 in private funds and helped create more than 2,000 jobs. 

As evidenced by the 15 percent unemployment rate in Michigan, 

the transition of the American manufacturing base from traditional 

sectors to new high-tech verticals is a challenging one. However, 

the speed of this transition is crucial to the retention of an advanced manufacturing cluster in the United States. We urge this 

committee to continue to seek new models like the proposed National Manufacturing Diversification Fund and act expeditiously to 

get this money into the hands of those who need it the most, American businesses. 

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

276 of the appendix.] 

Chairman MOORE OF KANSAS. Thank you, Mr. Staebler. 

Mr. Trute, you are recognized for 5 minutes, sir. 

STATEMENT OF HERBERT W. TRUTE, PRESIDENT & CEO, T & 

W TOOL & DIE CORPORATION; AND CHAIRMAN, TOOLING, 

MANUFACTURING & TECHNOLOGIES ASSOCIATION (TMTA) 

Mr. TRUTE. Thank you, Chairman Moore, and thank you, Congressman Peters, for hosting this important hearing on an issue so 

vital to small and mid-sized manufacturing. My name is Herb 

Trute, and I am the president of T & W Tool & Die Corporation 

of Oak Park, Michigan. I am also the chairman of the board of directors of the Tooling & Manufacturing Technologies Association. I 

am a 32-year veteran of the auto supply business, and I am surviving today with absolutely no thanks to the banking industry. 

In my capacity as chairman of the TMTA, I have traveled to 

Washington, and I have had meetings with Senator Stabenow, 

Michigan Governor Granholm, and other Members of Congress during the automotive hearings. I was there for that. I was subsequently asked and also served as an adviser to the Obama transition team with respect to manufacturing, and I was very proud to 

do that. 

I know the focus of this hearing is primarily on the banking industry and the ability of manufacturing to receive financing, but a 

14 

business or an industry, for that matter, that is in crisis does not 

arrive at that point in a vacuum. There are always reasons. And 

very briefly, the main reason is that the American auto industry 

has outsourced the supply base virtually to the point of oblivion. 

This past year, faced with a dramatic slowdown, I did what everyone suggested, I right-sized, downsized, leaned, cut wages and benefits, and reorganized the business in such a way that we could 

survive. I was able to garner a fair amount of business, a sizable 

package on today’s open market competing globally. 

I have a 15-year relationship with Comerica Bank where I went 

to obtain financing for this work in process. The package that they 

offered me was inadequate, did not rely on adequate work-in-process financing. The guarantees and collateral requirements were 

such that the amount of money they offered me, I would never 

have been able to borrow. Faced with the prospect of having to 

turn the work back and close my business, I approached my customer, one of the Big Three. 

They recognized the need that it was vital for American manufacturing to have a supply base locally. So in exchange for a discount, I received progressive payment terms from them. Another 

one of my customers chose to go the other route and continues to 

funnel American taxpayer money overseas for tooling. I would like 

to know where the outrage is in that. That should not be happening. 

The question should not be, ‘‘Where was it purchased?’’ but 

‘‘Where was it built?’’ The current bank crisis has provided a convenient reason for large multinationals to continue sourcing overseas. Now they’re using it as a reason, as an excuse. These are 

American taxpayer dollars. My belief is that the outsourcing, coupled with other countries’ predatory trading practices, have precipitated this. The unfair international playing field has exacerbated 

the situation making it almost impossible for small business to 

compete globally. Yes, credit is almost impossible to get, and yes, 

readily available credit will help, but if the Big Three and other 

large American corporations will not even try to buy American, 

there will be no recovery, and we will have lost our ability to manufacture anything. 

The banks are unwilling to assume any risk with respect to lending to small manufacturers. We were offered a loan package totally 

inadequate to finance the large amount of work we have been 

awarded. The interest rates were steep, collateral requirements 

outrageous, and the amount offered would not have been enough. 

There’s definite need, but that is not part of the equation for the 

banks. They will assume no risk. 

My own belief is that the needs along with the benefits far outweigh the risks in lending to small businesses. Small business provides a shot in the arm to any local community. We found it possible to survive with little or no credit, but if financing were readily 

available, we would easily be able to double our employment. This 

would be even more dramatic for a business that has had to close 

due to lack of financing. Most small businesses create jobs in the 

local communities surrounding them. 

15 

The direct result would be reduction in unemployment and injection of dollars into local economies and, thereby, helping other businesses. Thank you very much for your time. 

[The prepared statement of Mr. Trute can be found on page 283 

of the appendix.] 

Chairman MOORE OF KANSAS. Thank you, Mr. Trute. 

I want to thank all of the witnesses for their testimony. I now 

recognize myself for 5 minutes for questions. 

I am interested in exploring the challenges we have seen in the 

automobile industry during the past year or two and how that relates to this lending crisis. I represent Kansas City, Kansas, in my 

district where we have a GM plant that produces the Chevy Malibu 

and employs about 3,000 of my constituents. We also have a number of auto suppliers in my district supporting the auto plant. I 

worry about suppliers and other small businesses having their access to affordable credit cut off. 

Mr. Andrea, is it more difficult to find credit if you own a business that’s part of the auto industry? Do banks that might make 

a loan to any small business decide not to if the firm is related to 

the auto industry? 

Mr. ANDREA. Currently, that’s the case because—twofold. One is 

with production volumes so dramatically low and uncertain going 

into 2010, that adds systemic risk with the bankers. The other is 

just the low value of automotive assets to back up any of the loans. 

And we have a—and I can follow up with additional responses for 

you. 

Chairman MOORE OF KANSAS. Thank you. Ms. Carnrike, what do 

you think? 

Ms. CARNRIKE. I can speak directly to an example of a small 

business who is diversifying from the automotive industry, 7 years 

ago, 100 percent automotive reliant, now today, 10 percent reliant. 

Access to capital is critical to this growth. It will create hundreds 

of jobs over the next 3 years, and their main source they’re looking 

at right now is an SBA 504 loan. It’s very important to help companies diversify from the automotive industry to be successful in this 

region. 

Chairman MOORE OF KANSAS. Thank you. Ms. Carnrike, what 

are you hearing from Detroit businesses that are having their lines 

of credit decreased or eliminated altogether? Do you have any 

sense whether banks are overly cautious on their own about making loans, particularly to any auto-related firm, or do you think 

these banks want to make the loans, but they’re under pressure 

not to from the regulators? 

Ms. CARNRIKE. I don’t have specific examples of it being related 

directly to the automotive industry. We do have feedback from 

small business customers about their barriers to accessing capital. 

I can tell you that over half of a surveyed pool tells us that banks 

not lending is the biggest barrier to assess to capital, 56 percent, 

and that 38 percent have trouble getting nontraditional business 

models approved for financing. 

Chairman MOORE OF KANSAS. Mr. Trute, do you have any 

thoughts about this? 

Mr. TRUTE. Well, it would definitely help. We have been forced 

to turn business away due to inadequate financing. The business 

16 

that we have kept is largely in part of our customer’s recognition 

that we are vital to them. 

Chairman MOORE OF KANSAS. Any other—thank you. Do any 

other witnesses care to comment on this question? Yes, sir, Mr. Andrea? 

Mr. ANDREA. In the survey work that we have done of our members, approximately 20 percent of our members do say that you— 

describing their banking relationship with their banker that their 

banks are actively exiting the industry overall or particularly with 

their relationship. 

Chairman MOORE OF KANSAS. Any other comments? 

Mr. Staebler, as we consider various solutions at the Federal 

level, including the proposal put forward by the Obama Administration last month, what are States like Michigan doing to turn the 

local economy around? Are there ways that the Federal Government can partner up with States like Michigan to seek solutions 

to an economic downturn, and is the key to an economic recovery 

increasing lending to small and mid-sized businesses? 

Mr. STAEBLER. I certainly think that’s going to be a huge driver 

in our economic recovery, that is, small and mid-sized businesses 

have been the main engine for job growth in this country over the 

last 25 to 30 years, so I think that would be critical. In terms of 

ways that the Federal Government can partner with State government, we have put a proposal in place and in front of the Administration on a way to create a national version of our supplier diversification program, not just for auto suppliers, but for all manufacturers wishing to use their core competencies in new emerging 

technology sectors. We think it’s one that maintains the fiduciary 

responsibility of banks but also provides access to credit for those 

small and mid-sized businesses that are so crucial. 

Chairman MOORE OF KANSAS. Mr. Anderson, any comment? 

Mr. ANDERSON. As I mentioned before, I would urge that a national fund such as Ned suggested for supplier diversification could 

well be expanded to also include startup businesses and technology 

space who have similar challenges in gaining access to capital, and 

that slight risk reduction might enable them to be a viable investment candidate—or loan candidate for a bank. 

Chairman MOORE OF KANSAS. Thank you, sir. The Chair’s time 

has expired. 

Congressman Gary Peters, you are recognized for 5 minutes, sir. 

Mr. PETERS. Thank you, Mr. Chairman. 

Thank you for all of your testimony here. As you know, the hearing is organized in three ways. We have businesses talking about 

the difficulties, and we’re going to hear from the bankers as to how 

they’re trying to achieve and bring that money to you, and then 

regulators, and I know the banks have some concerns about what 

the regulators are doing, so it’s about a dialogue together. But one 

thing I thought was interesting, and I want to get your response 

to, is that I have looked at some of the testimony that’s going to 

come later from the bankers, as well as from regulators, and in the 

testimony, both of them quote the National Federation of Independent Businesses that talk about the fact that although credit is 

tight, it’s really not the leading reasons why a lot of businesses are 

experiencing some difficulties. 

17 

Now I have heard something different from all of you through 

your discussions here and your testimony. Let me just read—this 

is, I think, from the FDIC or the bankers: 

‘‘The NFIB reports that in spite of the difficult economic environment, 33 percent of businesses reported regular borrowing in October, and that’s compared to 9 percent of the reported problems that 

they had before. They noted that only 4 percent of business owners 

reported financing as their number one business problem, and this 

is extremely low compared to other recessions.’’ 

So some of the folks in the banking community think this is different than other—actually better than other recessions or that the 

credit isn’t that big of a problem. How would you respond? Because 

we’re going to have these other panelists who may be saying that 

later. How would you respond with your experience in business, 

particularly here in Michigan? And that’s why I wanted to bring 

this field hearing here is because I think we have a whole different 

situation than the NFIB may on a national basis. 

Would anybody like to start? Ms. Carnrike? 

Ms. CARNRIKE. I can respond from our survey data that half of 

our respondents had applied for financing in the last 12 months. 

It goes from 41 percent, I’m saying about half, but 41 percent, to 

70 percent anticipating needing financing in the coming 12 months. 

So that indicates there will be a rise for an increase in need of capital, and we also were able to secure from them that in looking at 

the sources for the future, they actually will look to increase their 

interest in SBA loan programs from 29 percent—to 29 percent from 

14 percent in the past. 

Mr. PETERS. Mr. Andrea? 

Mr. ANDREA. My only suggestion would be to cut the data by size 

of company and by sector and to see if at the national level those 

national numbers hold up when you look at large to small and by 

industry sector. I think you’ll find a difference. 

Mr. PETERS. Okay. 

Mr. ANDERSON. And in my experience, both with our startup 

companies and with some of our small businesses, it may well turn 

out because what I see is that their number one problem many 

times is getting purchase orders. So although funding and loans 

may still be an issue, if you’re not getting purchase orders, that becomes your number one problem, so perhaps it’s best to look at the 

top three issues of small businesses. 

Mr. PETERS. They’re all interrelated? 

Mr. ANDERSON. They are interrelated. 

Mr. PETERS. Right, right. 

Mr. STAEBLER. Through the second quarter of 2009, the FDIC reported that commercial lending nationally was down 8.5 percent. 

At the end of the third quarter, it’s down 15.4 percent. And it 

wasn’t like the third quarter of 2008 was a banner time for commercial lending. So I think it’s clear that things are not necessarily 

on the upswing, and I think Tom’s right that they are interconnected, that demand certainly reduces the amount of borrowing, 

but certainly the availability of capital also reduces the amount of 

lending that’s happening, so— 

18 

Mr. TRUTE. I would agree with Mr. Anderson. The problems 

began in the manufacturing sector, not through lack of financing, 

but lack of financing is definitely hampering any type of recovery. 

Mr. PETERS. Yes, as your businesses that you represent are going 

out and trying to get credit, and particularly small businesses, 

small businesses, as I think was mentioned, rely primarily on bank 

financing, or if they try to go to the capital markets, there are others, but it’s bank financing, what differences have your members 

experienced by going to the large, multi—or the large money-centered banks that aren’t headquartered here in Michigan versus 

community banks, or are there similar challenges, different challenges. 

How would you respond to where your businesses are going to 

get money? We can start with anybody. Mr. Anderson? 

Mr. ANDERSON. With my startup businesses, they have encountered, basically, the same problem at many institutions, and they 

have talked to pretty much anyone they can find, and the problem 

is providing sufficient mortgageable assets to support the loan. 

Take the case of ElectroJet. Kyle benefited substantially by the 

devaluation of assets. He was able to purchase equipment for his 

shop at 10 to 20 cents on the dollar. It worked great during the 

startup phase. Now as he needs to get financing for working capital 

to build product, those same assets are still valued at 10 cents on 

the dollar, so it’s not going to support the kind of loan value that 

he needs in order to fulfill the orders. 

Chairman MOORE OF KANSAS. Thank you, sir. 

Congressman Dingell, you’re recognized, sir, for 5 minutes. 

Mr. DINGELL. Mr. Chairman, with your permission, I would like 

to defer to Mr. Schauer. 

Chairman MOORE OF KANSAS. Certainly. 

Mr. SCHAUER. Thank you, Mr. Dingell. 

Mr. Trute, thank you. I think you’re providing us a reality check 

here today. I could have lined up this entire room with small businesses, particularly small manufacturers, that tell the exact same 

story. So you’re representing Main Street here today. I appreciate 

that. And what I hope that we avoid today is—and this is sort of 

what I see, it’s sort of like the scarecrow on the Wizard of Oz, everybody pointing different directions or pointing at each other, and 

we’re not solving the problem. I look forward to hearing from the 

banks later today with a reduction in loan volume, that’s—doesn’t 

seem to me to be a sustainable trend for that industry, and we continue this downward spiral. 

I’m going to ask some quick questions, and since I have about 4 

minutes, ask for relatively brief answers. Mr. Staebler, I’m very familiar with the Michigan Supplier Diversity Fund. Thank you for 

that and the influence you’re having on a national program. How 

can we help make that happen? 

Mr. STAEBLER. We worked with some of my colleagues here on 

trying to figure out what demand there might be for this program, 

and in the State of Michigan alone, we anticipate that number over 

the next 2 to 3 years to be close to $2 billion. Nationally, we looked 

at it as close—at least $10 billion that would help small businesses 

transfer into new verticals. We managed to have about $13 million, 

with an ‘‘m,’’ available at the State level to help that transition 

19 

along, so obviously, creating a national program to allow manufacturers all over the country to access— 

Mr. SCHAUER. How much money does that national fund need? 

Mr. STAEBLER. I would say at least $10 billion. 

Mr. SCHAUER. $10 billion? Has the focus been on TARP money 

to help capitalize that? 

Mr. STAEBLER. Certainly, repayments to TARP, non—portions of 

TARP that haven’t been expended yet, any avenue, really— 

Mr. SCHAUER. And $10 billion will help create how many jobs? 

Mr. STAEBLER. That number is in the $200,000 to $300,000 

range. I have some data— 

Mr. SCHAUER. Okay. 

Mr. STAEBLER. —if you would like to see it later. 

Mr. SCHAUER. Thank you. I think, Mr. Anderson, you talked—or 

maybe it was Mr. Andrea, about—at least my impression was 

you’re talking about $5 billion from TARP that went to the Big 

Three autos, intended to go to tier 1 suppliers, and that was supposed to trickle down, and that really didn’t happen, if I’m hearing 

you correctly, and only a portion of that was used. Is that part of 

a solution to use those dollars to get to smaller suppliers? 

Mr. ANDREA. Without a doubt, the program served its purpose to 

stabilize the industry, but from the perspective of moving forward, 

an ongoing investment in plant and equipment from mergers and 

acquisitions to consolidate the industry, that’s the capital that ran 

short, and it was not available through any public, private— 

Mr. SCHAUER. If we would figure out how to loosen that up, that 

would be part of the solution; is that correct? 

Mr. ANDREA. Absolutely, and MEMA and OESA have been very 

strong supporters of the MEDC program. 

Mr. SCHAUER. My final question to the panel, I think it’s my final 

one, is to talk a little bit more about SBA programs. We have, all 

of us here on this panel, have worked to increase limits on some 

of those, increase guarantees, including through the stimulus program and beyond that. Are lenders participating? My experience is 

no, not really. What will it take for lenders to participate in these 

enhanced SBA programs which I have heard a number of you suggest would be part of the solution? Any or all of you. 

Mr. STAEBLER. I would say that, as I mentioned before, that’s 

certainly a part of it. And I think there are—I hate to overgeneralize it, but there certainly are some lenders that are doing more 

SBA lending now than they were a year ago. Of course, many of 

them were lending to companies that a year ago didn’t need to take 

an SBA loan, and now they are. But I still think that even with 

expanded SBA guarantees and reduced fees, you’re not addressing 

the core issue, which is that the collateral and cash flow of the borrowers, themselves, is so damaged. As Tom talked about, when you 

have your assets valued at 10 or 20 cents on the dollar, it’s very 

difficult to collateralize a loan, even with the SBA programs. It’s 

just—it won’t be bankable. 

Mr. ANDERSON. I would agree and expand on that in many cases 

with our startup entrepreneurs, they have already mortgaged their 

house, mortgaged their 401(k) to put into the business to get started, so the ability to collateralize an SBA loan is severely impacted. 

20 

Mr. ANDREA. And then as we have surveyed our members, just 

the limits, the loan limits that hamper auto suppliers, even the 

smallest auto suppliers that you’re talking about, a $100 million or 

$125 million supplier— 

Mr. SCHAUER. The limits need to be— 

Mr. ANDREA. —participating. When we did our survey work, it 

was $5 million would be a minimum limit, which is what has been 

proposed to move those up to in the 7(a) loan program to be of 

value. 

Mr. SCHAUER. Okay, thank you, Mr. Chairman. 

Chairman MOORE OF KANSAS. Thank you, sir, and Congressman 

Dingell, you’re recognized, sir, for 5 minutes. 

Mr. DINGELL. Mr. Chairman, to follow up quickly on the question 

just raised by Mr. Schauer, Mr. Andrea, Mr. Anderson, Mr. Trute, 

we just saw that one of the major auto manufacturers turned back 

a significant amount of money that had been earmarked to go down 

to the suppliers. I’m curious. Is that a problem? Are those funds 

being flowed through to the suppliers in the proper fashion, particularly with regard to not only tier 1, but 2 and 3? 

Mr. ANDREA. My understanding of the situation right now for 

distressed supplier funding is that amount within each of the vehicle manufacturers is going down. To answer your specific question, 

though, sir, in terms of is that money—by returning that money, 

is that going to harm the suppliers, I can’t answer that specifically. 

Mr. DINGELL. Well, it would be pretty clear it’s not going to help 

them. 

Mr. ANDREA. No. 

Mr. DINGELL. Mr. Anderson? 

Mr. ANDERSON. To be perfectly honest, with 25 start-up businesses that I’m engaged with, I don’t have enough specific experience with the suppliers you’re referencing to be able to answer 

that. 

Mr. DINGELL. Mr. Trute? 

Mr. TRUTE. Certainly, as you say, it can’t be helping the suppliers. I only have personal evidence to the extent that one of the 

automakers is actively embracing keeping the local supply base 

alive, and one of them is not. 

Mr. DINGELL. Ms. Carnrike, are depository institutions contributing or in a position to help turn around the local economy? And 

then why or why not, if you please. 

Ms. CARNRIKE. Depository institutions are a very important part 

of turning around our local economy, and they contribute to that 

every day. We’re talking specifically today about lending practices, 

but we also have to remember that those institutions are very important to supporting other community and economic development 

programs. We need the strength of their continued contribution. 

They will be very strong partners in our economic turnaround and 

transformation. 

Mr. DINGELL. Mr. Andrea, as you’re aware, and we have discussed some of those things at an earlier meeting that you and I 

had, the Administration recently increased the capital in Small 

Business Administration 7(a) and 504 loans. Is this going to help 

suppliers? How many of them will take advantage of it? And furVerDate Nov 24 2008 15:19 Apr 27, 2010 Jkt 055816 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 K:\DOCS\55816.TXT TERRIE
21 

ther, is raising the capital on these loans sufficient to address the 

capital needs of the suppliers? 

Mr. ANDREA. I think from our survey, we’re looking at the minimum amount was $5 million would bring in significantly more 

suppliers. Now we have to work—so I don’t know the specific number that would pull in. We also, though, have to work on the lending side to make that capital available. My only anecdote for you 

there is I know speaking with the Michigan Small Business Administration office, it’s continually difficult for him to place loans 

through the—automotive loans through the SBA programs here. 

Mr. DINGELL. Thank you. Now to all of our witnesses, Mr. Art 

Johnson of the American Banker’s Association implies that the Department of the Treasury should increase the cap of banks participating in the Administration’s small business lending initiatives 

from $1 billion to $5 billion. Do you agree with that assessment, 

and what would your comments be? Ms. Carnrike, starting with 

you. 

Ms. CARNRIKE. There is a need for increased capacity, whether 

it be the SBA existing loan programs, as well as many other programs. There’s not enough capacity and enough available resources 

currently to help our small business community. 

Mr. DINGELL. Mr. Andrea? 

Mr. ANDREA. That would help the supply side, yes. 

Mr. DINGELL. Mr. Anderson? 

Mr. ANDERSON. I would absolutely agree. 

Mr. DINGELL. Mr. Staebler? 

Mr. STAEBLER. I couldn’t agree more. 

Mr. DINGELL. Whose family are old friends of mine. And you, Mr. 

Trute, please. 

Mr. TRUTE. Absolutely, as well. 

Mr. DINGELL. Now, in August of this year, I met with the banks 

and auto suppliers, as many of you will recall, to discuss methods 

by which to increase lending to suppliers. One question discussed 

during that meeting was the national adoption of the supplier diversification program which it is currently operating successfully in 

Michigan. This program would decrease an individual bank’s risk 

in lending to suppliers by ensuring up-front deposits of loan principal by the Federal Government or its designee, and the risks 

buoyed across financial institutions participating in the program. 

Do you believe that such a program would benefit banks and increase small business lending across the country? And how could 

we see to it that it’s expanded here in Michigan? Ms. Carnrike? 

Ms. CARNRIKE. A national supplier diversification program would 

certainly be very helpful to our overall efforts for suppliers across 

the Nation, but I would like to talk specifically to this area and 

this State and suggest that we look at other opportunities to shore 

up our State program and would ask that, perhaps, you consider 

is there flexibility within the SBA? We have been talking about existing SBA programs. Is there an opportunity to be flexible to create new programs with SBA resources that respond to timely economic situations? Especially for economic disadvantaged areas like 

Detroit right now. 

Mr. DINGELL. Thank you, Mr. Chairman. 

22 

Chairman MOORE OF KANSAS. Thank you, sir, and thanks to the 

witnesses for their testimony. I thank our first panel for your testimony. We are going to have to move along here. The first panel is 

excused, and I would like to invite the next panel to the witness 

table, please, and thanks to all the witnesses who have testified 

here today. 

And while the next panel is being seated, we’re going to make 

one minor adjustment, too, instead of— 

[Discussion off the record.] 

Chairman MOORE OF KANSAS. We will now hear from Mr. Art 

Johnson, chairman and CEO of the United Bank of Michigan and 

United Community Financial Corp, as well as the chairman of the 

American Bankers’ Association. 

Next, will be Mr. Doug Chaffin, president and CEO of Monroe 

Bank & Trust and the immediate past president of the Michigan 

Bankers’ Association. After him, we will hear from Mr. Michael 

Kus, who is with Kus, Ryan & Associates, and serves as legal counsel to the Michigan Association of Community Bankers, and concluding this panel will be Mr. Dave Adams, CEO for the Michigan 

Credit Union League. 

Without objection, your written statements will be made a part 

of the record. I say this to each of the witnesses. 

Mr. Johnson, sir, you are recognized. We are going to have to 

change this—I apologize for this, but we’re kind of on a tight schedule here—to 3 minutes for witness statements, if you would, please, 

and your statements will be received into the record, though, and 

each member will then have 5 minutes to conduct and ask questions. 

Mr. JOHNSON. Very good. I will do my best. 

Chairman MOORE OF KANSAS. Thank you, sir. And I will let you 

know when the time is up. 

Mr. JOHNSON. Good, thank you. 

STATEMENT OF ARTHUR C. JOHNSON, CHAIRMAN & CEO, 

UNITED BANK OF MICHIGAN; AND CHAIRMAN, AMERICAN 

BANKERS ASSOCIATION (ABA) 

Mr. JOHNSON. My bank has been serving the banking needs of 

west Michigan communities for more than 120 years. And for our 

bank to prosper and endure, we must create long-term value for 

our customers, our communities, our employees, and our investors. 

Each of these groups is very interdependent so that to fail with one 

group means failing them all. 

For this reason, our bank has clung to the core values of honesty 

and fairness in all of our dealings, mutual respect for others, and 

a thirst for excellence in our individual performance and professionalism. As chairman of the American Bankers’ Association, I’m 

pleased to share the banking’s industry’s perspective on ways to 

promote capital assistance and improve business lending in this 

distressed economy. 

This recession is certainly one of the worst we have ever faced. 

While the statisticians will say that the recession has ended, that’s 

little comfort to areas in Michigan and elsewhere in the United 

States that still suffer from very high levels of unemployment and 

business failures. The impact of the downturn is being felt by all 

23 

businesses, banks included. The cumulative impact nationally of 

seven straight quarters of job losses and many more than that in 

Michigan is placing enormous financial stress on some individuals. 

With the jobs lost, work hours cut, it does not take long for the financial pressure to become overwhelming. This, in turn, has increased losses and reduced the capital of banks. 

This is not, of course, the first recession faced by banks, and certainly not the first in Michigan. Most banks like mine have served 

their communities for decades and expect to serve them for many 

more. In fact, one of every three banks in the United States has 

been in business for more than 100 years, and these numbers tell 

a dramatic story about the staying power of the banks and their 

commitment to the communities they serve. 

In the face of a still weak and struggling economy, bankers are 

working very hard every day to ensure that the credit needs of our 

communities are met. My bank, as most community banks, entered 

this recession with strong capital levels, and that is the foundation 

of bank lending. Without adequate capital, which our regulators 

are demanding, it becomes extremely difficult to make new loans. 

As this subcommittee is aware, in some areas of the country, including southeast Michigan, it’s impossible for banks to raise new 

capital—new private capital. Without new sources of capital, banks 

will end up shrinking in order to keep regulatory capital asset ratios in acceptable ranges. 

We believe that there are some comparatively small steps the 

government can take now that would make a huge difference in 

keeping credit available to our customers and our communities. In 

a letter to Treasury Secretary Geithner this past September, I laid 

out specific recommendations to assist well-managed, viable community banks so that they would have the capital necessary to 

more easily meet the credit needs in their communities. We proposed the Treasury invest up to $5 billion in community 

banks with an expectation that this investment be matched dollar 

for dollar by private capital. However, in some areas of the country, 

Michigan included, capital markets have become completely dysfunctional. In these areas, either no private capital matching or a 

lesser requirement should be considered. 

On a related note, we believe the President’s new small business 

lending initiative has the potential to improve access to credit for 

small businesses by providing lower-cost capital to community 

banks that submit a plan to increase small business lending. We 

have urged the Treasury to increase the cap size so that more community banks will be able to participate, which, in turn, increases 

the potential capital available for small businesses. 

Chairman MOORE OF KANSAS. Mr. Johnson— 

Mr. JOHNSON. In conclusion— 

Chairman MOORE OF KANSAS. Thank you. 

Mr. JOHNSON. —the success of many local economies, in Michigan and throughout the Nation, depends in large part on the success of the community banks. We must work together to get 

through these difficult times. 

Chairman MOORE OF KANSAS. Thank you, sir. 

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

215 of the appendix.] 

24 

Chairman MOORE OF KANSAS. Mr. Chaffin, you are recognized, 

sir, for 3 minutes. 

STATEMENT OF H. DOUGLAS CHAFFIN, PRESIDENT & CHIEF 

EXECUTIVE OFFICER, MONROE BANK & TRUST; AND IMMEDIATE PAST PRESIDENT, MICHIGAN BANKERS ASSOCIATION 

Mr. CHAFFIN. Thank you, Chairman Moore. I would also like to 

thank Congressman Peters for arranging this today and to recognize Representative Schauer and my own Congressman, John Dingell. Thank you for attending, gentlemen. 

Thank you for the opportunity to discuss the critical issue of improving lending to small business in Michigan and the needs of traditional banks to do so. I’m Doug Chaffin, president and CEO of 

Monroe Bank & Trust. We are a $1.4 billion traditional community 

bank with locations in Monroe and Wayne Counties, obviously, in 

the epicenter of our current financial crisis. Our bank has been in 

existence for over 150 years. We did not engage in the type of irresponsible lending behavior that created this crisis, and our intent 

is to continue for the next 150 years and beyond. 

I’m also proud to represent at this hearing the 169 members of 

the Michigan Bankers’ Association as its immediate past chairman. 

The MBA represents 93 percent of all commercial banks doing 

business in our great State. Our members employ approximately 

40,000 Michigan residents and have provided more than $200 billion in loans to both consumers and businesses. 

Unemployment in Michigan is currently the highest in the Nation, exceeding 15 percent, and this has been well documented in 

some areas exceeding greater than 20 percent in the State of 

Michigan. During this recession, 75 percent of all auto-related jobs 

have been lost with 1 out of 5 in all jobs in Michigan lost since the 

year 2000. 

Banks in Michigan have continued to lend throughout this crisis, 

while at understandably lower levels compared to our national 

peers. In fact, loans to businesses and individuals by Michigan 

banks have grown throughout this decade with the first 9 months 

of 2009 representing the only actual decline in loans outstanding 

within any current banker’s memory. However, the high levels of 

unemployment has brought about increased delinquencies, loan defaults, and resulting losses for over 40 percent of Michigan banks. 

This has had a direct effect on depleting capital. While the demand for loans has declined dramatically as few of our customers 

are willing to take risks in this environment, many of our banks 

in Michigan lack the capital to serve the needs of the few businesses that are managing to find growth opportunities. 

Further complicating this issue is the fact that traditional local 

sources for capital have been stressed by the economy, and outside 

investors lack the confidence to invest in Michigan due to our economic woes. Over the past 2 years, the Michigan Bankers’ Association has explored a number of potential private and public solutions to provide capital for viable banks. This has included a collaborative effort with the Michigan Economic Development Corporation that resulted in the establishment of the Michigan Supplier Diversification Fund, which was mentioned previously. This 

fund was intended to provide both needed startup capital and cash 

25 

flow support for manufacturers attempting to diversify in other industries. 

Sadly, the budgetary challenges within our fair State leave this 

initiative woefully underfunded. Efforts by State leadership to seek 

Federal funding for these programs have thus far proved unsuccessful. It’s important to note that lending does not lead an economic recovery. In fact, increased lending traditionally follows increased employment and new business opportunities resulting from 

improvements in the economy. 

Michigan banks are anxious to do their part in any recovery effort, but many lack the capital that will allow them to do so. The 

only answer for many of our banks in Michigan is to look for governmental support to supply the capital necessary to allow them to 

lend to viable companies. 

Thank you for the opportunity to discuss this critical issue for 

our local businesses and communities. We are confident that capital support to Michigan banks will pay huge benefits and will provide the necessary boost to employment as Michigan recovers. 

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

195 of the appendix.] 

Chairman MOORE OF KANSAS. Thank you, Mr. Chaffin. 

Mr. Kus, you’re recognized for 3 minutes, sir. 

STATEMENT OF MICHAEL A. KUS, KUS, RYAN & ASSOCIATES, 

PLLC; AND LEGAL COUNSEL, MICHIGAN ASSOCIATION OF 

COMMUNITY BANKERS 

Mr. KUS. Thank you, Chairman Moore. Thank you, Congressman 

Peters, for arranging this meeting, and also thank you Congressman Schauer and Congressman Dingell for being here today. It’s 

important that we understand that Michigan is in a very unique 

position. 

I represent the Michigan Association of Community Bankers. I 

am their spokesperson and their counsel. I am also a practicing attorney representing numerous community banks in the State of 

Michigan. 

Small business represents 99 percent of all employer firms and 

employs approximately 50 percent of all private sector workers in 

the United States. The majority of new job creation in the past 10 

years has been the result of the 26 million small businesses in 

America. It is clear that for any meaningful recovery to occur in 

America, it’s important that small businesses start hiring people 

again. 

And small businesses rely heavily on community banks for the 

credit they need to operate their businesses. Even though community banks represent only about 12 percent of all bank deposits in 

the United States, they make up 31 percent of the dollar amount 

of all small business loans that are less than $1 million and 50 percent of all small business loans under $100,000. 

While the majority of community banks have money to lend, 

some Federal regulatory agencies have taken an aggressive stance 

towards community banks, forcing the banks to write down their 

assets which were largely secured by commercial real estate at an 

unprecedented pace, thereby destroying capital and severely curVerDate Nov 24 2008 15:19 Apr 27, 2010 Jkt 055816 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 K:\DOCS\55816.TXT TERRIE
26 

tailing community banks’ ability to fulfill their vital role in making 

loans to small businesses. 

The recent joint policy statement on prudent commercial real estate loan workouts issued on October 30th by the Federal bank regulators is a step in the right direction. It is also in keeping with 

the type of suggestions that the MACB has made in the past to 

various Members of Congress and the State Legislature. More initiatives like this one are important, and we need to continue to 

look to Washington for such guidance. However, as community 

bankers in Michigan who have recently been examined can tell 

you, instead of working with community bankers to help both 

banks and their customers overcome current economic stress, some 

examiners have become extremely harsh in their assessment of the 

values of commercial real estate loans. 

The President recognizes the need to support economic recovery 

and job creation by improving access to credit for small businesses, 

and on October 21st, announced further initiative towards that 

goal. The MAC supports that effort and particularly looks to the 

support given to—or suggestions be provided to banks under a billion dollars in assets. However, we have serious concerns about the 

onerous conditions that may be placed on it, and it’s important that 

these conditions placed on the lending of that money to small—to 

community banks be not as onerous as the cap program was. 

Another concept that Congress should be considering is the creation of programs where community banks could obtain long-term 

stock loans from the Federal Reserve under a program for the 

Small Business Administration. Banks are comfortable borrowing 

from the Federal Reserve, and the Federal Reserve is familiar with 

the banks. 

Another consideration is allowing a larger portion that allows for 

loan loss reserves to be used towards capital. Currently, it’s at 1.25 

percent only. Allow banks to include as part of their capital the 

face amount rather than market price of government-sponsored enterprise securities that are held to maturity in their investment. 

We currently do support the Small Business Administration programs and its suggested increases. It’s important, however, that 

the programs be allowed to be used at a higher level by small 

banks. Again, we appreciate the opportunity to speak today. Thank 

you. 

[The prepared statement of Mr. Kus can be found on page 226 

of the appendix.] 

Chairman MOORE OF KANSAS. Thank you, and I will remind each 

of the witnesses that your testimony will be received into the 

record. 

Mr. Adams, you are recognized, sir, for 3 minutes. 

STATEMENT OF DAVE ADAMS, CHIEF EXECUTIVE OFFICER, 

MICHIGAN CREDIT UNION LEAGUE 

Mr. ADAMS. Thank you, Mr. Chairman, and a special thanks to 

Congressmen Peters, Dingell, and Schauer. I appreciate on behalf 

of credit unions the way that you demonstrate balance and the way 

that you approach legislation, and what I wanted to say at the beginning is what we’re talking about with the SBA proposal and 

small business lending, it really can’t be looked at in isolation, but 

27 

rather, when you look at the financial services industry, a $60 trillion industry of which credit unions are a very small piece, I would 

urge you Congressmen present here today and your colleagues to 

help us, as I know that you’re already doing, help us understand 

the importance of balance because we want to protect consumers’ 

interests with regard to foreclosure, we want to protect small business’ interests, but what credit unions and the banking sector are 

experiencing right now in terms of increased loan losses and loan 

charge-offs, whether it be small business loans or mortgage loans 

or consumer loans, it’s unprecedented. 

So with that caveat—and I’m talking about overdraft fee legislation, interchange fee legislation, extending the Community Reinvestment Act to credit unions, whatever it might be, the CFPA proposal, we need to be able to make sure that small lenders are not 

faced with increased burden, because that plays into their willingness and their ability to lend to small businesses and to other sectors. 

Three points that I would like to make that are contained in my 

written comments: One, credit unions are lending in this environment. The credit union sector of the financial services industry saw 

small business loans increase by 17 percent from June 30, 2008, to 

June 30, 2009. Small business lending with not-for-profit credit 

unions increased by over 100 percent in Michigan during the past 

3 years. So credit unions are lending. Our Invest in America program where we partnered with GM and Chrysler has resulted in 

over 200,000 car and truck sales for GM and Chrysler. I received 

a note from GM’s V.P. of Marketing and Sales recently saying, 

‘‘Thank you, Mr. Adams, for believing in us when no one else 

would.’’ I will never forget that. Credit unions are lending in all 

sectors, including small business lending. 

Point number two, we support the SBA proposals wholeheartedly. However, as the loan caps are raised, we encourage that 

the guarantees continue, as well, because the 90 percent guarantee 

level is absolutely critical. 

The third and most important point, credit unions are lending in 

the area of small business loans, but we are restricted with an arbitrary and, really, ridiculous cap on our small business lending 

that is restricted at 12 percent of assets. Representative Paul Kanjorski has sponsored H.R. 3380, it has 30 cosponsors, and quite 

simply, it would raise the small business loan cap on credit unions 

from the 12 percent level to 25 percent, and provides some other 

provisions that will simply allow credit unions to make more small 

business loans. We encourage your support for that legislation. 

That is the single piece of input I could give you. Our national association has estimated that it would immediately infuse $10 billion of capital for small business loans, and would create over 

100,000 jobs. 

So I appreciate your allowing me to testify, and we share the real 

interest in addressing this very serious problem. Thank you very 

much. 

Chairman MOORE OF KANSAS. Thank you, sir. 

[The prepared statement of Mr. Adams can be found on page 49 

of the appendix.] 

28 

Chairman MOORE OF KANSAS. I now recognize myself for 5 minutes for questions, and I would like to ask all four of you the first 

question: Is the decline we saw in lending in the last quarter due 

to banks and credit unions being more cautious about making loans 

on their own initiative, or is it pressure from regulators and examiners to stop making business loans? Mr. Johnson, if you would like 

to start, sir. 

Mr. JOHNSON. I’m inclined to think that it’s a combination of 

those two and some other factors. It’s not surprising that credit 

standards at banks have become a little more harsh today than 

they were 3 years ago, which most people would recognize that 

maybe it was a little looser than it should have been then. So that’s 

not surprising. 

It is also not particularly surprising that in this kind of an environment, regulators are being harsh during examinations. We can 

argue about whether the degree is appropriate, but that shouldn’t 

be surprising. 

Chairman MOORE OF KANSAS. Thank you, sir. Mr. Chaffin? 

Mr. CHAFFIN. I would agree with that. I would also like to add 

that we’re also finding, frankly, decreased demand, particularly in 

southeast Michigan, for small business lending and medium-sized 

business lending. In our own case, we have seen the backlog of loan 

applications for business lending to go down to less than 10 percent 

of what it was a year ago, and I think banks across the State and, 

in fact, across the country are experiencing something similar, so 

in addition to Art’s comments, it is partly a demand issue. 

Chairman MOORE OF KANSAS. Thank you. Mr. Kus? 

Mr. KUS. I would agree. I think one of the things that we’re finding with banks in southeast Michigan, they’re in capital preservation mode. They’re afraid to make additional new loans, concerned 

with whether or not they’re going to get additional criticism from 

the regulators, at the same time, they’re unable to find often sufficient collateral, bankable collateral to be used as collateral for 

those loans. 

Chairman MOORE OF KANSAS. Thank you, sir. Mr. Adams? 

Mr. ADAMS. Yes, I would like to see more public focus or more 

congressional focus on the plight of financial institutions as opposed to consumer interests. We represent the consumer sector of 

the financial services industry. We are consumer cooperatives, but 

there’s a very delicate balance that needs to be maintained here, 

as I mentioned in my comments. I think it is a combination. Regulators are really clamping down on lenders of all types, they should 

do that, they have to do that in a tough economy, but as I mentioned earlier, despite that, credit unions have been able to increase their loan volumes in all sectors during this period that 

we’re talking about. 

So the lending can be done, but it has to be done very carefully 

in a tough economic environment like we’re in right now. 

Chairman MOORE OF KANSAS. Thank you. Mr. Johnson, what 

unique challenges do Michigan banks face in lending to local small 

and mid-sized businesses in addition to regular business loans? I 

worry about the state of the commercial real estate market and the 

reluctance or inability for banks to make those kinds of loans to 

small or mid-sized businesses. How does the status of the auto inVerDate Nov 24 2008 15:19 Apr 27, 2010 Jkt 055816 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 K:\DOCS\55816.TXT TERRIE
29 

dustry fit into calculating how risky a loan may be if there’s an 

auto supplier at the other end of the loan? 

Mr. JOHNSON. Let me give as brief an answer as I can. 

Chairman MOORE OF KANSAS. Thank you. 

Mr. JOHNSON. One of the biggest factors is simply the value of 

collateral. Virtually every asset on the books of every small business and certainly of most banks is worth less today than it has 

been in the past, and in many instances, considerably less, and at 

the same that banks are requiring lower loan-to-value ratios in 

their loan approvals, the value has gone down, and frankly, it’s 

kind of a double whammy. 

Chairman MOORE OF KANSAS. Thank you, sir. Do any other witnesses care to comment on that? 

Mr. CHAFFIN. Maybe I could just add some anecdotal support to 

the property value issue. In Monroe County, Michigan, and Wayne 

County, Michigan, we have seen residential property values decline 

over the last 3 years at the rate of 1 percent per month, which 

means today, those properties are worth, roughly, a third of what 

they were 2 or 3 years ago. That extends to commercial property 

values, as well. It’s a very similar statistic, and as Art commented 

earlier, it is partly a fact of the availability of the collateral. 

Chairman MOORE OF KANSAS. Thank you. My time is about to 

expire, and go ahead and start, and if it does expire, I would ask 

the other witnesses if you have comments to please submit those 

in writing for the record. Okay, Mr. Kus? 

Mr. KUS. The only comment that I would make is that not only 

have real estate values fallen, but concentration levels that the regulators are demanding, they want them to decrease, so unfortunately in some segments, they’re unable to lend into those segments because they have reached their concentration level. 

Chairman MOORE OF KANSAS. Thank you. The Chair next recognizes Mr. Peters for 5 minutes for questions, sir. 

Mr. PETERS. Thank you, Mr. Chairman. Thank you again for all 

of our testimony. Let me get back to a question that I asked of the 

other panelists, the difference between the large, money-center 

banks, the community banks, and our credit unions that are here 

in Michigan, and what we have noticed, particularly with the new 

information with the decline in loans, it was interesting that the 

largest decline of loans to small businesses and loans generally 

were from the very large banks, the big, money-center banks, 

which are also the prime beneficiaries of significant TARP money 

and significant assistance from the Federal Government, and we 

have seen those banks turn—it looks like they have turned course, 

are profitable now, and yet, they’re not loaning out to Main Street 

and to our small businesses. 

Mr. Johnson, you represent the American Bankers’ Association, 

you have banks from every size available, and I just wanted your 

reaction to that, as well as the other panelists to that. And when 

I was before a Financial Services Committee hearing and I had the 

executives from the leading five banks in the country, they, more 

or less, mentioned to me that Michigan is being red-lined, in a 

sense. They didn’t use that term, obviously, but they could not find 

loans in Michigan, and they did all acknowledge that they’re loaning less in Michigan than they are in other States. 

30 

What do we have to do to get these money-center banks loaning? 

Where is the problem? What’s your reaction to the fact that the 

folks who have most of the deposits and the money are simply pulling back? 

Mr. JOHNSON. Well, I’m inclined to think that the solution for 

money-center banks and community banks is not terrifically different. If we can get regulatory agencies to look at capital ratios 

a little more creatively, if they can look at not requiring write-down 

of assets quite as rapidly as we have, the problem is essentially the 

same for everybody. It’s capital ratios, and in banks, that capital 

means something a little bit different than it does more generally. 

It’s the actual amount of equity in the business, and we are—banks 

of every size are really being required to move toward higher equity capital levels in their bank, and there’s really only two ways 

to do that. One is to raise more capital from some source, and the 

other is to shrink the balance sheet, and in the largest companies, 

they are shrinking the balance sheet, and I think that has a huge 

impact. 

Mr. PETERS. Mr. Chaffin mentioned the TARP funds to some 

community banks. One way to help that balance sheet is the TARP 

funds bringing in some Federal resources, and, yet, community 

banks are reluctant to accept TARP funds. Do you want to elaborate on that, what we need to do, maybe, to make it so community 

banks are willing to accept it? 

Mr. CHAFFIN. First of all, the application process for the capital 

purchase program for the TARP program has expired for community banks, I believe it expired at the end of November, and there 

may be some today that if that was available, they certainly would 

reconsider that. At the time the applications were taking place, our 

economic woes were not as severe as they are today. 

In our own case, our own bank declined to participate in that, 

and that application process was over a year ago. At the time, we 

were concerned about some of the what we’ll call onerous requirements that were part of that program. We were concerned about 

some of the unknown requirements that might become a part of 

that program at a later date, and I think if those type of restrictions are lifted from some future program, you would see more 

community banks taking part in it. 

Mr. PETERS. Community banks would take—so we can have outlined at a future time exactly what needs to be done if we open 

that up. Mr. Kus, I just also want it mentioned the forbearance 

that you talked about in your testimony, at least the written testimony, with the pressure that the regulators have, you made the 

comparison of Michigan being very similar to what happened in the 

farm crisis with banks there and the forbearance. Now we have approached the regulators, we’ll ask them again when they’re here 

before us, they have said that’s not something they’re willing to 

pursue, and they think that only postpones the problems for the 

banks. How would you respond? You understand the reluctance 

from the regulators. How should I respond to them when they give 

me those responses? 

Mr. KUS. I understand their reluctance, but we need to do something to assist. We have what I call almost a systemic risk problem 

of the banking industry in the State of Michigan. If we don’t do 

31 

something to help shore up the banks of southeast Michigan, we’re 

going to have more fail, and the question is what can we do to help 

shore it up. 

The proposed cap program is not a bad idea that’s coming out to support banks under $1 billion, but many of the banks that need 

the TARP money aren’t able to get it because of the restriction that 

if you’re at low CAMEL 3 composite rated or 4 or 5, you’re not 

going to get the money. So are there other programs that could be 

made available? And some of the ideas are to somehow limit the 

amount of charge-off that has to occur over a longer period of time 

as opposed to in that quarter, so again, some of those suggestions 

are in that paper. 

Chairman MOORE OF KANSAS. Thank you, and the Chair next 

recognizes Congressman Dingell for 5 minutes, sir. 

Mr. DINGELL. Mr. Chairman, with your permission, I would like 

to yield to Mr. Schauer. 

Chairman MOORE OF KANSAS. Absolutely. 

Mr. SCHAUER. Thank you, Mr. Dingell. 

Thank you all for being here. I think I will ask Mr. Johnson, you 

represent banks of all sizes. I think Mr. Trute alluded to this earlier, of businesses that have had 20-plus-year relationships with 

their large bank—I will use the term that has been used here, 

money-centered banks, and those banks literally are calling those 

loans. These are customers that have the demonstrated cash flow, 

they are still in business, they have not been winnowed out, and 

they’re diversifying. 

Why is that happening? How can that be good for that bank’s 

balance sheet or for their future balance sheet if they have a customer that’s demonstrated that it’s risk worthy, that it’s viable? 

That’s an example that I can give you of how our recovery is being 

hindered, and it’s a story that probably every community can tell 

you. 

Mr. JOHNSON. Well, excuse me, first of all, while I do represent 

all the members of the American Bankers’ Association, I am a community banker. 

Mr. SCHAUER. And I appreciate that. 

Mr. JOHNSON. And have never worked at— 

Mr. SCHAUER. You have a tough job. 

Mr. JOHNSON. I work at the largest bank I have ever worked at 

right now, it’s the only bank I have ever worked at, and it’s only 

$435 million, with an ‘‘m,’’ and so I think, as I mentioned before, 

and some of the other panelists have mentioned, there are a number of factors. Exposure to certain industries with what economists 

are saying about the restructuring of the auto industry. It’s—if you 

have the ability to be diversified across many States, many communities, you are able to pick and choose what industries you want 

to have your assets invested in. 

If, however, you were located in one community, and you can 

only do, as community banks are, you can only do what’s going on 

in that community, that’s what you have to do. You don’t really 

have that diversification ability. And so it’s not surprising that 

they’re making the very tough but, perhaps, rational decision that 

they don’t want quite as much exposure to particular industries as 

they have. 

32 

Mr. SCHAUER. And I appreciate that is probably the best answer 

you can give. The frustration is that these are businesses that have 

demonstrated that history of cash flow and demonstrated that relationship for a generation. So is the answer that you—community 

banks and credit unions, up to the ability that you can, refinance 

these loans? And will the President’s 3 percent interest rate help 

you do that, your $5 billion proposal give you the ability to do that? 

Because candidly, in my community, that’s what we’re sort of left 

with, we’re going to you, including credit unions, to say, how can 

you take out this other lender to help this business stay in business or help this business diversify and grow. 

Mr. JOHNSON. I think those are all great ideas. If I might, I had 

a thought while I was sitting back listening to the previous panelists about an observation that I have. Between the mid-1980’s and 

mid-1990’s, our bank in Grand Rapids was the largest originator of 

SBA 7(a) loans in the State of Michigan for 9 years in a row, and 

so we are very familiar with SBA programs. 

During that period of time, the SBA was relatively decentralized, 

and we made semiannual trips down to the Detroit office and the 

McNamara Building to meet with SBA officials, talk to them about 

what was going on, and talk about what was going on in our loan 

portfolio. That’s not the case anymore. The SBA has been very centralized, and we’re now dealing with offices in California and Virginia, and from an organizational perspective, I would say that if 

district offices of the SBA had a lot more authority to deal with 

their lenders on local issues, there could be some on-the-street improvement. 

Mr. SCHAUER. I appreciate that recommendation. Mr. Adams, 

you wanted to comment? 

Mr. ADAMS. Congressman, in your district, one credit union, Consumers’ Credit Union’s CEO Kit Snyder, you may know him— 

Mr. SCHAUER. Yes. 

Mr. ADAMS. —is an example of many credit unions in Michigan 

that have reached this arbitrary statutory 12 percent cap that I 

talked about. The single thing that can be done without a single 

taxpayer dollar to help infuse more money for small businesses 

would be to raise that cap that is currently placed on credit unions 

for small business lending. The only reason it’s in place is that the 

banking industry lobbied for that back in 1998. They’re the only 

ones who benefit from it, and yet, it’s a clear example of how small 

businesses could benefit from additional capital. 

Mr. SCHAUER. My time is up. Mr. Chairman, if I could ask for 

written follow-up from you, Mr. Adams, on that point in terms of, 

I know the bill that has been introduced would allow you to take 

that cap up to 25 percent— 

Mr. ADAMS. Right. 

Mr. SCHAUER. —but if you could give me some evaluation on— 

of how many jobs could be created, how many loans could be made 

for different increments, if you could go to 15 percent, 20 percent, 

25 percent— 

Mr. ADAMS. I would be happy to do that. 

Mr. SCHAUER. —I think that would be very helpful. 

Chairman MOORE OF KANSAS. Thank you. 

Congressman Dingell, you’re recognized, sir, for 5 minutes. 

33 

Mr. DINGELL. Thank you, Mr. Chairman. In his testimony, gentlemen, which you heard, Mr. Andrea observed that about 60 percent of the supply base may be indiscriminately cut off from necessary access to capital. He further stated the group of OESA’s 

chief purchasing officer concluded that predicting the failure of a 

supplier has more to do with their banking relationships than it 

does with their operational efficiency or revenue outlook. 

Do you agree that the banks are indiscriminately denying automotive suppliers to credit they desperately need to remain in business? Mr. Johnson? Mr. Chaffin? Mr. Kus? 

Mr. JOHNSON. I can only speak firsthand from what’s going on 

in my own bank, and that’s certainly not the case there. I would 

think that if that phenomenon is occurring, it is very isolated, it— 

I doubt that it’s widespread. 

Mr. DINGELL. Mr. Chaffin? 

Mr. CHAFFIN. I could relay some comments, I think, and also following up on Congressman Shauer’s question. There is, in fact, a 

challenge with a lot of auto manufacturers, simply because they do 

not demonstrate the ability to service debt, whether it’s recent history or whether it’s collateral. The supplemental programs that we 

have talked about in the past that the State has tried to initiate 

would counteract that. 

What we find in our own case when a larger institution has denied credit or actually denied renewing the credit and we receive 

an application, probably 9 times out of 10, it’s with merit, it’s with 

the fact that there is insufficient collateral or insufficient cash flow, 

so these— 

Mr. DINGELL. I want to make it clear I know nothing about that 

with regard to the community banks, and you, Mr. Chaffin, run a 

very fine institution. 

Mr. CHAFFIN. Thank you. 

Mr. DINGELL. I do observe with some distress I have had small 

business people, particularly suppliers, come into my office and observe that they have been informed that their bank was not going 

to loan anymore in the auto industry, and this is a matter of no 

small concern to me, as you might well know. Mr. Kus? 

Mr. KUS. I don’t think it’s indiscriminate, but I think Doug hit 

the nail on the head in that. The problem is when these people 

come back for loans today, when these companies come in, the 

value of their equipment has gone down significantly, the value of 

their commercial real estate has gone down, they have absolutely 

no assets, per se, they become very hard to bank. 

And so unfortunately, if the bank was to make this loan, they 

would be under severe criticism from the regulators who would 

likely have to classify the asset almost immediately, so unfortunately, we’re kind of in a Catch-22. 

Mr. DINGELL. Now one of the suggestions made during that 

meeting was the national adoption of the supplier diversification 

program, one which is successfully working in Michigan. This program would decrease individual banks’ risks in lending to suppliers’ banks by ensuring follow-up deposit—by ensuring upfront 

deposits of principal by the suppliers by ensuring upfront deposits 

by the Federal Government or its designee in risk pooling. Would 

that be of assistance in the problem we’re discussing? 

34 

Mr. CHAFFIN. Absolutely. 

Mr. DINGELL. Mr. Johnson? 

Mr. JOHNSON. I’m not a great believer in a single, silver-bullet 

approach here. 

Mr. DINGELL. Oh. 

Mr. JOHNSON. I think a lot of programs should be thrown out 

there and tried. 

Mr. DINGELL. I thoroughly agree. Mr. Kus? 

Mr. KUS. I would agree with that, and I— 

Mr. DINGELL. Gentlemen, there’s one issue—my time’s about 

out—but there’s one issue that we have heard everywhere this 

morning amongst all of our panelists, and that is the way assets 

are being rated down because of the loss of value. That’s causing, 

as you have observed, a severe constriction on banks’ ability to loan 

money and upon the requirements that are imposed on them to 

maintain a hard capital structure. 

We have two problems that this relates to, the first of which is 

the problem that you have in making loans, but the other is the 

fact that we have some folks who are ‘‘too-big-to-fail,’’ and we have 

to watch to see that—that we terminate that risk to our society. 

What do we do about this, gentlemen? And if my time runs out, 

submit that to us in writing so that we can get that in the record, 

please. 

Mr. JOHNSON. Well, I think there are really two related issues 

there, and the ABA has a position on creating a systemic regulator, 

which we think is important, and importantly, the resolution—the 

difficult part of that is what is the proposed resolution process for 

a bank, or an institution? Not just banks but a systemically important financial institution, what do we do once we have determined 

that they should fail, and how do we—without inducing chaos, how 

do we run that business down? How do we solve that problem? 

Mr. DINGELL. It’s probably too long for us to address this morning. 

Mr. JOHNSON. Well, it’s another whole hearing, I’m sure. 

Mr. DINGELL. Thank you, Mr. Chairman. 

Chairman MOORE OF KANSAS. Thank you, and Mr. Chairman 

here to my left has been a chairman for many, many years in Congress, so I appreciate his understanding, as well. 

We are at this time going to take—I want to thank the second 

panel for your testimony. You are excused, and before we hear from 

the third panel, we’re going to take a short break for a little lunch 

break, I guess, and resume here at 1:15. If everybody would be 

back then and be seated and ready to go. We all have to get back 

to D.C.—I think, we have planes to catch later, so we do want to 

start at 1:15, and I do appreciate the understanding of our members. We will see you back here in just a few minutes. 

[luncheon recess] 

Chairman MOORE OF KANSAS. The hearing will come to order. 

We’re going to convene your final group of panelists and have a 

chance to hear their testimony and ask questions. 

I ask unanimous consent to enter into the hearing record several 

statements from Members of Congress, Congressman Sandy Levin, 

he was unable to attend, but has a written statement, and also a 

statement from the National Association of Federal Credit Unions, 

35 

and a letter from the Building Industry Association of Southeastern Michigan. 

Is there any objection? 

Mr. DINGELL. No. 

Chairman MOORE OF KANSAS. Without objection, it is so ordered. 

These will be received in the record. 

I also welcome our final group, Panel Three. 

First, we will hear from Mr. Jon Greenlee, Associate Director of 

the Division of Banking Supervision and Regulation for the Board 

of Governors of the Federal Reserve system. Next, will be Mr. Anthony Lowe, Director of the Chicago Region Office for the FDIC. 

Third, will be Mr. Bert Otto, District Deputy Comptroller for the 

OCC, and finally, we will hear from Mr. Ken Ross, Commissioner 

for the Office of Financial and Insurance Regulation for the State 

of Michigan. 

Without objection, your written statements will be received and 

made a part of the record. 

Mr. Greenlee, you are recognized, sir, for 5 minutes—excuse me, 

for 3 minutes. We have cut down here. We are trying to get out 

of here by about 2:00—some of us are heading on to a place called 

Washington, D.C. So please understand, and we are not trying to 

cut you short. All of your statements will be received into the 

record. 

Mr. Greenlee, sir? 

STATEMENT OF JON D. GREENLEE, ASSOCIATE DIRECTOR, DIVISION OF BANKING SUPERVISION AND REGULATION, 

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 

Mr. GREENLEE. Thank you. Chairman Moore, Congressman 

Peters, Congressman Dingell, I appreciate the opportunity to appear here before you today to examine several issues related to the 

condition of the banking industry. 

Although conditions and sentiment in financial markets have improved, the overall business environment is very challenging for 

both large and small businesses as unemployment has continued to 

rise. Borrowing from businesses and households remains weak, and 

overall, the banking system continues to face significant challenges 

as the economic downturn and weaknesses in real estate markets 

has resulted in significant loan quality problems and losses at a 

number of banking organizations, many of which are also facing 

questions about capital adequacy. 

In Michigan, Indiana, and Ohio, the performance of banking organizations has also deteriorated because of weaknesses in the 

overall economic environment. In particular, banks in Michigan 

have seen asset quality indicators continue to deteriorate, further 

pressuring the institutions’ profitability and capital adequacy. 

Against this backdrop, four banks have failed in Michigan in recent months. The Federal Reserve has been focused on the important role banks play in meeting the needs of their community, and 

along with the other Federal Bank regulatory agencies, issued a 

press release in November of 2008 encouraging banks to make 

sound loans to creditworthy borrowers, including small businesses. 

More recently, on October 30, 2009, the Federal and State bank 

regulatory agencies issued additional interagency guidance on CRE 

36 

loan restructurings and workouts. This guidance, the development 

of which was led by the Federal Reserve, is designed to address 

concerns that examiners may not always take a balanced approach 

to the assessment of CRE credits. 

This statement is especially relevant to small businesses because 

owner-occupied CRE often serves as collateral for many small business loans. Given the importance of this issue, the Federal Reserve 

has already held initial training for its examiners, and on November 20th, participated with the other Federal banking agencies in 

a teleconference with the industry to discuss this guidance. 

Finally, the TALF program, which the Federal Reserve established in November of 2008 to facilitate the extension of credit to 

households and small businesses, has been successful in helping restart securitization markets. To date, the TALF program has 

helped finance 21⁄2 million auto loans, 750,000 student loans, more 

than 100 million credit card accounts, 480,000 loans to small businesses, and 100,000 loans to larger businesses. Included among 

those business loans are 4,700 loans to auto dealers to help finance 

their inventories. 

Perhaps even more encouraging, a substantial fraction of assetbacked securities is now being purchased by investors that do not 

seek TALF financing, and ABS issuers have begun to bring nonTALF eligible deals to market. Further, on November 16th, the 

availability of TALF financing also facilitated the first issuance of 

CMBS’s backed by newly originated mortgages in almost 18 

months. 

In summary, it will take some time for the financial markets to 

fully recover. The Federal Reserve is committed to working with 

the other banking agencies and the Congress on these important 

matters that will promote the concurrent goals of fostering credit 

availability in local communities across the country and promoting 

a safe and sound banking system. Accordingly, we thank you for 

holding this hearing. I look forward your questions. 

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

201 of the appendix.] 

Chairman MOORE OF KANSAS. Thank you, Mr. Greenlee. 

Mr. Lowe, you are recognized, and your statement will be received into the record, as well. 

STATEMENT OF M. ANTHONY LOWE, DIRECTOR, CHICAGO REGION OFFICE, FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) 

Mr. LOWE. Thank you. Chairman Moore, Congressmen Peters 

and Dingell, I appreciate the opportunity to testify on behalf of the 

FDIC regarding the availability of credit to small and mediumsized businesses. FDIC-insured institutions are a major source of 

financing for small businesses, supplying over 60 percent of the 

credit used by small businesses to run and grow their businesses. 

Most of these institutions are community banks. We share your 

concerns about ensuring the availability of credit to Main Street 

businesses in Michigan and across the country. 

The number of problem institutions and bank failures has risen 

steadily as the effects of this recession, which began in the financial markets, have taken hold in many parts of the country. As a 

37 

result, credit availability has suffered, and this is due not only to 

more conservative credit standards by lenders but also due to erosion of collateral values and the financial condition of borrowers. At 

the same time, bank supervisors are encouraging FDIC-insured 

lenders to deal with problem loans and recognize losses where necessary, while also encouraging loan workouts where they’re appropriate. 

Financial data from Michigan and the industrial Midwest in general reflect the ongoing struggle of the U.S. manufacturing sector 

which contracted during this decade, and like employment growth 

among other sectors, job growth in the manufacturing sector did 

not rebound after the 2001 recession even while overall U.S. economic growth was strong. This led Michigan to experience a sharp 

increase in joblessness since the start of the national recession in 

2007, and the State’s unemployment rate has more than doubled 

from 7.3 percent to 15.1 percent. 

With respect to small business lending, available data do not 

clearly distinguish recent trends in availability of small business 

credit in Michigan. However, recent surveys by the NFIB show 

that while small business loans have clearly become more difficult 

to obtain, deteriorating business conditions appear to represent an 

even larger problem. 

We understand the critical role that credit availability plays as 

the lifeblood of the national economy, especially for small businesses, and we also recognize the tight credit conditions in the 

market and continue to identify strategies for improving the current situation. Last year, along with the other regulators, we 

issued a statement reinforcing our view that continued origination 

and refinancing of loans to creditworthy borrowers is essential to 

the vitality of our domestic economy. We all have a mutual interest 

in seeing community banks thrive and continue to support their 

local communities. Community-based lenders can be a stabilizing 

force by providing credit for consumers and small businesses. 

Thank you for the opportunity to testify, and I’ll be happy to take 

questions. 

[The prepared statement of Mr. Lowe can be found on page 231 

of the appendix.] 

Chairman MOORE OF KANSAS. Thank you, sir. 

Mr. Otto, sir, you are recognized for 3 minutes. 

Mr. OTTO. Thank you. 

STATEMENT OF BERT A. OTTO, DISTRICT DEPUTY COMPTROLLER, OFFICE OF THE COMPTROLLER OF THE CURRENCY (OCC) 

Mr. OTTO. Chairman Moore and members of the subcommittee, 

I appreciate the opportunity to discuss ways to improve responsible 

lending to small businesses in Michigan and other parts of the 

country. The OCC recognizes the important roles that credit availability and prudent lending play in our Nation’s economy. Our goal 

is to ensure that national banks meet the credit needs of their communities and customers while remaining safe and sound. 

During this economic cycle, we are extremely mindful of the need 

to maintain a balanced approach to our supervision of national 

banks. Our message to bankers has been straightforward: bankers 

38 

should continue to make loans to creditworthy borrowers; they 

should not make loans that they believe are unlikely to be repaid 

in full; and they should continue to work constructively with troubled borrowers but recognize repayment problems in loans when 

they see them. 

Just as critical, we strive to ensure that our examiners maintain 

that balance in their bank examinations and oversight. Examiners 

should not dictate loan terms, but will ensure that bank management realistically identifies and addresses problems as they 

emerge, even as they work with struggling borrowers. 

As bank regulators, we share the goal of ensuring banks meet 

the credit needs of their small and mid-sized business customers 

and have taken steps to see that this happens. The OCC is also 

helping to educate examiners and bankers about programs that can 

reduce credit risk in loans to small and mid-sized businesses. Federal and State programs designed to make credit more accessible 

while reducing lenders’ credit exposure can be effective in promoting lending to creditworthy borrowers while limiting the risks 

lenders face in the economic cycle. 

National banks actively participate in government guarantee programs for small business lending: 5 of the 18 nationally chartered 

banks in Michigan are SBA preferred or express lenders offering 

SBA guaranteed loans, and the 10 large national banks doing business in Michigan are also designated as SBA-preferred or express 

lenders. The OCC fully supports the Administration’s initiatives to 

expand credit availability and begin the process of financial recovery. 

Beyond our safety and soundness examination activities, OCC 

encourages lending to small and mid-sized businesses in a variety 

of other ways. Among these are our evaluation of the national 

banks’ performance under the Community Reinvestment Act, our 

extensive community affairs activities, and our formal outreach 

programs. The OCC’s community affairs activities and publications 

are specifically developed to increase examiner, banker, and community group awareness of programs that promote lending to small 

businesses that support communities throughout the country. Recent banker roundtables, newsletters, information, and informational publications have highlighted various aspects of small business lending opportunities and incentives. 

In conclusion, credit availability and prudent lending to small 

businesses play an important role in our Nation’s economy. The 

OCC shares the committee’s goal of ensuring banks continue to 

meet the credit needs of their customers in a safe and sound manner. We also recognize that banks are operating in an economic environment that continues to pose challenges to them and their customers. 

We have and will continue to support and encourage prudent 

lending to small and mid-sized businesses in Michigan and across 

the country through our supervisory activities, guidance to bankers, and CRA process, small business related programs, publications, and ongoing outreach efforts. Thank you for this opportunity 

to testify and present our views. 

[The prepared statement of Mr. Otto can be found on page 244 

of the appendix.] 

39 

Chairman MOORE OF KANSAS. Thank you, Mr. Otto. 

Mr. Ross, you are recognized, sir, for 3 minutes. 

STATEMENT OF KEN ROSS, COMMISSIONER, OFFICE OF FINANCIAL AND INSURANCE REGULATION, STATE OF MICHIGAN 

Mr. ROSS. Thank you, Mr. Chairman, and Representatives Peters 

and Dingell. My name is Ken Ross and I am commissioner of the 

Michigan Office of Financial and Insurance Regulation. I thank you 

for the opportunity to testify today. I have taken a red pen aggressively to my oral testimony and I will try to talk fast. 

My agency supervises 118 of Michigan’s 147 federally insured 

commercial and savings institutions which collectively hold approximately $50 billion in combined assets. I also regulate over 200 

credit unions which have just over $20 billion in assets. Historically, Michigan has averaged 1 bank closure roughly every 5 years 

over the last several decades. In the last 13 months, 4 Michigan 

banks and 1 credit union have been closed. 

Given time, I believe that many Michigan banks would be able 

to work their way through the challenges associated with historic 

job losses in the auto industry, but unfortunately, some will not be 

able to weather the additional stress associated with the huge devaluation of real property that we have seen across the State. 

Michigan is not alone in that, but we have seen somewhere between 30 and 40 percent on average across the State in real estate 

devaluation. 

Community bankers who weren’t, by and large, involved in 

subprime lending and weren’t reaping fortunes from the national 

securitization machine, however, are paying the ultimate price for 

those who benefited from the fundamental causes of the underlying 

financial crisis that we have been going through, and while much 

of the national focus has been on buttressing systemically important information, our attention in Michigan has been working with 

community banks struggling with the myriad of challenges facing 

them in this environment. 

Federal policy hasn’t treated the challenges faced by community 

banks with the same expediency or creativity that they have accorded to their systemically important brethren. Over the last year, 

nearly 300 community banks nationwide have failed or merged out 

of existence, while their large counterparts have only gotten bigger. 

Additional capital, both public and private, must be the building 

block for success ultimately for community and regional banks. 

While TARP has provided a source of capital for some of these 

institutions, I have—as I’m sure you have heard—been told many 

times that the process is both cumbersome and expensive for community banks, and is an opaque process, as well. While there have 

been some positive signs in the outlook nationally where capital 

flows have been coming into the system, unfortunately, Michigan 

banks have been largely shut out of capital markets. 

We have heard, as you have heard many times, that Michigan 

is being red-lined. With that, I will just stop because I know the 

time has run out, and I will be glad to answer any questions. 

[The prepared statement of Mr. Ross can be found on page 258 

of the appendix.] 

40 

Chairman MOORE OF KANSAS. Thank you to our panelists for 

their testimony, and again, your statements are part of the record. 

I would like to direct my first question to Mr. Greenlee. I know 

one of the areas of the economy the Fed has been particularly focused on is commercial real estate. How does that particular type 

of lending play into the larger challenge to make credit available 

to small and mid-sized businesses? Do you have a comment on 

that, sir? 

Mr. GREENLEE. Yes, as I mentioned in my oral statement, we 

have focused a lot on commercial real estate lending for two reasons. There are a lot of banks with commercial real estate concentrations. The second piece of this is really the owner-occupied 

commercial real estate portfolio where small businesses will pledge 

their building or property to secure a loan, and so we have tried 

to fix on that as a key priority to make sure that our examiners 

are taking a balanced approach to that, particularly on the owneroccupied commercial real estate properties, so we look at a borrower’s ability to repay, not necessarily just the value of the property. 

Chairman MOORE OF KANSAS. Thank you. Do any other witnesses care to comment on this question? 

Okay, next question. If there is one message that you as examiners and regulators of depository institutions would like to send 

to banks here in Michigan that are unsure if they should make 

small business loans to small businesses desperate for that credit, 

what would that message be? What message would you like to send 

to small businesses here in this area? Mr. Greenlee, again, I will 

start with you, sir. 

Mr. GREENLEE. I think the Federal Reserve’s view on credit 

availability, again, is that we want banks to make prudent loans 

to creditworthy borrowers. I think our main message to the banks 

is that it is in everybody’s best interests to do that. That was consistent with what we put out in the November 2008 statement and 

that we want banks to look at the borrower’s ability to repay the 

loan under reasonable terms, and that really should be the driving 

force here. 

Chairman MOORE OF KANSAS. Do any other witnesses care to 

comment? Yes, sir, Mr. Lowe? 

Mr. LOWE. Yes, dovetailing on that exact same comment, from 

the FDIC standpoint, we look at collateral as a secondary source 

of repayment. So as long as we see that a loan is performing—there 

is sustainment for repayment over the loan term—that type of 

credit generally will not be criticized. The collateral is only one aspect that we’re looking at when we’re analyzing credits. 

Chairman MOORE OF KANSAS. Mr. Otto? 

Mr. OTTO. Yes. We have talked to banks about this, and if a 

business has a sound plan, I think we definitely encourage them 

to make those loans. We have some community affairs officers—one 

of whom is here today listening to this hearing—in Michigan who 

meet with bankers and community organizations and others to try 

to put people together in supporting small business loans and all 

lending. 

Chairman MOORE OF KANSAS. Thank you. Mr. Ross? 

41 

Mr. ROSS. Yes, only insofar as earlier on in the crisis, I think we 

had some bankers who were overly optimistic and weren’t—in my 

estimation, they had some rose-colored glasses on in terms of the 

overall ability of the local economy to bounce back. 

I think today we’re in a much different place, and I think bankers are much more aggressively looking at credits and doing extensive evaluations looking at the entire picture, all sources of possible 

support for the loans, so I think we’re in a much different place 

today than we were a year-and-a-half ago. 

Chairman MOORE OF KANSAS. Thank you. Congressman Peters, 

if you would like to ask your questions now, sir. 

Mr. PETERS. Thank you, Mr. Chairman. Generally, to kind of distill what I have been hearing here today is we have two problems 

here in Michigan: First, we have to get the big banks, the bigmoney-center banks who have already been the beneficiaries of significant amount of taxpayer and Federal Reserve intervention from 

the Treasury, from the Federal Reserve, to get them to loan in 

Michigan, which they aren’t doing, and the statistics certainly bear 

that out. 

The second is to give our community banks who are here, community banks and credit unions who are in our communities the 

tools that they need in order to continue to make those loans in the 

communities in which they operate and which they continue to express their frustration with regulators as putting on the squeeze on 

them, asking them to take fire sale markdowns on assets, putting 

them in a real untenable position, so let me just put out one of 

the—seem to make some sense in the community bankers, put out 

three conditions or three changes that they thought would make 

sense, particularly in a place like Michigan, which I think does 

have a lot of similarities to the farm crisis in the 1980’s, which we 

talked about earlier, and some forbearance may make some sense 

in order to keep these banks functioning. They suggest that we 

allow banks to include in their capital all or a significantly higher 

portion of the 1.25 percent that’s currently allowed to be carried in 

their allowances for loan and lease losses. They also believe we 

should allow banks to include as part of their capital the face 

amount rather than the market price, so GSEs, Government-Sponsored Enterprises, that they intend to hold to maturity, and three, 

allow banks to amortize losses over a 7-to-10-year period instead of 

the loss in the quarter in which it is experienced. 

Give me your reaction to those. Do those conditions seem to 

make some common sense, particularly in the situation here in 

Michigan? Mr. Lowe, maybe from the FDIC’s perspective first? 

Mr. LOWE. I will definitely address the part about amortizing 

loans over 7 to 10 years and the forbearance. We did have the forbearance program back in the 1980’s for the agriculture crisis. We 

had 200 to 300 banks that participated. FDIC has always been an 

advocate for open and honest transparency with regard to financial 

reportings, so at this point in time, we would not be supporting a 

forbearance program. But I would say again with the guidance on 

meeting the needs of creditworthy borrowers that we issued in 

2008, and the guidance on workouts issued just last month, we are 

continuing to encourage all of our institutions to lend, continue 

lending, and continue refinancing credits as long as it is done in 

42 

a prudent and reasonable manner. We are not going to be looking 

to criticize credits just because the collateral value has declined. 

We will continue to stress that bankers analysis of the repayment 

capacity of the borrower. 

Mr. PETERS. My understanding is, in the 1980’s, the forbearance 

program was successful, was reasonably successful, that it prevented banks from going under; is that an accurate assessment or 

not? 

Mr. LOWE. Of the 200 to 300 banks that participated, the majority of them did survive. There were a very small number that did 

end up failing, so you could couch that as a success, but again, a 

difference at that point in time was that there were some very 

stringent guidelines for banks to be able to participate. One of 

those criterion was that the institution had to have been well-managed and well-run throughout all its history. That is not saying institutions here in Michigan or across the country are not, but there 

were some very stringent guidelines for banks to be participants. 

Mr. PETERS. If we reinstituted some of those guidelines and did 

something similar to what we did in the 1980’s, would that be 

something—maybe Mr. Otto and Mr. Greenlee could get involved, 

as well—Mr. Lowe, is that something that you would be open to if 

we moved in that direction similar to what we did in the 1980’s, 

which was—it seems to me it’s cheaper, especially from the FDIC’s 

perspective, as well, to keep these banks operating as opposed to 

coming in and having to finance that? 

Mr. LOWE. We would have to take a close look at forbearance because, again, we do advocate for transparency with regard to the 

financial statements. 

Mr. OTTO. I agree with Anthony. I think that it’s something that 

you could look at, but I was in central Illinois in the Peoria office, 

and most of my banks that I supervised there were agriculture 

banks, and while they did participate in the forbearance program, 

there was a lot of pain involved in that, and I think we would have 

to be very specific as to people getting in and how they come out 

of the forbearance program because a lot of the banks that I had 

were bought by another bank rather than fail. 

So I think that we have to be careful about how that is structured. And I agree on the amortization of loss, that was one other 

point that you had made, I think that’s a slippery slope if you amortize losses over, what did you say, a 1- to 7-year period? 

Mr. PETERS. A 7- to 10-year period. 

Mr. OTTO. Yes, 7, that would be just forgoing or pushing out the 

problems as opposed to dealing with them right away. 

Mr. PETERS. I get a little disconcerted—one more question. 

Chairman MOORE OF KANSAS. One more question, certainly. 

Mr. PETERS. Okay, the question regarding that—the other is the 

capital, and it was brought up with the American Bankers’ Association that the FDIC’s failure resolution policies, it’s difficult to raise 

capital here in Michigan given the—where the economy is and the 

auto industry, but your resolution policies actually create incentives for investors to wait until the bank has failed as opposed to 

investing earlier. 

43 

Why is that the case? Why can’t we change that? We want to 

keep these banks before they fail, before it starts costing money. 

Why is that policy in place, and can we change it? 

Mr. LOWE. We don’t have a policy where we’re trying to have 

that disincentive—of forcing banks to fail. 

Mr. PETERS. Well, it’s FDIC-guaranteed financing for winning 

bidders of failed banks or loss-sharing agreements. So you have 

that guaranteed financing where, obviously, that doesn’t exist before a bank fails. 

Mr. LOWE. Before a bank fails, when we do have a problem institution, we’re working with the institution and advocating that they 

go out into the market and try to look at finding a merger partner 

or someone that can buy them. We definitely would rather have the 

assets of the bank stay in private hands versus coming onto the 

FDIC’s balance sheet. That is something that we do advocate before an institution fails, something that may not be public, but we 

are all the time working with institutions, working with the regulatory agencies, working with the commissioners for the State-chartered banks trying to arrange and to act to some degree as a broker 

to find means for an institution to be taken over while it is still 

open and operating. 

Mr. PETERS. Thank you. Thank you for your indulgence, Mr. 

Chairman. 

Chairman MOORE OF KANSAS. Certainly. The Chair next recognizes the Honorable John Dingell. Congressman Dingell? 

Mr. DINGELL. Mr. Chairman, I hope this won’t be charged 

against my time, but I want to say thank you for being here, tell 

you how much we appreciate your assistance and kindness to listen 

to our constituents, and tell you how much, Mr. Chairman, we’re 

going to miss you when you leave Congress. 

Chairman MOORE OF KANSAS. Thank you. 

Mr. DINGELL. Mr. Moore is leaving the Congress, and I think it’s 

a prodigious loss to the body and, frankly, to our country. 

Chairman MOORE OF KANSAS. Thank you. 

Mr. DINGELL. Now, if I could begin my time? 

Chairman MOORE OF KANSAS. Yes, sir. Now his time starts. 

Mr. DINGELL. I have had on two separate occasions constituents 

in the supplier business come in and talk to me, and they told me 

that they have been told clearly that loans were not going to be 

made in Michigan or loans were not going to be made into the auto 

industry or to suppliers. Does that, as a matter of policy, does that 

kind of red-lining have the approval of your respective agencies, 

Mr. Greenlee, Mr. Lowe, and Mr. Otto? 

Mr. LOWE. I can tell you from an FDIC standpoint, we have not 

indicated to our examiners or anyone on our staff that any specific 

type of lending should not be done. Again, we’re encouraging lending as long as it is prudent and reasonable. 

Mr. DINGELL. Apparently, these banks were not hearing it. Do 

you approve of this, Mr. Greenlee? 

Mr. GREENLEE. Absolutely not, sir. 

Mr. DINGELL. How about you, Mr. Otto? 

Mr. OTTO. No, absolutely not. 

Mr. DINGELL. What should we do about it? 

Mr. OTTO. I think— 

44 

Mr. DINGELL. If one of my constituents comes in, can I call you 

up and say, Mr. Greenlee, Mr. Lowe, Mr. Otto, these scoundrels are 

not giving my people money because they’re in the auto business? 

And if I did, what would you do about it? 

Mr. GREENLEE. Sir, I have heard these concerns voiced in Washington from Members— 

Mr. DINGELL. As my old daddy used to say, ‘‘A few good public 

hangings would help the situation considerably,’’ but I’m going to 

ask that you give us a response for the record, each of you, if you 

would, please. 

Now, gentlemen, I have—the question has been raised here 

about focusing on small automobile suppliers, and to do so by creating a public/private capital partnership to lower the risk of lending to the industry. Such proposals have been discussed by me and 

by bankers and others, it’s known as the National Manufacturing 

Diversification Fund, NMDF. Do you and your agencies favor this 

legislation or not? Mr. Greenlee? Mr. Lowe? Mr. Otto? 

Mr. GREENLEE. Congressman, I will have to look into that and 

get back to you with a written response. 

Mr. DINGELL. Would you respond for the record, please. 

Mr. GREENLEE. Yes. 

Mr. DINGELL. Mr. Lowe? 

Mr. LOWE. I will do the same. 

Mr. DINGELL. And you, Mr. Otto? 

Mr. OTTO. I will do the same. 

Mr. ROSS. I will do the same. 

Mr. DINGELL. If I could count on you to deliver that to us, because this is important information. 

Now, gentlemen, if—in 25 words or less—if you had the opportunity to tell the Congress what it is we ought to do to increase 

lending, and whether you have enough authority or appropriations 

to see to it that we could have an enforceable, workable policy to 

get money to the community banks, which are really hurting, so 

that they can get it to the suppliers and small businesses, what 

would your advice be? Mr. Greenlee? 

Mr. GREENLEE. I can speak to what we have done broadly at the 

Fed along these lines— 

Mr. DINGELL. I want to hear what we’re going to do in the future, though, since, ‘‘What’s past is prologue’’— 

Mr. GREENLEE. And we are continuing to work hard and look 

closely at— 

Mr. DINGELL. But what would you suggest to us that we do? 

Mr. GREENLEE. I think alternatives to look at capital for small 

businesses, different programs are options, and we— 

Mr. DINGELL. Could you give us—could you submit for the 

record, make a clear statement of what you and your agency would 

suggest to us? That would be immensely helpful, because I’m not 

satisfied what’s happening is doing us enough good. 

Mr. Lowe, would you tell us, do you have enough statutory authority, and do you have enough funds, and what should the Congress do about these matters? 

Mr. LOWE. Something to consider if we go forward with additional TARP or capital purchase programs—I know that is being 

proposed by the Administration—is to include some additional inVerDate Nov 24 2008 15:19 Apr 27, 2010 Jkt 055816 PO 00000 Frm 00050 Fmt 6633 Sfmt 6633 K:\DOCS\55816.TXT TERRIE
45 

centives for the CDFI’s for minority institutions and for institutions 

that have purchased other failing banks if perhaps there would be 

some way to build in some incentives in that regard for those institutions to get some lower-cost capital. 

Mr. DINGELL. Thank you. Mr. Otto? 

Mr. OTTO. I can give you something later for the record, but I 

do think it does follow in on the capital piece. I think if there are 

ways we can get capital and make it an incentive for banks to lend, 

as you’re saying, that would be positive. But I can get something 

more specific for you if that’s all right. 

Mr. DINGELL. It would be appreciated. 

Mr. Ross, do you have any comments? 

Mr. ROSS. Yes, just following up on what Tony indicated, I think 

reopening the TARP program but tweaking it a bit would help by 

instead of doing a pre-viability, a post-viability standard. So if the 

bank, with the injection, provided they can come up with some coupling capital, be viable, and they have strong management, I think 

it has been the hurdle here in Michigan—in many cases because 

we were at the front end of the recession—many of our banks were 

in a worse off position to begin with so they couldn’t even get 

into— 

Mr. DINGELL. You also are in good part dependent on what is 

done at the Federal level. 

Mr. ROSS. We are. 

Mr. DINGELL. And what do you suggest we should do about that? 

Mr. ROSS. Well, I think we have a pretty good working relationship, quite frankly, but we at the State level at our agency, try to 

stake out a very independent position in the sense that if we don’t 

agree with a finding on a joint examination, we won’t put our name 

to it. So we try to maintain our independence, although, we work 

very closely with our Federal counterparts. 

Mr. DINGELL. Gentlemen of the panel, I thank you for your courtesy. I hope I have not offended any of you. 

Chairman MOORE OF KANSAS. I think that brings us to the end 

of our hearing today, and I certainly appreciate the panelists being 

with us. I want to thank, again, Congressman Gary Peters for inviting our subcommittee to Michigan for this field hearing; and I 

certainly want to thank my good friend, Congressman Dingell, for 

participating in this hearing, as well as Mr. Schauer, for being 

here. He had to leave for another engagement, but he did really 

contribute a lot to our hearing here today. 

I want to thank our witnesses, this panel, and the other panels, 

for their testimony today. I believe today’s hearing gives us a better 

understanding of the challenges facing small and mid-sized businesses, the urgent need for increased, prudent lending while keeping depository institutions safe and sound. I look forward to working with Congressman Peters, Congressman Dingell, and Congressman Schauer and other Members of Congress to address these difficult challenges. 

The Chair notes that some members may have additional questions for our witnesses which they may wish to submit in writing, 

and if they do, I would ask that the witnesses respond. Without objection, the hearing record will remain open for 30 days for memVerDate Nov 24 2008 15:19 Apr 27, 2010 Jkt 055816 PO 00000 Frm 00051 Fmt 6633 Sfmt 6633 K:\DOCS\55816.TXT TERRIE
46 

bers to submit written questions to these witnesses and to place 

their responses in the record. 

I think this has been a very productive, educational experience, 

this hearing today, a chance to ask some questions of people who 

are in a position to give us really good answers, and I think all of 

us will think about these things when we go back to Congress and 

relate some of what has happened today and the testimony we 

have heard from our witnesses today to our colleagues in Congress. 

And I hope that our country moves forward and moves out of this 

horrible fiscal economic situation which has hurt not only our country but our people. 

But we are on the mend. I just hope it happens sooner rather 

than later because a lot of people are still hurting out there right 

now. 

Thanks to everybody here today, and we will at this time adjourn 

the hearing. 

[Whereupon, at 1:50 p.m., the hearing was adjourned.] 

(47) 

A P P E N D I X 

November 30, 2009 

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