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H.R. 3505, FINANCIAL SERVICES

REGULATORY RELIEF ACT OF 2005

HEARING

BEFORE THE

SUBCOMMITTEE ON 

FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

SEPTEMBER 22, 2005

Printed for the use of the Committee on Financial Services

Serial No. 109–55

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa 

RICHARD H. BAKER, Louisiana 

DEBORAH PRYCE, Ohio 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

ROBERT W. NEY, Ohio 

SUE W. KELLY, New York, Vice Chair 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

JIM RYUN, Kansas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

VITO FOSSELLA, New York 

GARY G. MILLER, California 

PATRICK J. TIBERI, Ohio 

MARK R. KENNEDY, Minnesota 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

MICHAEL G. FITZPATRICK, Pennsylvania 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

BARNEY FRANK, Massachusetts 

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 

DARLENE HOOLEY, Oregon 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

JOSEPH CROWLEY, New York 

WM. LACY CLAY, Missouri 

STEVE ISRAEL, New York 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

JIM MATHESON, Utah 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

ARTUR DAVIS, Alabama 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

DEBBIE WASSERMAN SCHULTZ, Florida 

GWEN MOORE, Wisconsin, 

BERNARD SANDERS, Vermont

Robert U. Foster, III, Staff Director 

(III)

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

SPENCER BACHUS, Alabama, Chairman

WALTER B. JONES, JR., North Carolina, 

Vice Chairman 

RICHARD H. BAKER, Louisiana 

MICHAEL N. CASTLE, Delaware 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SUE W. KELLY, New York 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

JIM RYUN, Kansas 

STEVEN C. LATOURETTE, Ohio 

JUDY BIGGERT, Illinois 

VITO FOSSELLA, New York 

GARY G. MILLER, California 

PATRICK J. TIBERI, Ohio 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

RICK RENZI, Arizona 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

PATRICK T. MCHENRY, North Carolina 

MICHAEL G. OXLEY, Ohio 

BERNARD SANDERS, Vermont 

CAROLYN B. MALONEY, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

LUIS V. GUTIERREZ, Illinois 

DENNIS MOORE, Kansas 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

DARLENE HOOLEY, Oregon 

JULIA CARSON, Indiana 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

JOSEPH CROWLEY, New York 

STEVE ISRAEL, New York 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

AL GREEN, Texas 

GWEN MOORE, Wisconsin 

WM. LACY CLAY, Missouri 

JIM MATHESON, Utah 

BARNEY FRANK, Massachusetts 

(V)

C O N T E N T S 

Page 

Hearing held on: 

September 22, 2005 .......................................................................................... 1

Appendix: 

September 22, 2005 .......................................................................................... 39

WITNESSES 

THURSDAY, SEPTEMBER 22, 2005

Bowman, John E., Chief Counsel, Office of Thrift Supervision ........................... 20

Fenner, Robert M., General Counsel, National Credit Union Administration ... 23

Fox, William J., Director, Financial Crimes Enforcement Network .................... 13

James, Randall S., Commissioner, Texas Department of Banking, on behalf 

of Conference of State Bank Supervisors, Inc. .................................................. 24

Kroener, William F., III, General Counsel, Federal Deposit Insurance Corporation ................................................................................................................. 19

Latham, George, Deputy Commissioner, Credit Unions, Bureau of Financial 

Institutions, Virginia State Corporation Commission, on behalf of National 

Association of State Credit Union Supervisors .................................................. 26

Olson, Hon. Mark W., Governor, Board of Governors of the Federal Reserve 

System ................................................................................................................... 16

Williams, Julie L., First Senior Deputy Comptroller and Chief Counsel, Office 

of the Comptroller of the Currency ..................................................................... 17

APPENDIX 

Prepared statements: 

Oxley, Hon. Michael G. .................................................................................... 40

Bachus, Hon. Spencer ...................................................................................... 42

Gillmor, Hon. Paul E. ....................................................................................... 46

Green, Hon. Al .................................................................................................. 47

Hensarling, Hon. Jeb ........................................................................................ 48

Kelly, Hon. Sue W. ........................................................................................... 51

Maloney, Hon. Carolyn B. ................................................................................ 53

Moore, Hon. Dennis .......................................................................................... 54

Sanders, Hon. Bernard ..................................................................................... 56

Bowman, John E. .............................................................................................. 59

Fenner, Robert M. ............................................................................................ 92

Fox, William J. .................................................................................................. 100

James, Randall S. ............................................................................................. 104

Kroener, William F., III ................................................................................... 119

Latham, George ................................................................................................ 145

Olson, Hon. Mark W. ........................................................................................ 166

Williams, Julie L. ............................................................................................. 184

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

North American Securities Administrators Association, prepared statement .... 212

(1)

H.R. 3505, FINANCIAL SERVICES 

REGULATORY RELIEF ACT OF 2005

Thursday, September 22, 2005

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

AND CONSUMER CREDIT, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to call, at 10:05 a.m., in Room 

2128, Rayburn House Office Building, Hon. Spencer Bachus [chairman of the subcommittee] presiding. 

Present: Representatives Bachus, Royce, Kelly, Ryun, Oxley, 

Biggert, Feeney, Hensarling, Neugebauer, McHenry, Sanders, 

Maloney, Watt, Sherman, Meeks, Moore of Kansas, Frank, Hooley, 

McCarthy, and Green. 

Chairman BACHUS. [Presiding.] Good morning. The Financial Institutions Subcommittee of the Financial Services Committee will 

come to order. 

We have an esteemed group of panelists today. 

Our focus today is on H.R. 3505, the Financial Services Regulatory Relief Act of 2005, which alters or eliminates unduly burdensome or outdated regulatory requirements. It was introduced by 

Congressman Hensarling and Congressman Moore in July, with 

numerous bipartisan cosponsors. It seeks to reduce the regulatory 

burden on our insured depository institutions to benefit customers 

and the economy by lowering costs and improving productivity. 

Let me simply say that this legislation—I know that Congressman Hensarling, Congressman Ryun is here—there are several 

provisions that he has worked on. He had also introduced legislation, and many of those provisions are incorporated in this legislation. Plus, we will be considering proposals that you have made. 

We also have legislation by Mr. Royce and Mr. Kanjorski dealing 

in particular with the credit unions. I would like to compliment 

them on their participation. 

We have had tremendous cooperation from the ranking member 

of this committee, Mr. Sanders, in putting this package together. 

Also, it is my understanding, and I have some knowledge of this, 

that we have been consulting with not only industry and consumer 

groups, but also with the regulatory agencies. In one case, my personal staff as a result of both the regulatory agency and the industry expressing for some time that probably clearly one of the most 

onerous burdens on our financial institutions from a cost standpoint is the $35 billion in regulations. 

2

The complaint that I have heard for years and years was about 

the currency transaction reports. I heard it time and time again. 

I have heard Members of the other body in speeches before the 

Senate and the House express the hope that we could come up with 

some proposal for seasoned business customers where banks could 

certify customers and banks would not have to be continually filing 

these currency transaction reports. 

As most of the regulatory agencies before us today have expressed to this committee and to the Senate and law enforcement 

has many times testified before us that they have not been able to 

review these. Sometimes these are gone through in 4 years. We 

have also heard from banking institutions where they would notify 

law enforcement agencies of a transaction and they simply say that 

they are so overburdened by the number of these things that they 

never got back and investigated them and testimony from law enforcement agencies that it is several years before they ever look at 

these things, if then. 

As a result of that, Mr. Fox and I met probably 3 months ago 

in my office. I expressed to him some of the concerns that I had. 

He I know talked to Members of the Senate that I was aware of. 

I talked to Members of the Senate, particularly Mr. Crapo who had 

expressed on many occasions that it was a priority for him. In 

working with the regulators over the past month or two and with 

the banking industry, Mr. Fox and I, and I know Mr. Hensarling 

has been involved in this on a day-to-day basis, and Mr. Frank 

also, and members on both sides. I know the Senate was aware of 

that because I had conversations with them. 

We came up with wording that I think advances this issue light 

years. It is absolutely, of all the provisions in this, I think it has 

the potential to make law enforcement much more efficient and effective, to take what has been a very burdensome and really outdated and outmoded practice of every time a citizen of this country, 

whether they are a businessman that deposits $10,000 every day 

or twice a day, where they have to file a report every day. These 

things are filed by the hundreds of thousands and never looked at. 

I would like to applaud Mr. Fox and FinCEN for their dedication 

in working with everyone to fashion what I consider a very good 

provision, which Mr. Hensarling has also worked on, and I know 

Senator Crapo in the Senate. I would assume that he has kept the 

other Members of the Senate informed on these actions. To me, it 

absolutely has no downside and will make law enforcement that 

much more effective. 

With that, I will yield to Mr. Sanders. 

[The prepared statement of Hon. Spencer Bachus can be found 

on page 42 in the appendix.] 

Mr. SANDERS. Thank you very much, Mr. Chairman, for holding 

this important hearing. 

I would like to welcome our witnesses today as well. 

Today, we will be discussing H.R. 3505, the Financial Services 

Regulatory Relief Act of 2005, introduced by Mr. Hensarling and 

Mr. Moore. I am delighted that this legislation includes a provision 

which I authored to provide a Community Reinvestment Act credit 

to financial institutions to expand employee ownership. 

3

I want to thank Chairman Bachus very much for his strong support for this provision and his working with me for a rather long 

period of time. Thank you very much, Mr. Chairman. 

Providing a CRA credit for the expansion of employee ownership 

is, I believe, a win-win situation. It will be good for banks looking 

for new ways to fulfill their CRA requirements and it will be good 

for workers who would like to own their own businesses. In addition, workers who are also owners will not be shipping their jobs 

to China or abroad, so those of us who are concerned about the decline of manufacturing in the United States and the loss of goodpaying jobs I think will see some improvement if working people 

in this country are actually able to own the places that they work. 

Broad-based employee ownership has been proven to increase 

employment, increase productivity, increase sales, and increase 

wages in the United States of America. It gives a lot of pride to 

people in the fact that they can make decisions in the places that 

they work. I think it is the essence of what democracy is about as 

well. 

H.R. 3505 also includes 15 important regulatory reforms that 

will allow credit unions to better serve their members, including a 

section to allow credit unions to cash checks and wire funds to anyone who is eligible to join their credit union. So long as the employee ownership in credit union provisions are kept in H.R. 3505, 

I will be strongly supporting this legislation. 

Mr. Chairman, as you know, during the 108th Congress I opposed a similar regulatory relief bill because of the absence of 

meaningful consumer protections, but this year’s regulatory relief 

bill is a major improvement over last year’s version and I would 

like to thank you, Ranking Member Barney Frank, and the authors 

of the legislation for their excellent work on this bill. 

Having said that, Mr. Chairman, I also believe that it is very important for this subcommittee to seriously examine the deceptive 

and misleading credit card scams perpetrated by some of the largest banks in America. I know you and I have discussed this. I think 

there is a growing outrage throughout our country when working 

people are now paying 25 percent or 28 percent interest rates, 

when there are five billion proposals going out in the mail, many 

of them misleading. I think when we talk about relief, we also have 

to talk about relief from consumers who are paying usurious interest rates today. 

So, Mr. Chairman, I am supportive of this legislation. Thank you 

for your good work, but I hope that we can return to the issue of 

how we protect consumers from outrageously high interest rates on 

their credit cards. 

[The prepared statement of Hon. Bernard Sanders can be found 

on page 56 in the appendix.] 

Chairman BACHUS. I appreciate the ranking member, and I can 

assure you that I, for one, am very committed to what is a practice. 

I think it is among a limited number of institutions of pretty blatant bait-and-switch in credit card practices. I hope that we can enlist other members of the committee in this effort. 

Chairman Oxley? 

Mr. OXLEY. Thank you, Chairman Bachus. We appreciate your 

holding this hearing on H.R. 3505. 

4

We look forward to hearing today from the Federal and State 

regulatory authorities charged with ensuring the safety and soundness of our Nation’s banking, thrift, and credit union industries. 

The financial services industry is operating under a heavy regulatory burden. While many of the regulations imposed on the industry are necessary to protect consumers, combat terrorist financing, or service other worthy public policy objectives, others are 

clearly outdated or needlessly burdensome. 

For this reason, shortly after I assumed the chairmanship of this 

committee, I asked the financial regulators and industry trade 

groups to give us their best advice on what this committee could 

do to ease regulatory requirements faced by depository institutions. 

The goal was to lessen the regulatory burden and improve productivity, as well as make needed technical corrections to current statutes. 

It was clear then, as it is today, that there also needs to be a 

counter-balance to the significant compliance responsibilities placed 

on insured depository institutions by the USA Patriot Act, as well 

as other Government efforts to counter terrorist financing. 

In the last Congress, the committee approved a comprehensive 

regulatory relief bill that passed the House by a vote of 392 to 25. 

H.R. 1375, which incorporates suggestions for financial regulators, 

as well as the financial services industry, contained a wide range 

of provisions that would have relieved unneeded or outdated regulatory restrictions on banks, thrifts, and credit unions. 

While the Senate failed to take up H.R. 1375, I am pleased that 

two respected members of this committee, Mr. Hensarling and Mr. 

Moore, introduced H.R. 3505, which includes virtually all of H.R. 

1375 from last session, a new title that addresses Bank Secrecy Act 

concerns, and over 20 new provisions. 

The Bank Secrecy Act compliance burden reduction title addresses financial institutions’ concerns that some of the work they are 

being asked to do in the fight against financial crimes is unnecessary and overly burdensome. I agree. This title focuses on reducing 

the number of currency transaction reports, CTRs, that must be 

filed by institutions involving large sums of cash, as well as eliminating inconsistencies or duplicative requirements in conjunction 

with the filings of SARs, suspicious activity reports. 

I would like to thank FinCEN Director Fox who is testifying 

today, Mr. Hensarling from Texas, Chairman Bachus, as well as 

Mr. Frank and Mr. Gutierrez for their efforts in creating Title VII, 

which balances law enforcement’s needs with the industry’s very 

real concern about excessive and unnecessary burdens. I thank the 

witnesses for appearing here and I look forward to their thoughts 

on how best to free depository institutions from unduly burdensome 

regulation so they can better serve their customers and communities. 

Mr. Chairman, we are very hopeful that we can move this bill 

with some alacrity and get it to the other body. Senator Crapo, 

among others, has expressed a sincere interest in moving this. We 

think we will get a large vote in the committee, as well as on the 

floor. We need to push this to its conclusion and get the President’s 

signature. I know you are committed to that effort, along with 

5

other members of this committee. This is critically important legislation. 

I thank you for your leadership, and I yield back. 

[The prepared statement of Hon. Michael G. Oxley can be found 

on page 40 in the appendix.] 

Chairman BACHUS. I thank the chairman. 

I recognize the ranking member of the full committee, Mr. Frank. 

Mr. FRANK. Thank you, Mr. Chairman. 

Let me begin by saying I share Chairman Oxley’s hope that we 

can get this bill quickly to the floor and passed. For that reason, 

I will be tepid in my endorsement of it because precedent suggests 

that if I sound enthusiastic about the bill, knees might jerk and 

then they would not want to pass it. 

[Laughter.] 

So I will reluctantly acquiesce in sending this bill to the floor, 

lest I be a poisoned pill. 

It does seem to me to hit the appropriate level of regulation. 

Those of us who believe there is an important role for regulation 

should be very clear that excessive regulation undoes that case. If 

you overburden things, you undermine your case. You put costs on 

society. I am very pleased, and I congratulate all concerned, the 

people at FinCEN and the people at the American Bankers Association, under the leadership of this committee in a bipartisan way. 

Obviously, the Bank Secrecy Act these days, with legitimate concerns about terrorism and the financing of terrorism, we want to 

make sure that works well. I congratulate those who were willing 

to say what is true, but could be demagogued against, namely that 

excessive reporting undercuts law enforcement. If you bury the law 

enforcement people with a lot of reporting and a lot of paper that 

really is fairly routine, you make it harder rather than easier to 

get at what should get it. 

So I am very pleased that we appear to be getting to the point 

where we are prepared to cut back some of the underbrush so we 

can focus on what should be the real subject. I very much agree 

with what the ranking minority member of the subcommittee said. 

Because I have some other things I will be going to later, I will 

not be able to be here for all this, but I did want to particularly 

comment on a couple of points. 

I am very pleased, Mr. Chairman, that you included in this panel 

of our very able Federal regulators a representative of the Conference of State Bank Supervisors. We should be very inclusive 

here. 

I was especially pleased to note a couple of the points that the 

State bank supervisors made. I was gratified to have them say 

what I think is a very important point, namely that what we did 

with the Fair Credit Reporting Act showed how you reach a proper 

balance between national regulation and States. That is, if we can 

achieve a reasonable national level of consumer protection, then 

you can make it a national standard. Yes, there is an argument for 

national uniformity. It should not be, however, a shield behind 

which you undercut legitimate protection of consumers. 

The Texas regulators said, we urge Congress to apply this approach to as wide a range of banking statutes as possible. I agree. 

I also very much agree with the point that the State regulator 

6

ought to be a voting member of the FFIEC. I think that is a perfectly reasonable thing. The interactivity of Federal and State regulation is one of the most challenging intellectual and economic and 

legal issues we have. I think that would be very useful. There is 

no danger that one voting member is doing to have disproportionate weight with all the other regulators. 

Finally, I appreciate also their pointing out what we need to do, 

namely, ′′to review the disparity in the application of State laws to 

State and nationally chartered banks and their subsidiaries.′′ I 

think as the result of several decisions of the comptrollers and others, we have a situation now where we really have to step in. Technology has been a factor and the global economy. 

I think the time has come where this Congress, obviously not for 

the rest of this year, but next year, ought to take this up. I know 

there are others who believe that. The gentlewoman from New 

York, Ms. Kelly, has been very concerned about that as Chair of 

the Oversight Subcommittee and others. I think it is our responsibility now to frankly straighten out some tangles that only we can 

straighten out, that only by a statute can it be done. It is just not 

something that can be done within the existing regulatory framework. 

So I thank you, Mr. Chairman. This is a very constructive effort, 

and I look forward to our being able to complete it. 

Chairman BACHUS. Thank you, Mr. Frank. 

At this time, I recognize Mr. Ryun, who has several provisions 

of the bill he has worked very hard on. 

Mr. RYUN. Mr. Chairman, thank you. Thank you for your kind 

comments toward my bill, the Communities First Act. I appreciate 

your doing this hearing. 

Our financial institutions are increasingly overburdened with 

regulations and reporting requirements. H.R. 3505 is a good bill 

that provides a comprehensive approach to addressing some of the 

more cumbersome regulations. I support H.R. 3505 and will look 

forward to working with this committee to approve its passage. 

Specifically, I believe that our community banks face a disproportionate burden due to excessive regulations. These institutions 

serve our small towns and rural areas and often lack the manpower to readily fulfill all the reporting that is required of them. 

The result is less time and resources to do the work of serving the 

communities. 

It is with this in mind that I introduced the Communities First 

Act, which was aimed to provide much-needed regulatory relief to 

these institutions. To date, 72 of my colleagues on both sides of the 

aisle have cosponsored this bill. I want to thank Mr. Hensarling 

and Mr. Moore for including five of the provisions from the Communities First Act in the legislation that we are considering today. 

In summary, these provisions provide targeted relief to community banks in the form of adjusted reporting and examination intervals, as well as updated asset limits for certain regulatory requirements. I am pleased to see these provisions incorporated in the bill. 

As we move forward with this effort, I will work with the committee to make the bill even stronger and will advocate inclusion 

of additional measures from the Communities First Act. 

7

Specifically, for example I would like to see approved a regulation I believe that agencies should specifically consider the ramifications that it would have upon community banks if approved. 

Agencies are currently not required to consider this factor, although I am aware that the OCC does have a policy of doing so 

before its approval process. Section 109 of the Communities First 

Act would require all regulatory agencies to consider the impact on 

community banks as they approve new regulations. I hope the committee will consider including this common sense requirement in 

the final version of H.R. 3505. 

Mr. Chairman, thank you very much for holding this hearing. I 

want to thank our panel for coming today. I look forward to your 

comments, and I yield back my time. 

Chairman BACHUS. Thank you, Mr. Ryun. 

Ms. Maloney? 

Mrs. MALONEY. I thank Chairman Bachus and Ranking Member 

Sanders and Chairman Oxley and Ranking Member Frank and all 

of the authors of the bill, my colleague Mr. Moore and others. 

This is a tremendously important bill. The fact that it had so 

much support when it was introduced today, the fact that it 

passed, and that we are building support in the Senate I think is 

extremely important. As a representative of New York City, which 

is one of the financial centers in our country, I am really very concerned, as are my constituents, about the tremendous burdens and 

regulation and reporting requirements imposed on our financial institutions, and particularly those financial institutions that are not 

mega-institutions, but are mid-size and smaller. 

This bill is an improvement over the one that we passed overwhelmingly last year. It has new additions in consumer protection, 

expanding CRA to employee stock ownership. But of special concern to me is the extraordinary burdens of compliance with the 

new Bank Secrecy Act provisions. Many of them are a duplication. 

FinCEN supports these changes. The FBI and those that are responsible for tracking money-laundering and anti-terrorism efforts 

support it because it had become so burdensome that it was no 

longer effective. 

I can tell you that wherever I go in my district, particularly the 

smaller institutions tell me how very, very hard and how very costly it is to comply with the Bank Secrecy Act, the CTRs, the SARs, 

and the other new oversight provisions that were put in place after 

9/11. Many of them say that the cost of complying is just so incredible that it almost runs them out of business. So this bill includes 

a new section that addresses these concerns. I feel that it is a very 

important one. 

I want to also note that the provisions from H.R. 2317, the Credit Union Regulatory Improvement Act, which I am a cosponsor and 

a supporter in several of its incarnations, and I hope that we will 

also move forward to pass the remaining portions of CURIA, and 

especially the reforms to the prompt corrective actions system. 

So I ask permission to revise and extend my remarks, and I congratulate all who have moved this to this hearing today. Thank 

you. 

[The prepared statement of Hon. Carolyn B. Maloney can be 

found on page 53 in the appendix.] 

8

Chairman BACHUS. Thank you, Ms. Maloney. I would like to associate myself with your remarks, too. Thank you. 

At this time, I recognize the sponsor of the legislation, along with 

Mr. Moore. Mr. Hensarling? 

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

you for holding this important hearing and thank you for your 

leadership in helping Congress reduce the regulatory burden on 

our Nation’s financial institutions. 

A very special thank you to Chairman Oxley for his leadership 

and his dogged determination to move this legislation along and to 

put it on the fast track and especially for allowing me to participate in this process. 

As we have learned in our hearings over the past few months, 

financial institutions are in desperate need of regulatory relief. 

Most of the regulations we have imposed upon them have costs 

that are ultimately borne by the consumer in some form or fashion. 

Many have outlived their purposes. Many have significant unintended consequences. 

We do know that these often excessive and duplicative and costly 

regulations at the end of the day can make credit more expensive 

and less accessible for the people who need it the most. Outdated 

regulations can keep Americans from purchasing their first home, 

buying an automobile for work, financing a child’s education, or 

starting a small business that creates new jobs in an economically 

disadvantaged area of our Nation. 

I believe the bill that Mr. Moore and I have introduced helps 

remedy a number of these problems and will help banks, credit 

unions, and thrifts free up more capital to inject into their communities. Action is necessary sooner rather than later. The competitive position and viability of our smaller financial institutions are 

in question. The regulatory environment has evolved to the point 

of placing smaller financial institutions at a competitive disadvantage. This, of course, is to the detriment of their primary customers: small businesses, consumers, and the agricultural community. 

Previously, we have heard testimony that the regulatory compliance burden averages 12 to 13 percent of a financial institution’s 

non-interest expense. Added to that is a new study that was released Monday by the SBA showing that the smallest businesses 

in our country face the largest per-employee burden as far as regulatory compliance costs are concerned. Firms with fewer than 20 

employees are now spending almost $8,000 per employee to comply 

with Federal regulations. The study also noted that small businesses face a 45 percent greater burden than their larger business 

counterparts. 

This same report showed that the annual cost of Federal regulations in the U.S. totaled $1.1 trillion in 2004. If only 1 percent of 

that could be returned to the marketplace, that would be enough 

money to provide startup capital for almost 500,000 new businesses 

or pay the annual salaries for 250,000 workers. Since 1989, bank 

regulators have promulgated over 850 regulations. That is around 

50 new regulations a year that banks must comply with. 

Can we really expect our small community-based financial institutions to keep up that pace? They are required to send out annual 

9

privacy notices to alert customers to information that oftentimes 

the institutions do not even share. Is that really necessary? We 

have heard that community financial institutions are often hiring 

two to three full-time employees to do nothing but Bank Secrecy 

Act compliance. Is that really necessary? 

I am pleased now that many of our regulators and law enforcement officials have recognized that a reduction in the number of 

CTRs and SARs that are sent to Washington can actually benefit 

anti-money-laundering and anti-terrorist financing efforts. I am especially pleased with FinCEN’s leadership in this effort. Financial 

institutions should not have to continuously file paperwork and reports of suspicious activity on the customers they know the best. 

The time has come to clean the regulatory barnacles off this ship 

of commerce and allow our financial institutions to operate at full 

speed, safely, and soundly. 

Thank you, Mr. Chairman. I yield back. 

[The prepared statement of Hon. Jeb Hensarling can be found on 

page 48 in the appendix.] 

Chairman BACHUS. Thank you, Mr. Hensarling. 

Mr. Moore? 

Mr. MOORE OF KANSAS. Thank you. 

I would like to thank my good friend Chairman Bachus for 

scheduling today’s hearing on the regulatory relief bill, H.R. 3505, 

introduced by Congressman Hensarling and myself and cosponsored by approximately 30 members from both sides of the aisle. 

I also want to thank Chairman Oxley for his strong support and 

Ranking Member Barney Frank for his lukewarm support to avoid 

knee-jerk reactions. 

[Laughter.] 

The Financial Services Committee has a strong record of bipartisanship and I am glad that that has extended to this bill as well. 

Reg relief should not be about Republicans and Democrats. It 

should be about doing the right thing for the lenders in our communities who have played an important role in expanding homeownership and creating opportunities for businesses and consumers. Small lenders in our communities particularly feel the burden of unnecessary regulations. 

As the Federal banking regulators acknowledged in a notice published in the Federal Register, ′′When a new regulation is created 

or an old regulation is changed, small institutions must devote a 

large percentage of their staff’s time to review the regulation to determine if and how it will affect them. Compliance with a regulation also can take large amounts of time that cannot be devoted to 

serving customers or business planning.′′

Strong regulation of our country’s financial system is absolutely 

essential, but Congress and the financial regulators have a responsibility to strike the right balance in this area. I believe H.R. 3505 

is an important step in the right direction. Since coming to Congress, and particularly over the last few months, I have heard from 

depository institutions in my district and throughout the State of 

Kansas. We have tried to address in H.R. 3505 some of the concerns that I have heard on more than one occasion. 

While assets for State-chartered banks in Kansas have reached 

an all-time high of $27 billion, our community bankers are also 

10

struggling to comply with both old and new regulatory burdens, including some created under the Bank Secrecy Act. H.R. 3505 seeks 

to provide relief from some of these new burdens to our financial 

institutions in a way that preserves our ability to effectively track 

terrorist financing and build upon our success in freezing the funds 

of terrorists. 

Representative Hensarling and I and the bill’s bipartisan cosponsors agree that waging a strong war on terror and providing some 

reg relief to our financial institutions are not incompatible goals. 

Additionally, H.R. 3505 provides two new sections of reg relief for 

our credit unions that were not included in the previous version of 

this measure. This subcommittee and the full committee both 

passed the reg relief bill by voice vote during the 108th Congress 

and the House passed it 1 year ago by a wide margin, 392 to 25. 

I look forward to continuing the broad bipartisan cooperation on 

this legislation that we have enjoyed in the past. I also look forward to hearing from our witnesses today on what steps the regulatory agencies have taken to ensure that depository institutions in 

the areas affected by Hurricane Katrina are able to continue operating both for their benefit and for the benefit of their customers 

who are going through some of the toughest times in their lives. 

Thank you again, Mr. Chairman. I look forward to hearing from 

our witnesses. 

[The prepared statement of Hon. Dennis Moore can be found on 

page 54 in the appendix.] 

Chairman BACHUS. Thank you, Mr. Moore. 

Mr. Neugebauer? 

Mr. NEUGEBAUER. Thank you, Chairman Bachus, for holding this 

important hearing. 

I also want to thank Congressman Hensarling and Congressman 

Moore for bringing this bill forward, H.R. 3505. When you speak 

in the order that I have, many of the folks I want to attribute myself to their remarks. I think I come from a district that relatively 

has a lot of small community banks and credit unions. One of the 

things that I keep hearing over and over and over again is that we 

are making it more and more difficult for the smaller financial institutions really to remain profitable. 

Some people up in Washington think that ′′profit′′ is a four-letter 

word, but I will tell you that ′′loss′′ is a four-letter word. We need 

to make sure that our financial institutions are profitable, that 

they are healthy. I was thinking earlier, we have almost gotten to 

the point now where you go up to the teller cage and the sign there 

says ′′closed; we are filling out paperwork.′′ We almost have gotten 

to the point now where the primary function of our financial institutions is to fill out paperwork for the Federal Government. 

We need to get community banks and credit unions back doing 

what they do best, and that is they know their customers. They 

take care of their customers; they invest into their communities. 

The more and more paperwork that we generate and the more and 

more regulation and the more and more capital that they have to 

attribute to filling out paperwork and complying with regulation is 

the less capital that they can invest in those communities. 

So I commend the chairman and the two gentlemen for bringing 

this important legislation. I look forward to supporting it. HopeVerDate 0ct 09 2002 14:25 Apr 19, 2006 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 G:\DOCS\109.55 RODNEY
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fully, this is just the beginning. This is I think a really good start, 

but when you think about, as the gentleman said, 851 new regulations since 1989. I got out of banking in 1983 and I thought there 

was plenty of regulation on the books at that time, so it looks like 

they have added a little bit more. 

So I look forward to the witnesses bringing important testimony 

for us today. 

Thank you, Mr. Chairman. 

Chairman BACHUS. Thank you, Mr. Neugebauer, for those remarks. 

Ms. McCarthy? 

Mrs. MCCARTHY. Thank you, Mr. Chairman. 

I am waiting to listen to the witnesses. Thank you. 

Chairman BACHUS. Ms. Kelly? 

Mrs. KELLY. Thank you, Mr. Chairman. 

This is an important hearing about regulatory relief for financial 

institutions and their customers. I look forward to hearing from our 

witnesses on the steps that this committee could be taking to lower 

the cost to consumers and to help create jobs in the industry. 

I want to thank my colleagues, Mr. Hensarling and Mr. Moore, 

for their work on the legislation. I note here the presence of the 

FDIC among the witnesses. I want to draw their attention to the 

GAO report on industrial loan corporations and urge them to keep 

that report in mind when they are reviewing requests for coverage 

by new depository institutions. There are obviously a number of 

important provisions in this bill. I am very interested in discussions about proposed changes to the Bank Secrecy Act. There are 

very good reasons for advocating reform for our BSA system. 

We have learned the hard way that the system needs work. Failures, such as the Riggs Bank and more recently Arab Bank, have 

clearly demonstrated that there are weaknesses in our anti-moneylaundering protections. The resulting over-reaction and uncertainty 

about what is expected of financial institutions has led to unnecessary burdens and costs that really must be addressed. 

We know financial institutions and their customers want common sense. They want certainty. We in Congress know the system 

can be made better. We have to work toward solutions that will remove unnecessary burdens from customers and institutions without weakening an important tool for law enforcement and national 

security officials. Just as we are mindful of the serious, costly inconveniences that have saddled financial institutions and their customers, we are also keeping our eyes on the importance of an effective anti-money-laundering system in our national security. 

As this action begins on this legislation, we have to be mindful 

of what the 9/11 Commission told this committee last year when 

they sat before the committee about the value of the BSA system 

in fighting terrorism. We must be mindful of what the FBI and 

FinCEN Director Fox told this committee earlier this year about 

the utility of the BSA information in tracking criminals and terrorists. 

I look forward to examining these proposals in detail. I look forward to hearing the views of those affected, including the relevant 

law enforcement and intelligence agencies. 

12

I thank you, Mr. Chairman, very much for holding this hearing. 

I look forward to this regulatory change and yield back the balance 

of my time. 

Chairman BACHUS. Thank you, Ms. Kelly. Thank you for having 

your business interest provision, which is also in this bill. I thank 

you for that. 

Mr. Green? 

Mr. GREEN. Thank you, Mr. Chairman. I thank you, as well as 

the ranking member for hosting this hearing. 

I would like to thank the members of the panel for being here 

with us. 

I do have to confess that while I am here physically, mentally I 

am split because we have a monster of a hurricane that is headed 

toward my district, it seems, in Houston, Texas. We have an evacuation plan that is being implemented. I think it is going well, but 

just prior to arriving we had to give some assistance with 83 patients that were in a nursing home and they were needing some 

assistance. Fortunately, our mayor’s office was able to render that 

assistance and they are going to be helped. 

I am honored that we will have the opportunity to hear from this 

august body. Given the things that we have been dealing with with 

reference to Katrina and now Rita, I will be concerned about what 

some of the financial institutions will be doing to assist some of the 

low-income people who are going to need a lot of help, who have 

been devastated, and what we need to do to help you to help them. 

Mr. Chairman, I thank you very much for the time, and I yield 

back. 

[The prepared statement of Hon. Al Green can be found on page 

47 in the appendix.] 

Chairman BACHUS. Thank you, Mr. Green. 

Mr. McHenry? 

Mr. MCHENRY. Thank you, Mr. Chairman. I certainly appreciate 

your holding these hearings. I certainly commend Representative 

Hensarling and Representative Moore for putting together a very 

good and balanced regulatory relief bill. 

It is important that we as a committee and as Members of Congress encourage economic growth and opportunity through reducing 

unnecessary and burdensome rules and regulations. We also want 

to ensure that there is a competitive marketplace that allows our 

Nation to keep moving forward. 

One of the issues that some of my local bankers have brought to 

my attention, and I have been following recently, is nonfinancial 

institutions getting into the banking industry. Namely, in my view, 

it would be inappropriate for the FDIC to act upon the Wal-Mart 

application until this committee and Congress has had an opportunity to review and consider the GAO report that Representative 

Leach is unveiling today. I know ILCs are covered in this bill and 

I think that is very helpful to this measure, but I have not had a 

chance to read the report yet, but I understand what is going to 

happen today when it is released. 

I think it will bring to attention that we should take a real look 

at ILC chartering, not only for the banking and commerce question, 

but whether it is appropriate for a commercial company to own a 

bank, but additionally the adequacy of regulatory oversight and suVerDate 0ct 09 2002 14:25 Apr 19, 2006 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 G:\DOCS\109.55 RODNEY
13

pervision of owners of ILCs as well, which escape certain provisions 

by the Federal Reserve. So the Wal-Mart application, I think it 

highlights another big public policy banking question at the heart 

of Gramm-Leach-Bliley. 

So I just wanted to take this opportunity to bring it to the chairman’s attention and to our distinguished panel here as well. 

I look forward to the hearing and look forward to us moving this 

bill forward. Thank you. 

Chairman BACHUS. Thank you, Mr. McHenry. 

Are there any other opening statements? Not seeing any members that wish to make so, I would like to introduce our distinguished panelists at this time. 

Our first panelist is Mr. William J. Fox, Director of the Financial 

Crimes Enforcement Network. 

Our second witness is the Honorable Mark W. Olson, Governor, 

Board of Governors of the Federal Reserve System. He is experienced with professional testimony before our committee. We welcome you back. 

As well as Ms. Julie Williams, the first senior deputy comptroller 

and chief counsel in the Office of the Comptroller of the Currency. 

We thank both of you for your fine work and your advice and counsel as we go forward on this bill. 

Our next witness is Mr. William Kroener, general counsel of the 

FDIC. We welcome you back. 

Mr. John Bowman, chief counsel of the Office of Thrift Supervision. Thank you, Mr. Bowman. 

Mr. Robert Fenner, general counsel of the National Credit Union 

Administration. 

Mr. Randall S. James, commissioner of the Texas Department of 

Banking, on behalf of the Conference of State Bank Supervisors. I 

know this is a very trying time for you. You will probably be glad 

when this hearing is over and you can get back on a plane and 

head for Texas. 

Mr. George Latham is deputy commissioner of the Credit Union 

Bureau of Financial Institutions, Virginia State Corporation Commission, on behalf of the National Association of State Credit 

Union Supervisors. You testified before this committee earlier this 

month; we welcome you back. 

At this time, Mr. Fox. 

STATEMENT OF MR. WILLIAM J. FOX, DIRECTOR, FINANCIAL 

CRIMES ENFORCEMENT NETWORK 

Mr. FOX. Thank you very much, Chairman Bachus, Ranking 

Member Sanders, and distinguished members of this subcommittee. 

It is truly an honor for me to appear here before you today to 

discuss your efforts to balance the burdens imposed on the financial industry by the requirements of the Bank Secrecy Act of 1970, 

specifically to provide the Government with highly relevant information that assists law enforcement in making our financial system more transparent and our country safer. 

As you know, the Financial Crimes Enforcement Network administers the Bank Secrecy Act and we bear responsibility for ensuring 

that the act is implemented in a way that achieves the policy aim 

intended by the Congress, which is, stated simply, to safeguard the 

14

United States financial system from the abuses of financial crime, 

to include money-laundering and terrorist and other illicit financing. This is a day-to-day challenge in a financial system where we 

generally promote the unfettered free flow of commerce and where 

criminals strive to manipulate the system with the same ingenuity 

and sophistication of the very best in the industry. 

Ensuring that we strike the right balance between the cost and 

benefit, in my view, is an essential responsibility for my agency. 

While I do not believe that this cost-benefit analysis can be reduced 

to a mathematic formula and the benefits of a regime like this are 

often very difficult, if not impossible, to quantify, I believe we must 

continually study how we can more effectively tailor this regime to 

minimize the costs and other burdens imposed on our financial institutions while at the same time ensuring that we receive information that we, both FinCEN and law enforcement, need to combat 

financial crime and terrorism. 

This effort is particularly important because I am more certain 

than ever that compliance with the Bank Secrecy Act’s regulatory 

regime is a critical component to our country’s ability to utilize financial information to combat terrorism, terrorist financing, 

money-laundering, and other serious financial crime. Achieving 

this correct balance is frankly an issue of national security. 

The focus this morning is on H.R. 3505, the Financial Services 

Regulatory Relief Act of 2005. I am here to address how that legislation could affect the Bank Secrecy Act. Specifically, I am here to 

address the provision to reduce the burden imposed on the financial industry of filing currency transaction reports. 

Before I discuss this provision, Mr. Chairman, let me reassure 

you of the value of these reports. Many of these reports are not 

only valuable, but are critical to law enforcement’s and our efforts 

to deter, detect, and investigate financial crime and to identify, locate, and disrupt terrorist cells operating here in this country. Our 

colleagues in law enforcement have made significant strides recently in their ability to utilize these reports, marrying them and 

other data with law enforcement data to maximize their benefit. 

We have also enhanced our analytic capability to exploit this 

data source on both micro and macro levels. In fact, the FBI’s terrorist financing operation section has testified before Chairwoman 

Kelly’s Oversight and Investigations Subcommittee about the value 

of these reports and how they help in their efforts to detect terrorist financing and to disrupt terrorist operations. Such innovations enhance the utility of our analysis as a whole, and it is essential that we do not reduce the flow of useful information just as the 

technical capabilities to exploit this information is reaching new 

heights. 

That being said, Mr. Chairman, this reporting requirement, like 

any reporting requirement with objective criteria, results in reporting that has little relevance to the deterrence, detection, and investigation of financial crime. We also know that depository institutions, particularly our community banks, often identify the time 

and expense of filing these reports, currency transaction reports, as 

their number one regulatory expense and burden. 

So how do we separate the wheat from the chaff, the critical from 

the irrelevant? The Congress has previously recognized the need to 

15

reduce the number of currency transaction reports that may not 

have a high degree of usefulness to law enforcement, and you have 

directed us to find a way to do that. However, it is clear that our 

efforts to encourage the exemption of routine filings on certain customers have not brought about the reductions in filing that were 

originally sought. It is not surprising that when this committee undertook the effort to draft the bill providing regulatory relief for financial institutions that such a bill would contain a provision addressing currency transaction reporting. 

Mr. Chairman, you and members of this subcommittee from both 

sides of the aisle requested our assistance in reviewing what had 

been proposed. You asked us to work with law enforcement in the 

financial community to see if a solution can be found that would 

ensure that law enforcement keeps getting the information it 

needs, while at the same time relieves some of the burden that this 

reporting requirement places on the industry. 

Sir, this committee is now considering language that would 

amend current exemptions by allowing banks to qualify certain 

customers as exempt from routine currency transaction reporting. 

I believe this language addresses many of the issues that were 

causing the current exemption regime to not have its intended effect. This language seeks to streamline the exemption process by 

focusing on a one-time notice to FinCEN of an exemption and focusing on the customer’s relationship with the bank as grounds for 

such an exemption. 

We believe that these changes will make the exemptions more effective while still ensuring that the currency transaction reporting 

information critical to identifying criminal financial activity is 

made available to law enforcement. We hope that our efforts were 

useful to this committee and we stand ready to continue to work 

with you and other interested parties to address these issues as the 

legislation is more fully developed and proceeds. 

Mr. Chairman, I would like to recognize the leadership of Congressman Hensarling and Congressman Moore on the work on 

these provisions. I would also like to recognize the work of their 

staffs, the work of your staff, and the committee staff on both sides 

of the aisle for their outstanding work. It has truly been a pleasure 

to work with all of these individuals. 

I would also like to recognize William Langford, who is behind 

me here, sir. He is FinCEN’s associate director for regulatory policy 

and programs. Mr. Langford was the point man on this issue and 

did, in my view, terrific work. I am taking some of the credit for 

it and it was really his work. 

In conclusion, Mr. Chairman, Congressman Sanders, distinguished members of this subcommittee, I hope that my testimony 

today conveys the sense of commitment, energy, and balance with 

which all of us at the Financial Crimes Enforcement Network are 

using to address these challenging issues. The importance of your 

personal and direct support of our efforts cannot be overstated. 

Your oversight will help us ensure that we meet the challenges 

that we are facing. I know how critical it is that we do so, and we 

hope you know how committed we are to meeting those challenges. 

16

Thank you very much. Thank you for your very kind comments 

earlier, and I would be very pleased to answer any questions you 

may have. 

[The prepared statement of William J. Fox can be found on page 

100 in the appendix.] 

Chairman BACHUS. Thank you. 

Governor Olson? 

STATEMENT OF HON. MARK W. OLSON, GOVERNOR, BOARD OF 

GOVERNORS OF THE FEDERAL RESERVE SYSTEM 

Mr. OLSON. Thank you very much, Mr. Chairman and members 

of the subcommittee, for inviting the Federal Reserve Board to participate in this very worthwhile hearing on H.R. 3505. 

As you and others have indicated, this has been a collaborative 

affair involving many members of the committee on both sides of 

the aisle. It has involved the participation of the organizations represented here and numerous others. Congressman Frank said earlier that there is a tipping point at which regulation becomes burdensome and ceases to be effective. There also is a tipping point 

where good ideas seem to translate into law at some point, and if 

this body is representative of the body as a whole, as I suspect it 

may be, it seems to me we may be reaching that tipping point toward passing legislation. I commend everybody here involved in 

this process. 

With the permission of the Chair, I would like first to make some 

comments with respect to Hurricane Katrina, as Congressman 

Green pointed out, that will suggest what might be effective with 

Hurricane Rita. 

First, our heartfelt sympathy goes to the people that were impacted by Katrina. It was a tragedy of enormous consequence and 

we have felt some of that as part of the Fed family. As of yesterday, there was still one employee missing from the New Orleans 

branch, out of 175. All the remainder are accounted for and, thankfully, lived. The Atlanta Fed and other Federal Reserve Districts 

responded in a significant and a very rapid way, providing the 

needed cash and the check-clearing servicess necessary to allow the 

economy to continue to work and provided individuals the opportunity to restore their lives and their possessions. 

There was a great deal of flexibility demonstrated in the manner 

in which the Federal Reserve responded, both by changing the 

check-clearing, allowing for availability that was consistent with 

what their anticipation had been. We made extraordinary efforts to 

get cash into the branches and the banks and made continual contact with the banks in order to assist them in maintaining their operations. The most significant part of how the banks responded, 

though, had to be done ahead of time. It had to be in terms of their 

ability to provide for a continuity of operations and, for the most 

part, the banking industry did that exceptionally well. 

We have also worked with other agencies in Washington to serve 

as a clearinghouse and allow the banks to answer questions or ask 

questions and to provide some information on the flexibility that already exists with respect, for example, to the BSA provisions with 

respect to things like cashing checks and opening checking accounts. 

17

Let me turn now to a couple of the provisions of the bill that we 

are particularly concerned about and particularly interested in, and 

I would be happy to answer questions on the others. With respect 

to the de novo interstate branching, we think that that is an important provision, particularly as it impacts banks, smaller banks in 

particular on State border areas. This is the final provision of the 

interstate banking, the Riegle-Neal bill that allowed for interstate 

branching only on a de novo basis. This would affect the remaining 

29 States that have not opted in, but would allow for increasing 

numbers of branches, particularly in smaller areas and by small 

banks. 

So I would point out that just in 2004 alone, there were an additional 2,000 branches of banks that were brought into operation 

just in 2004 alone. However, we do not want to extend that to industrial loan companies for reasons that we have elaborated on. We 

applaud the small bank examination flexibility. We think that will 

relieve some of the burden that was talked about here earlier, and 

we think that that is an important provision. 

My time has expired, Mr. Chairman. I would be very happy to 

answer any questions on any of the other provisions. 

[The prepared statement of Hon. Mark W. Olson can be found on 

page 166 in the appendix.] 

Chairman BACHUS. Thank you, Governor Olson. 

At this time, we will hear from Deputy Comptroller Williams. 

STATEMENT OF MS. JULIE L. WILLIAMS, FIRST SENIOR DEPUTY COMPTROLLER AND CHIEF COUNSEL, OFFICE OF THE 

COMPTROLLER OF THE CURRENCY 

Ms. WILLIAMS. Chairman Bachus and members of the subcommittee, on behalf of the OCC, we welcome the opportunity to 

participate in the discussion of H.R. 3505, the Financial Services 

Regulatory Relief Act of 2005. I want to especially commend Representatives Hensarling and Moore for taking the lead in sponsoring this legislation. 

Regulatory burden is an issue that affects all our Nation’s depository institutions, but it is a matter of special concern for our community banks. My written testimony covers this topic very broadly, 

and I will just summarize the basic components of it. 

First, it describes the OCC’s actions to assist banks and their 

customers affected by Hurricane Katrina. Second, it discusses the 

work being done by the Federal banking agencies to further the 

goals of the Economic Growth and Regulatory Paperwork Reduction Act of 1996, fondly known as EGRPRA. Third, my testimony 

summarizes important initiatives that are being undertaken by the 

OCC outside the EGRPRA process to reduce needless regulatory 

burden. Fourth, it summarizes what the OCC sees as priority legislative items in H.R. 3505. Fifth, it offers suggestions for reducing 

burden and improving the quality of consumer disclosures. And finally, my testimony offers the OCC’s suggestions for some additions to H.R. 3505. 

In the interests of time, let me touch on just a couple of those 

points this morning. 

All of us have been greatly moved by the devastation and suffering caused by Hurricane Katrina. The banking system is playing 

18

a crucial role in helping individuals and their communities get 

back on their feet, and the Federal and State bank regulatory authorities are working in close cooperation and have been making 

every effort to minimize customers’ disruption and the burden on 

banks involved in the recovery and reconstruction effort. 

To that end, Comptroller Dugan, as Chairman of the Federal Financial Institutions Examination Council, established a special 

Katrina Working Group to facilitate this coordination and communication on the bank supervision issues that have arisen in 

Katrina’s aftermath. We are very pleased that Commissioner John 

Allison of Mississippi will participate in this working group as the 

FFIEC’s State representative. 

The OCC and the other agencies have issued guidance on a wide 

range of questions that bankers and their customers are raising, 

and we will continue to do our part to help those affected by these 

events. 

Even without the extraordinary events of Hurricane Katrina, 

which prompted focus on relief from particular regulatory requirements, we should be finding ways to provide relief from unnecessary regulatory burden more broadly. These burdens can arise from 

regulations, and here we as regulators have a responsibility to ensure that the rules that we adopt are no more burdensome than 

necessary and to correct rules on the books that do not meet that 

test. 

In this connection, I would mention the OCC’s participation in 

the ongoing EGRPRA-mandated regulatory review that is being 

conducted under OTS Director Reich’s able leadership. We have 

also undertaken another scrub of our regulations, the regs that are 

unique to OCC, and we have participated in several interagency 

initiatives outside of the EGRPRA process in order to identify opportunities to reduce regulatory burden. Recent amendments to the 

Community Reinvestment Act regulations and the currently ongoing project to develop clearer, shorter and more effective privacy 

notices are two examples of this. 

Some regulatory burden is derived from Federal legislation and, 

thus, change requires action by Congress. In past testimonies before this subcommittee, the OCC has provided detailed summaries 

of our recommended legislative changes. Most of those items are included in H.R. 3505, and they are discussed in detail in my written 

testimony. Several other items that are not part of H.R. 3505 are 

noted in my testimony as well with our recommendation that the 

subcommittee consider them as this legislation moves forward. 

We also support efforts being led by FinCEN to identify ways to 

reduce burdens arising from BSA-related requirements without 

compromising tools that are valuable to law enforcement. 

In conclusion, Mr. Chairman, on behalf of the OCC, let me express my appreciation to you and the subcommittee for these hearings. We strongly support responsible burden reduction initiatives. 

We are committed to assisting those whose lives and businesses 

were disrupted by Hurricane Katrina and those who may be similarly impacted by Hurricane Rita. We express our sincere sympathies to all the people affected in the disaster areas and the families who have lost loved ones. 

19

We look forward to working with you and your staff and our regulatory colleagues on all of these efforts. Thank you very much. 

[The prepared statement of Julie L. Williams can be found on 

page 184 in the appendix.] 

Chairman BACHUS. Thank you, Comptroller. 

General Counsel Kroener? 

STATEMENT OF MR. WILLIAM F. KROENER, III, GENERAL 

COUNSEL, FEDERAL DEPOSIT INSURANCE CORPORATION 

Mr. KROENER. Chairman Bachus and members of the subcommittee, I appreciate the opportunity to present the views of the 

FDIC on H.R. 3505, the proposed legislation to provide regulatory 

burden relief. The FDIC shares the subcommittee’s continuing commitment to this important endeavor to eliminate unnecessary burden and streamline and modernize laws and regulations as the financial industry evolves. 

The Federal bank and thrift regulatory agencies have been working together over the last few years to identify regulatory requirements that are outdated, unnecessary, or unduly burdensome in accordance with the requirements of the Economic Growth and Regulatory Paperwork Reduction Act of 1996. The agencies have identified numerous proposals to reduce regulatory burden, and the 

FDIC is pleased that quite a few of them are included in H.R. 

3505. The FDIC continues to work with the other agencies in an 

effort to achieve further consensus and, as required by law, we will 

be submitting a final report to Congress with legislative recommendations next year. 

Before discussing our general regulatory burden relief efforts, 

with the consent of the Chair I would like to take a moment to update the subcommittee on recent activities by the FDIC and other 

Federal agencies in response to Hurricane Katrina. As you know, 

all the Federal banking agencies recognize the challenges faced by 

financial institutions in the aftermath of Hurricane Katrina and 

the need for discretion and flexibility in enforcement of regulatory 

requirements and the exercise of supervisory responsibilities. We 

have provided timely information regarding the availability of 

banking services and posted information for consumers and bankers in the affected States on our Web site. 

The FDIC has asked insured financial institutions to consider all 

reasonable and prudent steps to meet the financial needs of their 

customers and communities. In cooperation with the other Federal 

agencies, we have also provided banks with written guidance on 

check-cashing and opening new accounts. The banking regulators 

have encouraged banks to meet the financial needs of the hurricane 

victims in a number of ways, including waiving ATM fees, easing 

restrictions on check-cashing, and being flexible in their approach 

to verifying the identity of displaced individuals. Examiners, like 

bankers, are fully aware that this is the right thing to do under 

the circumstances. With Hurricane Rita on its way, you can expect 

similar actions by the regulators. 

In previous natural disasters, Congress temporarily relaxed 

prompt corrective action requirements for affected institutions that 

had an influx of deposits from flood-related insurance proceeds and 

Government assistance. Due to the widespread nature and severity 

20

of the damage, as well as the dollar-volume of relief funds that will 

be flowing to the area, we believe many banks would avail themselves of similar relief if it were offered by the Congress in response to Katrina. 

Turning to general regulatory burden relief, the interagency 

EGRPRA effort led by our former vice chairman, John Reich, who 

is now Director of the OTS, has resulted in an interagency consensus on 12 regulatory burden relief proposals. As outlined in my 

written statement, five of these proposals currently are included in 

H.R. 3505, as well as a variation on the sixth. The FDIC joins with 

the other Federal banking agencies in supporting inclusion of the 

remaining six proposals in the current regulatory relief legislation. 

Those are identified and described in detail in my written statement. 

The last item among that enumeration, increased flexibility for 

flood insurance, was agreed upon among the agencies. In light of 

the Gulf Coast hurricane damage, we will continue to work to develop this and seek additional ideas to improve the flood insurance 

program. The FDIC has worked closely with the subcommittee in 

developing several of the provisions contained in the proposed legislation that will help the FDIC become more efficient and effective 

in the regulation of insured institutions. We appreciate the inclusion of these proposals in H.R. 3505. 

The FDIC respectfully recommends that the subcommittee consider certain additional regulatory relief items in the bill that 

would help us improve our supervisory efforts. The appendix to my 

written testimony contains the relevant language. 

In conclusion, I thank you for the opportunity to present the 

FDIC’s views on these issues. The FDIC supports the subcommittee’s continued efforts to reduce unnecessary burden on insured depository institutions, and I look forward to the subcommittee’s 

questions. 

Thank you. 

[The prepared statement of William F. Kroener, III can be found 

on page 119 in the appendix.] 

Chairman BACHUS. Thank you, General Counsel Kroener. Please 

convey to Chairman Powell—as well, Ms. Williams, if you will, to 

Comptroller Dugan—I know of their work in this regard, but convey to Chairman Powell the many compliments we have gotten 

from banks in the area of Alabama, Mississippi, and Louisiana. 

Mr. KROENER. Thank you, Mr. Chairman. I will do so, and we 

will continue our hard efforts in light of impending events. 

Chairman BACHUS. Thank you. 

At this time, the chief counsel for the Office of Thrift Supervisions, Mr. John Bowman. 

STATEMENT OF MR. JOHN E. BOWMAN, CHIEF COUNSEL, 

OFFICE OF THRIFT SUPERVISION 

Mr. BOWMAN. Good morning, Chairman Bachus, Ranking Member Sanders, and members of the subcommittee, as well as Chairman Oxley and Ranking Member Frank of the full committee. 

I want to thank you, Mr. Chairman, for holding this hearing. I 

want to thank Congressmen Hensarling and Moore, the sponsors of 

H.R. 3505, for their leadership and focus in this area. 

21

Regulatory relief is an important issue for our director, John 

Reich, who has led the interagency EGRPRA project. Director 

Reich is continuing his work on this project and is committed to see 

it through to a successful completion. Director Reich has asked me 

to convey to you our full support and to make available our full resources to assist you in your efforts to enact legislation to address 

the issues we discuss today. 

It is always important to remove unnecessary regulatory obstacles in our financial services industry that hinder profitability, innovation, and competition and, in turn, job creation and economic 

growth. In the aftermath of Hurricane Katrina, these issues take 

on even greater significance with the need to make sure that we 

do what is necessary to carry out the laws and policies of Congress, 

while also providing maximum assistance and flexibility to institutions and customers in the areas affected by the hurricane. 

From a bank regulatory perspective, economic recovery requires 

patience, good communications with our institutions, a significant 

degree of regulatory common sense to do what is necessary and 

forego what is not, and lots of hard work. With your permission, 

I will forego the rest of my discussion regarding OTS’s efforts on 

behalf of the Hurricane Katrina interagency task force, given the 

discussion by my colleagues. 

Today you will hear about numerous proposals to eliminate old 

laws that while originally well intended no longer serve a useful 

purpose. While many of these items are not directly relevant to 

hurricane relief efforts, even marginal measures of relief may be 

helpful in the long run and should not be overlooked. 

Before addressing these issues, it is important to note that there 

are two areas in particular that our institutions have identified as 

unduly burdensome: the Bank Secrecy Act requirements and the 

rules under Sarbanes-Oxley. Virtually all institutions raised these 

two issues as regulatory relief priorities. However, the impact of 

these statutory provisions is often most acute for smaller community-based institutions. 

One proposal discussed today provides BSA relief via a filing exception for certain currency transaction reports of so-called 

′′seasoned′′ customers. OTS is fully supportive of efforts to provide 

meaningful BSA relief to the institutions we regulate that are consistent with the requirements of the BSA and the needs of law enforcement. We will strongly support any burden reduction proposal 

to streamline existing BSA requirements, provided it is supported 

by FinCEN, not objected to by law enforcement, and it provides 

meaningful relief that fully outweighs any diminished utility to the 

BSA. 

In my written statement, I describe a number of proposals that 

would significantly reduce regulatory burden on savings associations. Four things that we believe provide the most significant relief for savings associations are eliminating duplicative regulation 

of savings association under the Federal securities laws, eliminating the existing arbitrary limits on savings association consumer lending activities, updating commercial and small business 

lending limits for savings associations, and establishing a statutory 

succession authority for the position of the OTS Director. 

22

Currently, banks and savings associations may engage in the 

same types of activities covered by the investment adviser and 

broker-dealer requirements of the Federal securities laws. These 

activities are subject to supervision by the banking agencies that 

is more rigorous than that imposed by the SEC. Yet, savings associations are subject to an additional layer of regulation and review 

by the SEC that yields no additional supervisory or consumer benefit. 

While the bank and thrift charters are tailored to provide powers 

focused on different business strategies, in areas where powers are 

similar, the rules should be similar. No sound public policy rationale is served by imposing additional and unwarranted administrative costs on a savings association to register as an investment adviser or as a broker-dealer under the Federal securities laws. OTS 

strongly supports Section 201 of H.R. 3505 to exempt savings associations from these duplicative investment adviser and broker-dealer registration requirements. 

Another important proposal for OTS is eliminating a statutory 

anomaly that subjects the consumer lending authority of Federal 

savings associations to a 35 percent of assets limitation, but permits unlimited credit card lending. This exists even though both 

types of credit may be extended for the same purpose. Removing 

the 35 percent cap on consumer lending will permit savings associations to engage in secured consumer lending activities to the 

same extent as unsecured credit card lending. This makes sense for 

regulatory burden reduction and for reasons of safety and soundness. 

Consistent with this, we support expanding the scope of Section 

208 of H.R. 3505 to include all consumer loans, not just auto lending. We also support Section 212 of H.R. 3505 updating statutory 

limits on the ability of Federal thrifts to make small business and 

other commercial loans. In the interests of time, legislation removing the current limit on small business lending and increasing the 

cap on other commercial lending will provide savings associations 

greater flexibility to promote safety and soundness through diversification, more opportunities to counter the cyclical nature of the 

mortgage market, and additional resources to manage their operations safely and soundly. 

A final but important issue is the statutory succession authority 

for the position of OTS Director. This issue is as important to the 

thrift industry as it is to OTS. We strongly urge consideration of 

provisions authorizing the Treasury Secretary to appoint a succession of individuals within OTS to serve as OTS acting Director in 

order to assure agency continuity. It is also important to modernize 

the existing statutory appointment authority for the OTS Director 

by providing every appointee a full 5-year term. 

Finally, OTS is committed to reducing regulatory burden wherever it has the ability to do so, consistent with safety and soundness and consumer protections. We look forward to working with 

the subcommittee to address these and the other regulatory burden 

reduction items addressed in my written statement. I would be 

happy to answer your questions. 

Thank you. 

23

[The prepared statement of John E. Bowman can be found on 

page 59 in the appendix.] 

Chairman BACHUS. Thank you very much. 

At this time, General Counsel Robert Fenner from the National 

Credit Union Administration. 

STATEMENT OF MR. ROBERT M. FENNER, GENERAL COUNSEL, 

NATIONAL CREDIT UNION ADMINISTRATION 

Mr. FENNER. Thank you, Mr. Chairman, Representative 

Hensarling, other members of the subcommittee. I appreciate the 

opportunity to be here today to present NCUA’s views on H.R. 

3505. 

At the start, and without going into all of the details of our Hurricane Katrina relief and recovery efforts, let me just mention that 

in the immediate aftermath of the hurricane, we had 131 credit 

unions whose operations were at least partially disrupted, a number of single-office credit unions in the City of New Orleans where 

their office and their records were literally underwater. I am 

pleased to report that as of the end of last week, all of these credit 

unions were again at least partially operational, providing access 

to funds and other services to their members. 

I will focus in the remainder of my oral remarks on Title III of 

H.R. 3505, the credit union provisions. I want to start by saying 

NCUA does strongly support these provisions. We believe they will 

remove unnecessary regulatory restraints and enable credit unions 

to provide better, more efficient, and lower-cost service to their 

membership. 

As one example, Section 307 will allow Federal credit unions to 

provide check-cashing and wire transfer services to anyone in their 

field of membership. This provision is especially important to Federal credit unions in serving individuals of limited income or limited means. Individuals who do not have mainstream financial 

services available to them are often forced to pay excessive fees for 

services such as check-cashing, money orders, and wire transfers. 

Allowing Federal credit unions to provide these services to anyone 

in their field of membership will provide lower-cost alternatives for 

the unbanked and foster familiarity with and trust in conventional 

financial institutions. 

Other important provisions include Section 305, which will allow 

Federal credit unions the flexibility to invest up to 3 percent of 

their assets in credit union service organizations, providing financial-related services to both credit unions and their members; Section 303, which will allow Federal credit unions to diversify their 

assets and improve their earnings by making limited investments 

in corporate debt securities; and Section 314, which will clarify that 

when two credit unions decide to voluntarily merge, the statutory 

net worth of both credit unions is combined to form the net worth 

of the continuing credit union. 

Mr. Chairman, with respect to this issue, I would like to acknowledge and thank both you and Ranking Member Sanders for 

your support and for the separate introduction of H.R. 1042, which 

would specifically address and correct this inconsistency between 

the federal Credit Union Act and pending changes in accounting 

rules. 

24

Finally, while not included in H.R. 3505, we respectfully urge the 

subcommittee’s consideration of reform of the prompt corrective action capital requirements for federally insured credit unions. The 

current statutory capital regime for credit unions establishes an 

unnecessarily high leverage ratio that penalizes low-risk credit 

unions, that deprives credit unions of the ability to use excess capital in the manner that best serves the interests of their members, 

and that makes it difficult for NCUA to use risk-based capital as 

an effective supervisory tool. 

Our proposed solution, which is set forth as Title I of the CURIA 

bill, H.R. 2317, addresses these concerns we believe in a manner 

that is consistent with the capital standards for FDIC-insured institutions, that reflects the unique capitalization structure of the 

national credit union share insurance fund, and that ensures the 

continued safety and soundness of both insured credit unions and 

our fund. 

Again, thank you for the opportunity to be here today. I look forward to answering your questions. 

[The prepared statement of Robert M. Fenner can be found on 

page 92 in the appendix.] 

Chairman BACHUS. Thank you. 

Now, we will hear from the commissioner of the Texas Department of Banking, Mr. Randall James. 

STATEMENT OF MR. RANDALL S. JAMES, COMMISSIONER, 

TEXAS DEPARTMENT OF BANKING, ON BEHALF OF THE CONFERENCE OF STATE BANK SUPERVISORS, INC. 

Mr. JAMES. Good morning, Chairman Bachus, members of the 

committee. For the record, I am Randall James, Texas banking 

commissioner, and I am pleased to be here today on behalf of the 

Conference of State Bank Supervisors. 

Thank you for inviting CSBS here today to discuss strategies for 

reducing the unnecessary regulatory burden on banks, specifically 

H.R. 3505, as set forth by Congressman Hensarling and Congressman Moore. Our members are the chartering authorities and primary regulators of the majority of our Nation’s financial institutions, including the vast majority of our community banks. 

Chairman Bachus, we do applaud your longstanding commitment 

to ensuring that regulations serve the public interest without imposing unnecessary compliance burdens on financial institutions. 

At the State level, we are constantly balancing the need for oversight and consumer protection with the need to encourage competition and entrepreneurship. We see continuing opportunities for 

Congress to streamline and rationalize regulatory burden, especially for community banks. This testimony will review and update 

several issues that we have previously discussed in this forum. 

Our current regulatory structure and statutory framework may 

recognize some differences between financial institutions, but too 

often mandates a one-size-fits-all requirement. CSBS endorses approaches that recognize and encourage the benefits of diversity 

within our banking system. New Federal requirements are often 

unduly burdensome on smaller or community-based institutions, as 

has been referenced here frequently this morning. Therefore, my 

colleagues and I are especially pleased to see provisions in the curVerDate 0ct 09 2002 14:25 Apr 19, 2006 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 G:\DOCS\109.55 RODNEY
25

rent bill that recognize the growing disparity in our financial services industry and the impact that this has on our economy. 

Targeted relief for community banks is an essential component 

of any regulatory reform bill, and we strongly endorse several new 

provisions of H.R. 3505 that provide this relief. These new provisions taken from Congressman Ryun’s Communities First Act will 

reduce burden on these community-based institutions without creating new risks to safety and soundness. 

We are also pleased to see that H.R. 3505 seeks to address the 

industry’s concerns about the Bank Secrecy Act, also alluded to frequently this morning. Currency transaction reports and suspicious 

activity reporting requirements are reducing collection requirements and making them more consistent. We definitely want to acknowledge the efforts of FinCEN and the Federal banking agencies 

with whom we have worked to develop clear risk-based BSA examination procedures. We welcome the additional study on these 

issues that H.R. 3505 calls for. 

We ask that the committee include several additional regulatory 

burden relief provisions in any legislation it approves. First, CSBS 

believes that a State banking regulator should have a vote on the 

Federal Financial Institutions Examination Council, the coordinating body of banking agencies. We recommend that Congress 

change the State position in FFIEC from one of observer to that 

of a full voting member. 

CSBS also favors a provision that would give the Federal Reserve the necessary flexibility to allow State-chartered member 

banks to exercise the powers granted by their charters, as long as 

these activities pose no significant risk to the deposit insurance 

fund. Current law limits the activities of State-chartered Fed member banks to those activities allowed for national banks. 

In addition, CSBS strongly support FDIC’s recent rule making 

Federal deposit insurance available to State-chartered banks that 

organize as limited liability corporations, or LLCs. Only a handful 

of States now allow banks to organize as LLCs, including Maine, 

Nevada, Vermont, Texas and most recently, Utah. More States may 

consider this option, however, because the structure offers the 

same tax advantages as Subchapter S corporations, but with greater flexibility. Unfortunately, an Internal Revenue Service regulation currently blocks pass-through tax treatment for State-chartered banks. We ask this committee to encourage the IRS to reconsider its interpretation of the tax treatment of LLCs. 

In conclusion, as you consider additional ways to reduce burden 

on our financial institutions, we urge you to remember that the 

strength of our banking system is its diversity. While some Federal 

intervention may be necessary to reduce burden, relief measures 

should allow for further innovation and coordination at both the 

State and the Federal levels and among community-based institutions, as well as among the largest providers. A responsive and innovative State banking system that encourages community banking is essential to creating local economic opportunities. 

We commend you, Mr. Chairman and the members of the subcommittee, for your efforts in this area. We urge you to move this 

bill through the House of Representatives in this session of Congress. We thank you for the opportunity to testify, and I look forVerDate 0ct 09 2002 14:25 Apr 19, 2006 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 G:\DOCS\109.55 RODNEY
26

ward to responding to any questions that you or members of the 

committee might have. 

Thank you. 

[The prepared statement of Randall S. James can be found on 

page 104 in the appendix.] 

Chairman BACHUS. Thank you, Commissioner James. 

At this time, Deputy Commissioner George Latham from the Bureau of Financial Institutions of Virginia State Corporation Commission. 

STATEMENT OF MR. GEORGE LATHAM, DEPUTY COMMISSIONER, CREDIT UNIONS, BUREAU OF FINANCIAL INSTITUTIONS, VIRGINIA STATE CORPORATION COMMISSION, ON 

BEHALF OF THE NATIONAL ASSOCIATION OF STATE CREDIT 

UNION SUPERVISORS 

Mr. LATHAM. Thank you, Chairman Bachus. I an deputy commissioner of financial institutions for the Commonwealth of Virginia. 

Thank you and the committee for the opportunity to be here. I do 

want to add that I am a past chairman of the Board of the National Association of State Credit Union Supervisors, or NASCUS, 

who I am here on behalf of today. 

NASCUS is pleased to have this opportunity to share our 

thoughts about H.R. 3505, the Financial Services Regulatory Relief 

Act of 2005. Capital reform continues to be a critical concern for 

the Nation’s credit unions. The first important provision is the 

amendment to the definition of ′′net worth′′ in this bill. Such a 

change would cure the unintended consequences for credit unions 

of the Financial Accounting Standards Board’s business combination accounting rules. This provision amends the definition of ′′net 

worth′′ to include the retained earnings of a merging credit union 

with that of a surviving credit union. NASCUS believes this provision is imperative to preserve the option of mergers for regulators 

who use this as a safety and soundness tool. 

NASCUS also appreciates that the bill includes a provision that 

allows privately insured credit unions to access the Federal Home 

Loan banks. Moreover, NASCUS supports a provision that amends 

FDICIA so that State supervisors have the examination and enforcement oversight of privately insured credit unions. This authority ensures that State regulators could enforce compliance with disclosure requirements for privately insured credit unions. 

NASCUS believes another important capital reform should be an 

amendment to prompt corrective action or PCA. Such an amendment should broaden the definition of ′′net worth′′ and also provide 

flexibility. The Federal Credit Union Act establishes mandatory 

PCA requirements for credit unions. However, it does not provide 

flexibility to temporarily waive these requirements. It also limits 

the net worth of a credit union to just its retained earnings. 

Hurricane Katrina provides an excellent example of the need for 

flexibility. Although State credit union regulators helped ensure 

that operations would continue in a safe and sound manner in 

those States that were affected, these regulators are soon going to 

be shifting their concerns to credit unions meeting PCA standards. 

Many credit unions affected by Hurricane Katrina will need retained earnings to rebuild. 

27

It is also predicted that many members will walk away from loan 

obligations because their car or home, which secured their loan, no 

longer exists. As retained earnings are depleted for relief efforts, 

regulators will be faced with downgrading credit unions for not 

meeting PCA requirements. This demonstrates how viciously this 

cycle hurts American consumers. 

I would like to add that NASCUS and its State regulatory members have done quite a bit to support the efforts to relieve the conditions brought about by Katrina. State credit union regulators 

have offered manpower and computers and other resources to their 

colleagues in the affected States. NASCUS has a reserve examination program which recruits former examiners who are retired or 

even examiners who are active at this time to go in and do examinations in affected areas. 

NASCUS has been working with NCUA in a number of ways, 

teleconferencing and briefings. We also have information on our 

Web site. So NASCUS stands ready to assist in the relief efforts 

for the victims of Hurricane Katrina. 

NASCUS also has a longstanding policy supporting risk-based 

capital for credit unions. A risk-based capital solution should be included in H.R. 3505. Risk-based net worth and alternative capital 

are complementary capital reforms. In July, a team of NASCUS 

regulators and credit union executives created a white paper presenting both equity and debt models for alternative capital. The instruments presented are designed to preserve the not-for-profit, 

mutual, member-owned and cooperative structure of credit unions. 

We shared the white paper with the credit union community for 

study and for feedback. Additionally, it is attached to our written 

testimony and we appreciate the subcommittee’s consideration of it. 

We believe further regulatory relief is needed in H.R. 3505 for 

member business lending. The statutory limit on credit union member business loans should be raised to 20 percent of total assets. 

We further support language that would amend the current definition of ′′member business loans′′ by granting NCUA the authority 

to exempt loans of $100,000 or less. 

NASCUS appreciates the importance of the Bank Secrecy Act, or 

BSA, and thus supports those provisions in the bill as well. State 

credit union regulators believe they have the safety and soundness 

responsibility to encourage State-chartered credit unions to comply 

with all applicable BSA laws and regulations. We are pleased that 

the bill provides further flexibility to the secretary of the treasury 

to grant currency transaction report exemptions. 

NASCUS believes the enforcement of the program section of H.R. 

3505 should be modified to reference State regulators as contributing members of FFIEC. The partnership between State and Federal regulators is important to ensure enforcement and monitoring 

of BSA and anti-money-laundering compliance. The BSA provisions 

in the bill are a step in the right direction of balancing the reporting burden with information needed by enforcement agencies. 

In the interests of time, please refer to the last page of our written testimony for other issues of importance to NASCUS which I 

will not highlight at this time. 

NASCUS appreciates the opportunity to testify on the provisions 

of H.R. 3505. We welcome further participation in the discussion 

28

and deliberation of this legislation, and certainly I am open to answering any questions that you may have. 

[The prepared statement of George Latham can be found on page 

145 in the appendix.] 

Chairman BACHUS. Thank you. We appreciate that. 

At this time, I might say to members of the committee we have 

many Members of Congress, of course Galveston is in Gene Green’s 

district, but the district of our fellow member, Mr. Al Green, is 

right to the left of that as you look at a map. And also, Mr. 

Hinojosa’s and Mr. Paul’s districts are impacted, as well as several 

other members. 

At this time, I am going to yield my 5 minutes to Mr. Green because obviously he needs to get back to the more pressing needs 

of his district, for questioning. 

Mr. GREEN. Thank you, Mr. Chairman. I greatly appreciate your 

consideration. On behalf of the many Members who will be traversing the distance back to our districts to attend to the needs of 

our constituents, I thank you on their behalf as well. While they 

are not members of the committee necessarily, they appreciate your 

kind words. 

I would like to indicate that I am most appreciative of some of 

the information that I received with reference to how lending institutions will work with people who have loans. My understanding 

is that some institutions will have a moratorium for approximately 

3 months on foreclosures, late fees, and other aspects of loans that 

might involve some penalties. I compliment you for this. 

I have talked to a number of persons, persons who were in goodstanding in their communities. In fact, one is a banker. They tell 

me that 3 months may not be enough, given that they cannot get 

to their homes. These are people who are victims of Katrina. They 

cannot get adjusters out to look at some of the concerns that have 

to be addressed, and they are just not sure what their fate is right 

now. 

Can someone give me an indication as to how you would recommend that we handle this? I know that a case-by-case basis is 

ultimately what will be said, but how can we encourage something 

a little bit more standardized, if you will, to address some of these 

concerns? I welcome anyone’s comment. 

Ms. WILLIAMS. Congressman, let me just start by addressing one 

of the points that you just made: that individual circumstances 

may differ and that 3 months may not be enough. The guidance 

that the banking agencies issued very shortly after Katrina hit urging the institutions that we supervise to be flexible and to be responsive to their customers’ needs is fully applicable to longer-term 

needs, and it will be fully applicable if, unfortunately, it is necessary to apply it in the circumstances of Hurricane Rita. 

Certain customers may be able to get back on their feet more 

quickly than others. We are strongly urging the institutions that 

we supervise to work with all their customers, to recognize the 

needs of those customers, and to be flexible, to forbear, to look for 

opportunities to restructure based on the needs presented by the 

particular customers. 

Mr. GREEN. Yes, sir? 

29

Mr. OLSON. Congressman, I will associate with what Julie Williams said, but add one other part to that. The bankers that work 

in branches or in bank locations operate under a set of rules. Some 

of which are the institution’s own internal guidelines, and some of 

which are laws and regulations. In some cases, we have found following Katrina there are some bankers that have had no reason in 

the past to try to sort those out as to which is which. 

The significance of it is that we have had questions from time 

to time regarding policies that that person has always been operating under that in fact is an internal policy as opposed to a regulation, but they have always thought of it as a regulation. What we 

have made an effort to do is try to help the bankers understand 

where there is flexibility. Many of the things that you have talked 

about which are important, there perhaps is flexibility within the 

institution’s own standards under the regulations to comply with. 

Mr. GREEN. Thank you. 

Quickly, because I know time is of the essence, the CRA, the 

Federal Reserve Board, the Office of the Comptroller of the Currency and the FDIC recently promulgated a new CRA regulation. 

Pursuant to this regulation, certain institutions will receive CRA 

credit for making loans. 

While this is a good thing, the concern is if we have persons who 

are displaced and they receive loans, can these institutions get 

CRA credit for making loans to displaced individuals, as opposed 

to displaced businesses? Does anyone have a comment on that? 

Ms. WILLIAMS. Congressman, again, I think that we would look 

for ways to try to provide some flexibility in that respect. We have 

pending in draft form a series of interagency questions and answers that are designed to provide some elaboration on the recently 

revised CRA regulation. Your queston is an excellent one for us to 

see if we can provide some clarification on. 

Mr. GREEN. As you do so, I would encourage you to be as flexible 

as you can so that the banks can get the credit, which is an incentive to make the loans to the individuals who have been displaced. 

We are talking about people who really need these bootstraps. They 

will pull themselves up if they are given the bootstraps. This would 

provide that opportunity for them to have bootstraps. 

I thank you very much, Mr. Chairman, for the time. 

Chairman BACHUS. Thank you, Mr. Green. 

At this time, we are going to recess. There are votes on the floor 

and we will reconvene at approximately 12:10 p.m., if that is okay. 

Mr. Hensarling will be in the chair when we reconvene. I think 

there are two other members who wish to answer questions. So we 

will recess until that time. 

Thank you. The committee is temporarily adjourned. 

[Recess.] 

Mr. HENSARLING. [Presiding.] The subcommittee will come to 

order. 

I appreciate the indulgence of our panelists. However, if history 

is our guide, you will see the proceedings move rather rapidly, 

given that it is the lunch hour. So hopefully, we will not hold you 

too long. 

At this time, the Chair would recognize himself for 5 minutes. 

Mr. Fox, I would like to give my first question to you. First, I want 

30

to thank you. In your testimony I cannot help but see the phrase 

′′cost and benefit.′′ As you say, we must strike the right balance between cost and benefit. I assure you that that is a phrase that is 

rarely heard within the halls of Congress. As a graduate with a degree in economics from Texas A&M University, it is certainly music 

to my ears. I appreciate the good work that you have done with industry and with law enforcement on the issue of BSA relief. 

Clearly, and in another part of your testimony, I think you indicate it is a question of balance, and indeed it is. I remember sometime after 9/11 a CEO of an airline came up to me and said that 

finally we had discovered the perfect security measure for passenger air travel, and that was that passengers will no longer be 

allowed on commercial airlines. 

[Laughter.] 

Indeed, there is a balance and clearly the terrorists win when we 

lose our essential freedoms, including the freedom of commerce. In 

looking at some of your earlier testimony, I think you indicated 

that just within the last year there was a 37 percent increase in 

SARs and that a number of these reports I think you characterized 

as being in the nature of a defensive filing. I think you said, and 

let me quote from your earlier testimony of May before our oversight committee, ′′If these trends continue, consumers of the data, 

law enforcement, regulatory agencies, and intelligence agencies will 

suffer,′′ and that ′′we are concerned as financial institutions spend 

time and resources on increased filing, the quality of reporting on 

truly suspicious activity will degrade.′′ Can you go into a little bit of detail on how the language, the 

exemption dealing with seasoned customers, will address this 

issue? 

Mr. FOX. Congressman, I am not actually sure it will get to the 

suspicious activity report issue that you raised, which is an incredibly important issue. The seasoned customer language have really 

addresses currency transaction reporting, which is a more objective 

reporting requirement. 

I think the cause of defensive filing of suspicious activity reporting, in other words the reporting that is required when an institution comes across financial activity that it judges to be suspicious 

under our regulatory scheme and reports to the Government, was 

caused in large measure by institutions perceiving a very grave 

regulatory and reputational risk from running afoul of this regulatory regime. 

I think that we have, sir, worked incredibly well with my colleagues at the table, the five Federal banking agencies in particular, but also the Conference of State Bank Supervisors, to sort 

of tamp that concern down. What we are hearing, sir, and this is 

anecdotal right now and I do not have stats, is that institutions are 

getting that message. They are really not as nervous, I guess, as 

they might have been a year ago. 

Mr. HENSARLING. If I could, though, over roughly 30 years, we 

have developed this regime and quite often in Congress we put new 

regulations on top of old regulations. Is there still some overlap between the SARs, the CTRs, the Patriot Act, customer identification 

programs? If you were designing this program from scratch, is this 

what you would end up with? Is there further work we can do? 

31

Mr. FOX. I think there is further work we can do, and the work 

that you, sir, have done on the currency transaction reports is an 

example of that. But I would say, sir, that these reporting requirements and the customer identification programs that were implemented by the Patriot Act, while clearly a burden, do fit well together to weave a very sound anti-money-laundering program not 

only for the institution, but for our financial system. It makes it 

more clean, more transparent, frankly safer. 

Mr. HENSARLING. Again, thank you for your help and your work 

in this area. 

Mr. FOX. My pleasure. 

Mr. HENSARLING. Five minutes travels rapidly. 

Mr. James, you and I have a hurricane headed toward our home 

State. What have we learned in the last few weeks? What should 

this committee know and do? 

Mr. JAMES. Mr. Hensarling, the first item on the agenda is always people, taking care of the people. The second item on the 

agenda that I think this committee needs to be aware of is the extensive communication efforts that have existed among the Federal 

and State regulators of the affected areas resulting from Katrina. 

That communication has assisted in numerous ways among the 

regulators in easing up in areas where we could ease up and in 

providing some comfort to the institutions. 

Following right on the heels of that, the communication has already begun with regard to Hurricane Rita. That communication 

has started with the regulators and then I would like to place on 

the record that yesterday afternoon the Independent Bankers of 

Texas and the Texas Bankers Association got together and hosted 

a call that included the area regulators, as well as some 300 financial institutions, to go over immediate issues. That call is going to 

be occurring again tomorrow morning at 9 o’clock. That communication, I believe, is extremely important to discuss issues of cash 

availability, of cash letter direction, of liquidity issues, or branch 

openings issues, of where people are issues, of how to deal with situations, and how to proceed. 

I would suggest to this committee that the bankers in the State 

of Texas, along with the Federal and State regulators, are working 

everything we can to make sure everything gets back up and running, because this hurricane will come, but it will be also pass. And 

we are very interested in what comes next. 

Mr. HENSARLING. Thank you. Please know that I am sure that 

on behalf of this committee and on behalf of the Texas delegation, 

we stand ready to help in any way that we can. 

My time has expired. The Chair would now recognize Ms. 

Maloney from New York. 

Mrs. MALONEY. Thank you very much for your leadership on 

this. 

I would like to ask Mr. Bill Fox, you said in your testimony that 

technology is just catching up with the filing requirements. I would 

like to know how FinCEN is doing this in more detail. Last spring, 

the Treasury IG reported that FinCEN was not able to process the 

Bank Secrecy Act filings effectively. I understand that you are trying to address this. Can you explain where FinCEN is regarding 

this issue? 

32

Mr. FOX. Thank you, Congresswoman. We are working very hard 

to develop and implement a new cornerstone system, a system that 

we are calling BSA Direct. This system will have an electronic filing component, a very modern data warehouse, as well as a very 

modern Web-based secure way to disseminate the information that 

we collect to law enforcement. 

We are working on this very, very diligently right now. It is very 

close to deployment and testing. We are very excited about it. It 

will replace a system that was cutting-edge in 1990. We are 

thrilled that law enforcement, and I think our colleagues in the 

reulationg agencies, are very supportive of this effort. I think it is 

going to make a great difference. 

Mrs. MALONEY. Does FinCEN support this bill that we have before us? 

Mr. FOX. I would like to discuss the one Bank Secrecy Act issue, 

the currency transaction reporting provision. We will have some 

thoughts on the other Bank Secrecy Act provisions; however, we 

have not focused as much on them because we were working so 

diligently on the currency transaction reporting provision. We will 

continue to work with the staff from both sides of the aisle. 

Mrs. MALONEY. On the idea of having seasoned customers, those 

that the bank knows, that they have conducted business with, that 

they trust, exempting them from all this paperwork, do you support 

that? This is an idea we are doing also with the airports. Those 

people who fly often—they know who they are—can have certain 

cards so they can go through faster. Because we are so conscious 

about security, and as one who represents target number one, New 

York City, I am concerned about it. 

Do you support that philosophically? Do you support that direction? 

Mr. FOX. Yes, ma’am. I think the technical assistance that we 

have provided to the committee in developing the language will satisfy us, law enforcement, and the industry. It will eliminate some 

of the reports that are maybe not as relevant or as highly relevant 

to the detection of financial crime. 

From an intelligence perspective, ma’am, I will tell you that all 

information is valuable. I think law enforcement will also tell you 

all information is valuable. I think it is our job at FinCEN to try 

to balance the reporting requirements with the burdens that we 

are putting on the industry, and I think, frankly, this language is 

one way to reach that balance. 

Mrs. MALONEY. I think that is important, also the testimony we 

have gotten in prior hearings where there is so much information 

that no one is even looking at it, which we saw in the 9/11 report. 

A lot of this information was in certain places, but no one was looking at it. So if you are so overburdened with information you cannot even process it, we are not helping combat the terrorism, the 

money laundering, and we certainly are overburdening particularly 

these smaller and mid-size firms to the point they say that the financial burden and time burden is almost unbearable. 

On the theme of balance, I would like to raise a challenge that 

we have in the district that I represent for financial service centers 

which serve a large number of unbanked workers, particularly in 

areas that are poverty-designated areas. There are many unbanked 

33

workers. They have expressed serious concern about banks discontinuing their accounts. Many of them, the banks say that OCC 

had guidelines that told them they had to discontinue these accounts. 

One of the things we do not want to do is cut off banking services 

for people. I know that you have taken this seriously. We have 

talked to your office about it and recognize that banks’ disruption 

of services will force these check cashers underground or in other 

ways which we do not want. Can you tell us what has happened 

on this front since last summer when FinCEN held its conference 

on the issue and it appeared that positive steps were being taken? 

I have heard since that little improvement has actually happened, 

despite the right things being said. 

I will tell you some of the larger institutions that are trying to 

do absolutely everything right. They are hiring consultants and everyone else to help them make sure they are doing everything 

right. They have the best intentions. Everyone wants to do everything right. Some of these consultants will say, well, just get rid 

of any questionable area. You just do not need to deal with it. So 

they are closing down these services. They are not participating 

and it is causing now in New York City we only have one bank that 

will support unbanked workers. 

So could you comment please on this? It is an access to financial 

services issue. I think it is important because if we do not have access, then the Government has to come in and create another program to provide access. 

Mr. FOX. It is important, ma’am. It is actually one of the big 

issues we are wrestling with right now. The banking of money 

services businesses is critically important. The Treasury Department has historically and continues to take the position that these 

entities, or this part of the financial services sector, are critical to 

not only the Nation’s economy, but to the world economy, particularly for folks who are unbanked or who are perhaps not as well 

off as other folks. 

We take this very seriously. I do not believe it is fair to say that 

the reason for this is by OCC guidance. That just simply is not 

there. I am sure Julie could address that as well. But I think it 

did result from a misperception, perhaps, by institutions about the 

level of risks associated with banking money services businesses, 

and couple that with concerns about what could happen if one of 

these services was found to be there. The banks actually thought 

they had to be perceived, that they had to be this sector’s regulator. 

One of the things we did together was issue interagency guidance, 

which made it clear that we are not expecting that of depository 

institutions. 

I think they have to keep in mind as well that this sector is a 

regulated sector. They are part of the Bank Secrecy Act milieu, if 

you will. They are subject to the same requirements that depository 

institutions are under the Bank Secrecy Act, including reporting 

and program requirements. Frankly, they have a regulator, and 

that is FinCEN, the IRS, and the Department of the Treasury. So 

I think what we are trying to do, ma’am, is educate, I guess, and 

talk with the financial services sector to ensure that they understand that. 

34

Finally, I think that guidance has helped in parts of the country. 

Your area, ma’am, the Northeast in particular, is one part of the 

country that we are very concerned about because we are getting 

feedback that it has not helped. We are going to continue to work 

with folks on all sides of this issue to try to address it. It is critical 

that we get it right. We do not want them underground. 

Mr. HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes Mr. Sherman from California. 

Mr. SHERMAN. Thank you, Mr. Chairman. 

Mr. Kroener, Gramm-Leach-Bliley enshrines the idea we have 

had in this country for a long time that commerce needs to be kept 

separate from business. If you read the books that were popular in 

the 1980s, this was the decade in which Japan was supposed to 

overtake the United States in world economic importance. That has 

not happened, perhaps because we have done a good job, but moreover because Japan has decided to mix banking and commerce. 

I am concerned that the industrial loan companies idea, which 

was always a small side-light in our overall financial world, is perhaps going to be exploited by those who wish to combine commerce 

and banking. Wal-Mart, of course, has an application to charter an 

ILC. I wonder if you at the FDIC are moving cautiously, whether 

we in Congress should be holding hearings. What do we do to avoid 

the mixing of commerce and business? 

Mr. KROENER. Congressman Sherman, the FDIC basically insures banks as an entity. Banks have a number of relationships 

with other companies in the same group. We have been insuring 

banks for the 80 years of our history, including ILCs. There are a 

number of sorts of banks, such as credit card banks and ILCs, that 

have been long operated independently and separately from their 

affiliated organizations. Our experience with those institutions suggests to us that they present no more safety and soundness problems to our insurance fund than do any other sort of institution. 

Mr. SHERMAN. But if we were to take the Japanese model where 

you had interlocking directorates, interlocking loans, one commercial group the banker for the other commercial group, the second 

the banker for the first, that Japanese model is I do not think one 

that would be conducive to a strong insurance system. Do you see 

a risk in Wal-Mart’s application or in other developments that we 

are moving beyond the very small traditional role of the ILCs toward that being the backdoor to the Japanese model? 

Mr. KROENER. In terms of our function as insurer, we have a series of statutory criteria which we apply in making an insurance 

determination, that is, whether someone will be insured. Those 

seven criteria do not differ for ILCs or for any other sort of institution. We will be applying precisely the same criteria to the pending 

Wal-Mart application that we apply to all other institutions. 

Mr. SHERMAN. I thank you for your answer. It is probably more 

important that we hold hearings here about what could be a loophole in the whole Gramm-Leach-Bliley. Obviously, you have your 

regulations and you are going to apply them. I hope you apply 

them with an understanding of the purposes of Gramm-Leach-Bliley, but I do need to move on to other questions. 

Perhaps Mr. Fenner could explain in greater detail why prompt 

corrective action reform is important. 

35

Mr. FENNER. Thank you, Congressman. 

Currently, the minimum statutory net-worth level, non-riskweighted leverage level that a credit union needs to achieve in 

order to be well capitalized is 7 percent, net worth equaling 7 percent of assets or greater. That is a full 200 basis points higher than 

the standard that exists for the rest of our federally insured financial institutions. We see at least three problems with that at 

NCUA. 

One is that we think it is unfair to credit unions, especially 

under circumstances where credit unions operate with relatively 

less risky asset portfolios. We think it restricts the use of credit 

unions’ earnings that could be better used for other purposes to 

serve the members. We think it creates a one-size-fits-all system 

that makes it difficult for us to use the risk-based net worth requirement side of the PCA scheme to effectively supervise risk. 

So we think the solution that we have proposed that we are 

happy is contained in Title I of CURIA is to lower that leverage 

requirement, and do it in a way that accounts for the unique capitalization of insurance fund and then allow that system to work 

in tandem more effectively with the risk-based system that is comparable to what is in place for other institutions. 

Mr. SHERMAN. But you have designed a risk-based system so 

that if a credit union had a particularly risky portfolio, it would 

have to have capital above the 7 percent required today. 

Mr. FENNER. That is correct. 

Mr. SHERMAN. So this is not just a lower capital standard. It is 

a more sophisticated one; higher for some, lower for others. 

Mr. FENNER. That is correct. The system that is spelled out in 

some detail in CURIA would do exactly that. It would establish a 

set of risk-based requirements that very closely parallel what are 

in place for other insured financial institutions. 

Mr. HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes Mr. Meeks of New York. 

Mr. MEEKS. Thank you, Mr. Chairman. 

I will have just real brief questions, and I would like to direct 

the first one to all three, Mr. Olson, Mr. Bowman, and Ms. Williams. I am wondering what your opinion is on increasing the reporting requirements of HMDA data such as credit scores and loanto-value ratio. Just give me your opinion on that, if you will. 

Mr. OLSON. Congressman, we looked at that issue very carefully 

when we were looking to change the HMDA reporting requirements. We talked about balance earlier, and there is a balance required between the amount of information that comes on HMDA 

and the amount of additional or incremental information that could 

have privacy implications. 

For example, every additional bit of information you attach to 

the HMDA reporting comes that much closer to revealing the individual because you are doing it on a property-specific reporting 

basis, so that is part of the issue. 

On the other hand, where we have seen in predatory lending, the 

critical issue involves pricing. It has been clear for some time that 

it is not the approval-denial decision that results in the most egregious forms of predatory lending. It is in the pricing. So with the 

combination of the HOEPA and HMDA new requirements and 

36

identifying the loans where the mischief, if you will, in pricing 

could be identified, at that point we would have the ability to go 

after the institutions where there was the possibility for predatory 

lending or discriminatory lending. 

So that is where the cut-line was made. 

Also, in terms of if you were to truly evaluate whether an institution has a pattern of discrimination, you have to go into 50 and 60 

and 70 data points. So you really have to look at the credit files 

themselves in order to ultimately make that evaluation. So we are 

very comfortable that where we are now can have us focus on the 

institutions that we would need to look at further. 

Mr. MEEKS. Ms. Williams? 

Ms. WILLIAMS. I would basically second that. There is an important issue of balance here. You would have to require the collection 

of an enormous amount of information from lenders in order to 

begin to approach being able to have data that you could just run 

automatically to get close to being able to draw any conclusions. 

What we have now is data that we use to screen and to identify 

institutions that are high-risk institutions. Then we apply a variety 

of other risk factors to home in on those institutions where we go 

in and we do the types of file reviews that Governor Olson is talking about. So I would second his remarks. 

Mr. MEEKS. Mr. Bowman? 

Mr. BOWMAN. I would third that as well. The information, the 

balance that has been struck by the regulations promulgated by 

the Fed do provide us as a regulator the necessary information or 

identification marks which would allow our examiners to go in and 

look at a particular institution and perhaps the particular files 

within that institution to dig further. To the extent that what we 

come up with is something that is of great concern, we would then 

proceed accordingly. So I think the Fed has found the balance. 

Mr. MEEKS. Mr. Bowman, let me stay with you for a second. I 

just want to jump in, and I am just about done. 

I think in reading your testimony, you indicated that small 

banks are concerned about the cost of compliance with the Bank 

Secrecy Act and Sarbanes-Oxley. What I want to know is, does Sarbanes-Oxley become less expensive as better internal controls are 

put in place? Are the smaller banks still using tier one accounting 

firms instead of tier two, as was mentioned in the hearing of the 

PCAOB? 

Mr. BOWMAN. Our experience has been that given the loss of the 

larger accounting firms, and also given the nature of a lot of our 

institutions, they use smaller accounting firms, auditing firms to 

provide them with the support they need. Unfortunately, the experience of the smaller institutions has been that some of the costs 

that they incur as a result of that employment are not necessarily 

distinguishable from some of the costs that the larger institutions 

would be charged by the larger accounting firms and others. 

The difficulty with and I think one of the points we make in our 

testimony is that the size of the institution, given regulations that 

are out there and statutory obligations that are imposed upon 

them, does not seem to make a difference. The largest institutions 

in the country are subjected to the same regulatory requirements 

as are the smaller ones. The ability to make a profit the smaller 

37

you get becomes more difficult. The continuing costs that the smaller institutions are subjected to really causes, I think, in many cases 

the kinds of complaints that we do hear from our institutions. 

Mr. MEEKS. Thank you. 

Mr. HENSARLING. The gentleman yields back. 

Seeing no other members in the hearing room who have not been 

recognized, I want to thank the panel for coming today and providing us with your testimony. 

The Chair notes that some members may have additional questions for this panel which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 30 days 

for members to submit written questions to the witnesses and to 

place their responses in the record. 

This hearing is adjourned. 

[Whereupon, at 12:40 p.m., the subcommittee was adjourned.] 

(39)

A P P E N D I X

September 22, 2005

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