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REGULATORY REFORM: EXAMINING HOW NEW 

REGULATIONS ARE IMPACTING FINANCIAL 

INSTITUTIONS, SMALL BUSINESSES, AND 

CONSUMERS IN ILLINOIS 

FIELD HEARING 

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

DECEMBER 5, 2011 

Printed for the use of the Committee on Financial Services 

Serial No. 112–89 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

SPENCER BACHUS, Alabama, Chairman 

JEB HENSARLING, Texas, Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

NAN A. S. HAYWORTH, New York 

JAMES B. RENACCI, Ohio 

ROBERT HURT, Virginia 

ROBERT J. DOLD, Illinois 

DAVID SCHWEIKERT, Arizona 

MICHAEL G. GRIMM, New York 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

BARNEY FRANK, Massachusetts, Ranking 

Member 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

ANDRE ́ CARSON, Indiana 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

LARRY C. LAVENDER, Chief of Staff 

(III) 

C O N T E N T S 

Page 

Hearing held on: 

December 5, 2011 ............................................................................................. 1 

Appendix: 

December 5, 2011 ............................................................................................. 43 

WITNESSES 

MONDAY, DECEMBER 5, 2011 

Bates, William, Jr., Executive Vice President and General Counsel, Seaway 

Bank and Trust Company, on behalf of the National Bankers Association .... 9 

Ohlendorf, Gregory M., President and Chief Executive Officer, First Community Bank and Trust, on behalf of the Independent Community Bankers 

of America (ICBA) ................................................................................................ 6 

Palmer, Bob, Policy Director, Housing Action Illinois .......................................... 20 

Rand, Dory, President, Woodstock Institute ......................................................... 18 

Renn, James J., President and Chief Executive Officer, Lisle Savings Bank, 

on behalf of the Illinois League of Financial Institutions ................................ 12 

Roolf, James M., Chairman, Illinois Bankers Association (IBA) ......................... 10 

Schmitt, John, President and Chief Executive Officer, Naperville Area Chamber of Commerce ................................................................................................... 14 

APPENDIX 

Prepared statements: 

Bates, William, Jr. ............................................................................................ 44 

Ohlendorf, Gregory M. ..................................................................................... 51 

Palmer, Bob ....................................................................................................... 58 

Rand, Dory ........................................................................................................ 61 

Renn, James J. ................................................................................................. 63 

Roolf, James M. ................................................................................................ 67 

Schmitt, John .................................................................................................... 74 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Biggert, Hon. Judy: 

Written statement of Peter Haleas, Chairman, Bridgeview Bank Group, 

Bridgeview, Illinois, on behalf of the Illinois Bankers Association .......... 83 

Written statement of Michael G. Steelman, Chairman and CEO, Farmers 

and Merchants State Bank of Bushnell, Illinois ........................................ 88 

(1) 

REGULATORY REFORM: EXAMINING HOW 

NEW REGULATIONS ARE IMPACTING 

FINANCIAL INSTITUTIONS, SMALL 

BUSINESSES, AND CONSUMERS 

IN ILLINOIS 

Monday, December 5, 2011 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The committee met, pursuant to notice, at 9 a.m., in Chicago, Illinois, Hon. Spencer Bachus [chairman of the committee] presiding. 

Members present: Representatives Bachus, Manzullo, Biggert, 

Dold, and Schweikert. 

Also present: Representatives Kinzinger and Walsh. 

Chairman BACHUS. This hearing will come to order. 

The Financial Services Committee is meeting in Chicago this 

morning to take testimony concerning the bank regulations and 

their effect on financial institutions. 

I would like to thank Mrs. Biggert, the chairman of the Subcommittee on Insurance, Housing and Community Opportunity, for 

organizing this hearing. She has been a tireless advocate of financial literacy, a dedicated public servant who I think looks after the 

people of Illinois very well, and she always seems to have the 

health of our Nation’s financial system foremost on her mind, particularly those in the banking community. 

Mrs. Biggert, would you like to say anything at this time? 

Mrs. BIGGERT. I have an opening statement. 

Chairman BACHUS. I will let Mrs. Biggert give her opening statement, and you don’t need me to give one. 

Mrs. BIGGERT. I’m sure they would rather hear from you, Mr. 

Chairman, but I’ll be glad to do that. I’m sure you’ll have some 

more. 

Chairman BACHUS. I don’t want to depress them. I know the 

banks are having tremendous problems with the volume of regulations. As you know, Dodd-Frank was the biggest change in our regulatory law since the 1933 and 1934 Acts, and, in fact, Dodd-Frank 

has more rules and more pages than all of those Acts put together, 

of all the Acts during the Hoover and Roosevelt Administrations. 

To compare it with Sarbanes-Oxley, Sarbanes-Oxley is about 330 

pages and 16 rules; Dodd-Frank is over 400 rules. And SarbanesOxley took 3 years before the Congress, and over 60 hearings. 

Dodd-Frank was put together in about 4 months. A third of it was 

2 

written in the last 3 days, so to say it was a rush job would be 

kind. 

The regulators are about 28 percent through with Dodd-Frank, 

and already the regulations would fill two bankers’ boxes, and 

that’s even with small print. 

And I know the costs of compliance, the costs to comply with 

Dodd-Frank continue to go up with every new regulation or every 

recalculation, and it could take as much as with compliance, the 

cost it could cause the cost of compliance to go up another 50 percent from where it was prior to its passage. I don’t need to tell 

these bankers that. 

We’re going to take testimony on what we need to do, what needs 

to be done to address the problems. 

Mrs. BIGGERT. Thank you, Mr. Chairman. I knew that we could 

get an opening statement out of you. Thank you. And I want to 

thank you for holding this hearing, and I want to especially thank 

you for choosing this wonderful City of Chicago for such an important hearing. 

Illinois is home to some of the finest financial institutions in the 

country, and I know that these institutions stand ready, willing, 

and able to provide the crucial funding that our communities and 

small businesses so desperately need. 

As I meet with small business leaders in my district, I constantly 

hear that they are ready to help our economy get going again but 

are unable to access the capital they need to grow in their businesses. And at the same time, I hear from our community bankers 

that they are ready to extend credit to these small businesses, and 

have the capital to do so, but they are being stymied by overzealous 

and inconsistent regulators. 

Lenders large and small are paralyzed by hundreds of unattainable and inconsistent financial regulations, chiefly those included 

in the far-reaching Dodd-Frank Act. And unfortunately, our jobs 

created by access to capital have become a casualty as bankers are 

left scrambling to figure out how to play by the new rules. 

We cannot expect even the most healthy and well-capitalized institutions to make loans if they are unable to determine when regulators might ban certain products, or randomly require them to 

post additional capital or arbitrarily change the treatment of a performing loan. Too many bankers are already disproportionately affected by new regulations due to their limited resources, and now 

is absolutely the wrong time to invoke and impose new burdensome 

compliance clauses on institutions that could better use their resources to provide services and extend credit to their customers. 

If we stand any chance for a broad-based economic recovery, we 

must get the government out of the way and allow our financial institutions to resume responsible lending. 

I thank the witnesses for being here today. It’s great to see the 

friendly faces of a hometown crowd, and I again thank the chairman for holding this hearing. 

Chairman BACHUS. Thank you. 

I am now going to recognize Mr. Manzullo. Don Manzullo is a 

senior member of the committee from Illinois. There are a lot of 

good friends here. 

3 

Mr. MANZULLO. I’m here ready to receive definitive impact statements. We have people from QSA, Rosemont, Springfield, Chatham, and all kinds of places. It’s good to have you here. 

Welcome to Illinois, Mr. Chairman. 

Chairman BACHUS. Thank you. 

Our next two members—there were 81 freshmen, and 61 of those 

freshmen requested the Financial Services Committee. We only had 

seven slots, and these two gentlemen to my right: Bob Dold who 

is your Illinois Congressman, in the Chicago area, the beautiful 

City; and Dave Schweikert from Scottsdale, Arizona. Dave was 

treasurer of Maricopa County in a prior life, and he has a financial 

background. 

Bob? 

Mr. DOLD. Mr. Chairman, thank you so much for holding this 

hearing. It is certainly great to be here in Chicago talking to those 

who provide access to capital for small businesses. 

Coming from the private sector, certainly we understand that it 

is the lifeblood of small businesses to have access to capital, and 

I have had the opportunity to spend some time with many of you 

here who are testifying before the committee today, and I certainly 

understand some of the issues and the burdens that you face. 

And this, I believe, is a particularly important hearing because 

the function of a healthy credit market is absolutely essential for 

job creation. The number one issue we face today, I think, in the 

country is, how do we create sufficient jobs and put our economy 

back on track, which is critical for economic growth and prosperity. 

Certainty, our credit markets and financial institutions must be 

regulated, but those regulations must be sensible, they must be 

balanced, and they must account for meaningful differences 

amongst our broad and diverse array of financial institutions. 

I don’t believe we can have a one-size-fits-all type of regulation 

that comes down for all the financial institutions that we have in 

front of us today. 

Unfortunately, in that respect, our regulatory environment 

doesn’t currently meet these reasonable standards. Instead, our 

current regulatory environment is needlessly hurting the 

functionality and health of our credit markets, and by extension, 

hurting our job creators’ business growth and ultimately economic 

prosperity. 

The regulatory burden is particularly acute for our small financial institutions which indisputably had little, if anything, to do 

with the financial crisis. And that’s because they must necessarily 

devote a large percentage of their resources to the enormous cost 

of reviewing and analyzing and complying with an avalanche of 

regulatory burdens. 

I don’t know about many of you; I did have an opportunity to 

talk with a smaller financial institution just the other day that 

said, ‘‘We are hiring,’’ which was positive. We like to hear people 

are hiring, but they were hiring all in compliance, taking a lot of 

heads on in compliance. 

So they’re trying to cross the ‘‘T’’s and dot the ‘‘I’’s and comply 

with the rules and regulations that Washington is putting in place, 

but not a single one of them was adding to—bringing on people 

4 

who were going to help the bank, who were going to help lend additional resources out to small businesses that are out there. 

So I believe small businesses or small financial institutions are 

essential to financing our small businesses which are responsible 

for most of the job growth. Two-thirds of all entry-level jobs are 

created by small businesses, so across our country, we’re going to 

rely on smaller financial institutions that I believe have a much 

greater understanding of who they’re lending to in terms of, you 

see them in your grocery store, you see them at church or synagogue or some other place along those lines. 

So with our current economic challenges, all of us in Congress 

are obligated to create a legal regulatory environment that strongly 

promotes job creation, business growth, and economic prosperity. 

And a very important step in creating that kind of regulatory environment is understanding clearly what our small financial institutions are dealing with and helping them get some relief from overly 

burdensome regulations. 

Again, I want to emphasize that we do need regulations; we just 

want them to be smart regulations. 

I just came from a meeting with somebody who gets regulated 

pretty heavily, and he actually used the dresser analogy. Every single one of us has a dresser at home. We buy clothes. Eventually, 

when we can’t close the dresser drawer, we have to figure out what 

clothes we want to get rid of and which ones we want to keep in 

our drawer. 

The same thing is true with regulations, I would say. If they’re 

good regulations, we need to keep them. Just more and more of 

them, we need to have a different approach. 

So I certainly appreciate each and every one of you taking the 

time to be with us today. We certainly look forward to your testimony. 

Mr. Chairman, thank you so much for coming to Chicago to hold 

an important hearing. It’s important that we hear from some of our 

local financial institutions. Thank you so much for your time. 

Chairman BACHUS. Thank you, Bob. 

At this time, I recognize Dave Schweikert, a member of our committee, and one of our new freshman. 

Mr. SCHWEIKERT. Thank you, Mr. Chairman. 

Actually, for Illinois, you should be very proud. You have a lot 

of oomph on the Financial Services Committee when Chairwoman 

Biggert and the constituents come to a field hearing here. 

It will be also be noted that you’re going to have a little sales 

tax spike, because my wife and I came in on Saturday and hopefully left a nice contribution to the City of Chicago. 

Mr. DOLD. We appreciate that. 

Mr. SCHWEIKERT. There’s great value to this type of get-together 

hearing. What we’re hunting for is often some of the sort of detail 

that we don’t get in D.C., where often it is somewhat scripted. 

We’re also looking for what are the unintended consequences 

that have put you in juxtapositions from previous regulations to 

new authorships to also certain concerns as rules are being promulgated, what do you think sneaks up on your business model and 

therefore ultimately hurts your community and our country. 

5 

So as you share your testimony with us, please let us know your 

anticipation of what is damaging, but also, if you also have an insight into mistakes in the designs of the regulations that are creating any undue consequences that we haven’t heard in all of this, 

we’ll do our best. 

Thank you, Mr. Chairman. 

Chairman BACHUS. Thank you. 

We’re also joined by two other members of the Illinois delegation, 

and I will ask now for the consent of the committee that without 

objection, we will allow them to participate in the hearing. 

Not hearing any objection, the two Members from Illinois are Joe 

Walsh and Adam Kinzinger. 

I used to call ‘‘Aaron Schock’’ ‘‘Adam Schock’’, and then Adam 

Kinzinger showed up. At least I think by now, I have started calling Aaron ‘‘Aaron’’ and Adam ‘‘Adam.’’ 

But we welcome both of you, and this is the normal custom that 

when we are in a State, Members whose jurisdiction touches on 

banking also participate in the hearing, and their opinions do affect 

certain aspects of that, and so we invite an opening statement from 

you gentlemen. 

Mr. KINZINGER. Mr. Chairman, I’ll keep it very brief. 

I’m Adam Kinzinger from North Central Illinois, and I currently 

sit on the Energy and Commerce Committee, and I’m a freshman. 

And I want to say thank you for coming to Chicago. As we mentioned, Representative Schweikert, thank you for coming all the 

way from Arizona to listen. 

And I think this is what’s very important is just the idea that, 

look, we can go to Washington, D.C., and we can talk about laws 

and we can talk about bills and all that kind of stuff, but you really 

don’t know how it impacts people until you hear from people so I 

just want to say thank you for coming out. 

I have been spending the last number of months listening to 

folks in the financial industry like Mr. Roolf from Joliet as well as 

Kevin Olson from Grundy Bank who I see here and many others, 

and I look forward to hearing what you have to say or what you 

have to say today. 

And the big key is we want to understand that there is a role 

for the government in the economy, but what is that role, and we 

definitely don’t want to have too much of a role. 

So again, we look forward to your testimony. And I want to say 

thank you, Mr. Chairman. 

Chairman BACHUS. Thank you. 

At this time, we will hear from our witnesses. 

Oh, I’m sorry. Joe? 

Mr. WALSH. No, no, Mr. Chairman, that’s fine. I’ll be even 

briefer. 

Chairman BACHUS. I’m sorry. 

Mr. WALSH. That’s okay. 

Thank you and thank you for coming into Chicago. 

I chair a subcommittee—the Small Business Committee’s Economic Growth, Tax, and Capital Access Subcommittee—and we 

held a hearing earlier this year on this very topic, so this is a rife 

topic. 

6 

It’s good to see some of the familiar faces. We are choking right 

now underneath regulation so I am quite interested to hear from 

our witnesses. 

Thanks, Mr. Chairman. 

Chairman BACHUS. Thank you. 

Our witnesses are Mr. Greg Ohlendorf, president and chief executive officer from First Community Bank and Trust, testifying on 

behalf of the Independent Community Bankers of America. We are 

considering legislation now that the ICBA and American Bankers 

proposed. We’re beginning to have hearings on those and expect to 

move something. We appreciate your organization. 

Mr. William Bates, executive vice president and general counsel 

of Seaway Bank and Trust on behalf of the National Bankers Association. It is good to see you, Mr. Bates. 

Mr. Jim Roolf, chairman of the Illinois Banking Association—I 

have mixed emotions about sitting in here with him. When I was 

at Alabama and he was at Notre Dame, they beat us twice. It was 

a long time ago, and he has his Notre Dame tie on so he can egg 

me on. Two Sugar Bowl victories, but anyway, Jim, it is great to 

see you again. 

And Mr. Jim Renn, president and chief executive officer of the 

Lisle Savings Bank, is that ‘‘Lisle?’’ 

Mr. RENN. ‘‘Lisle,’’ that’s correct. 

Chairman BACHUS. He is testifying on behalf of the Illinois 

League of Financial Institutions. 

Mr. John Schmitt, president and chief executive officer of the 

Naperville Area Chamber of Commerce. Ms. Dory Rand, president 

of the Woodstock Institute. And Mr. Bob Palmer, policy Director of 

Housing Action Illinois. 

And we’ll just go from left to right and take your testimony. Normally, the statements are 5 minutes. Did they tell you all that? But 

if you go over a minute or two, we’re usually not going to be—at 

a field hearing, since we’re not even in Washington, we’re not going 

to be that strict. 

We’ll start with you, Mr. Ohlendorf. 

And we welcome each and every one of you to testify about regulatory reform, and examining how new regulations are impacting 

financial institutions, small businesses, and consumers in Illinois. 

One thing about small businesses—Joe mentioned that he chairs 

the subcommittee. In the last 2 months, our net job growth has all 

come from small businesses. Small business, in this recession, has 

created 70 percent of the jobs. So the health of small businesses is 

important to not only small businesses but large businesses, communities, families, and the Nation’s economy. 

Mr. Ohlendorf? 

STATEMENT OF GREGORY M. OHLENDORF, PRESIDENT AND 

CHIEF EXECUTIVE OFFICER, FIRST COMMUNITY BANK AND 

TRUST, ON BEHALF OF THE INDEPENDENT COMMUNITY 

BANKERS OF AMERICA (ICBA) 

Mr. OHLENDORF. Chairman Bachus and members of the committee, I am Gregory Ohlendorf, president and CEO of First Community Bank and Trust, a $150 million asset community bank located in Beecher, Illinois, Congressman Kinzinger’s district. 

7 

I am pleased to be here today to represent the nearly 5,000 members of the Independent Community Bankers of America, and I 

thank you for coming to Chicago to hold this hearing. We appreciate your interest in the impact that new regulations have had on 

financial institutions, including community banks. 

Community banks are the primary source of credit, depository, 

and other financial services in thousands of rural areas, small 

towns, and suburbs across the Nation. As such, we play an essential role in the recovery of our national economy. 

Regulatory and paperwork requirements impose a disproportionate burden on community banks which do not have the scale 

of larger banks to amortize the expense of compliance. 

I will focus my remarks today on the Dodd-Frank Act, the predominant but not exclusive source of new bank regulation. 

This Act was generational legislation and will permanently alter 

the landscape for financial services. It’s a mixed outcome for community banks, providing both punitive and helpful provisions. 

Every part of financial services, including every single community 

bank, will feel the effects of this new law. 

The community bank business model is based on the strength of 

our reputation in the small communities we serve and the longterm customer relationships that we cultivate. 

Community banks don’t engage in abusive consumer practices 

and did not cause the financial crisis, and we appreciate the support our industry received to shield us from some of the provisions 

designed to respond to this crisis. 

Regulation calibrated to large-bank risks and business models 

can suffocate smaller banks, curtail the possibility that we need to 

offer customized products and services, which is how we compete 

against the larger banks, and thereby harm the communities that 

we serve. 

We reject the notion that regulation must fall equally on all 

banks. That is based on the false premise that a community bank 

is just like a mega-bank but on a little smaller scale. We differ not 

only in size but in our fundamental orientation toward customers 

and communities. 

ICBA has persistently advocated for tiered regulation of the financial service industry. 

Among some of the provisions of the Dodd-Frank Act, the new 

Consumer Financial Protection Bureau (CFPB) perhaps carries the 

most risk for community banks. We are already required to spend 

significant resources complying with consumer protection rules. 

Every hour I spend in compliance is an hour that could be spent 

with a small business owner or a consumer. CFPB rules should not 

contribute to this distraction. The CFPB should use its authority 

to grant broad relief to community banks where appropriate. 

ICBA also strongly supports legislation passed by this committee 

and the House, H.R. 1315, to reform the CFPB and make it more 

balanced and accountable in its governance and its rule-writing. 

Another concern of Dodd-Frank is the new mortgage lending requirements that run the very serious risk of accelerating industry 

consolidation, which would create even more systemic risk as well 

as higher costs and fewer choices for consumers, particularly in 

small communities. 

8 

Statistically, the Risk Retention Requirement Section 941, if 

broadly applied, will disadvantage community banks because they 

lack access to the increased capital needed to offset risk retention 

despite their conservative underwriting. Similarly, enhanced escrow requirements for high-cost loans will create a significant cost 

for community banks. 

We recommend that community banks’ loans held in portfolio be 

exempt from this requirement. Lenders have every incentive to protect the collateral of loans held in their own portfolios. 

In representing our members during consideration of DoddFrank, ICBA focused on making the Act workable for community 

banks. This meant seeking exemptions where appropriate. It also 

meant seizing the opportunity to advocate for long-sought community bank priorities that we believe will strengthen community 

banks over the long term. 

ICBA was a leading advocate for the deposit insurance provisions 

of the Act, including the change in the assessment base from domestic deposits to assets (minus tangible equity) which will better 

align premiums with a depository’s true risk to the financial system, and will save community banks $4.5 billion over the next 3 

years. 

The Act also contains provisions that would help rein in the toobig-to-fail banks and the Wall Street firms that imperilled our 

economy, including the creation of the Financial Stability Oversight 

Council (FSOC) for banks over $50 billion and systemically risky 

nonbanks. 

My community banker colleagues and I were galled and profoundly angered when we read last week’s Bloomberg Report on 

the Federal Reserve’s secret $7.77 trillion bailout. Borrowing at a 

cost as low as one basis point, the largest, riskiest firms turned a 

profit of some $13 billion. There must be no repeating of these 

events. 

In closing, I would like to note that the legislative ideas highlighted in my written testimony are included in the Communities 

First Act or CFA, H.R. 1697, which has 61 bill sponsors: 40 Republicans; and 21 Democrats. CFA also has the strong support of 37 

State banking associations. 

In addition to proposed changes to Dodd-Frank, CFA includes 

other regulatory and tax relief provisions for community banks. 

Thank you again for the opportunity to testify today. Legislation 

of the breadth and ambition of Dodd-Frank will generally need 

modification. 

We look forward to working with this committee to improve the 

law and to assure that it is implemented in a way that will impose 

the least burden on community banks. 

Thank you. 

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

51 of the appendix.] 

Chairman BACHUS. Thank you for your testimony. 

Mr. Bates? 

9 

STATEMENT OF WILLIAM BATES, JR., EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL, SEAWAY BANK AND TRUST 

COMPANY, ON BEHALF OF THE NATIONAL BANKERS ASSOCIATION 

Mr. BATES. Good morning, Chairman Bachus, and members of 

the committee. 

My name is William Bates, Junior. I am the executive vice president and general counsel of Seaway Bank and Trust Company in 

Chicago, Illinois. We are a $621 million commercial bank with 11 

offices and 315 employees. We are a member of the Illinois Bankers 

Association. We serve the Chicago area, and we also have a branch 

in Milwaukee, Wisconsin. 

Thank you for convening this important hearing in Illinois. I appreciate the opportunity to present my views about the current regulatory environment on behalf of the National Bankers Association. 

Our members include banks owned by African Americans, Native 

Americans, Hispanic Americans, Asian Americans, and women located in 21 States, including Illinois and the District of Columbia. 

Our member banks, with a few exceptions, serve distressed communities plagued by many social and economic problems. Our institutions are deeply committed to providing employment opportunities, entrepreneurial capital, and economic revitalization in neighborhoods which often have little or no access to financial services, 

however, all of the costs, complexities, and time associated with 

monitoring, managing, and complying with the current regulatory 

landscape are handicapping most banks’ ability to do what they do 

best: Serve customers, our local communities, and many local organizations which rely on banks for help. 

Each new rule puts an additional strain on our staffs, and for 

many community banks, it is becoming a nearly insurmountable 

burden. 

When you add to this the more than two dozen proposals established under Dodd-Frank for a whole new class of regulation mostly to be issued by yet another regulator combined with the uncertainty and legal risks, it is plain to see how difficult it can be to 

achieve the right balance between satisfying loan demands and 

regulatory demands. 

At Seaway, we have seen a significant increase in costs in order 

to meet regulatory compliance demands over the last several years. 

We currently have three people who spend all of their time on the 

Bank Secrecy Act, anti-money laundering, and overall regulatory 

compliance, and at least three more individuals who spend up to 

25 percent of their time on regulatory compliance, not to mention 

the individuals throughout the bank who serve on our Compliance 

Committee. 

The expenditures that our bank has incurred for regulatory compliance take away from the resources that can be directly applied 

to serving the bank’s community. Each new regulation or change 

in an existing one adds another layer of complexity and cost of 

doing business. 

Without quick and bold action to relieve some of the regulatory 

burden, there will be a contraction of the banking industry with 

banks disappearing from communities over the next few years. 

10 

Each bank that disappears from the community makes that community poorer. 

What can Congress do? We urge you and other Members of Congress to make sure that our regulators are measuring the cumulative effect of all of the rules, current and future, with which traditional banks must comply. 

It is critical that the perceived benefits of each rule be weighed 

against this ultimate cost to a bank’s customers, including the cost 

that it adds to a particular product or service as well as its impact 

on the availability of and access to those products and services. 

In addition, because bank regulators have expertise in balancing 

the safety and soundness of banking operations with the need to 

protect customers, we hope that our primary regulators will have 

a more meaningful role in writing rules for the Consumer Financial 

Protection Bureau. 

Members of the National Bankers Association, along with the entire banking industry, are working to do their best to provide the 

necessary financial services and credit to the thousands of consumers and small businesses who need it, and we are working exhaustively with those businesses who are struggling in our communities, however, we need Congress’ help. We want to work with you 

and our Members of Congress to restore the economic viability of 

our local communities. 

Again, thank you for the opportunity to hear our views about the 

current regulatory compliance environment and its impact on Illinois and our communities. Thank you. 

[The prepared statement of Mr. Bates can be found on page 44 

of the appendix.] 

Chairman BACHUS. Thank you. 

We have heard about a lot of rules and that the benefits are certainly outweighed by the cost to especially bank customers, and we 

will continue to focus on that. 

Also, you mentioned your ability to customize products for your 

customers. That’s obviously very important and something that we 

also are concerned with, that these will restrict your ability to meet 

their needs in a way that best suits them. 

Now, we will hear from Mr. Jim Roolf, chairman of the Illinois 

Bankers Association. 

STATEMENT OF JAMES M. ROOLF, CHAIRMAN, ILLINOIS 

BANKERS ASSOCIATION (IBA) 

Mr. ROOLF. Thank you, Chairman Bachus, members of the committee, and other members of the Illinois delegation. 

My name is Jim Roolf, and I am president of First Midwest 

Bank, Joliet Banking Center, which is part of an $8.4 billion banking organization headquartered in Itasca, Illinois. 

It’s my privilege to be here this morning as chairman of the Illinois Bankers Association, an organization that represents 325 

banks and savings institutions of all sizes across our State. 

I would like to start by thanking you for holding this very important and historic meeting in Illinois on the subject of regulatory 

burden and for giving me the opportunity to present the views of 

the IBA concerning the considerable challenges that our members, 

banks of all sizes, are facing. 

11 

The banking industry is indispensable, and the health and the 

strength of it and the economic strength of our communities are 

closely interwoven. 

Illinois is home to more banks and savings institutions than any 

State in the Nation. There are 636 FDIC-insured banks and 

thrifts—584 are headquartered in Illinois, and they represent $341 

billion in assets and $276 billion in deposits. 

It’s a well-known fact that when a bank establishes its roots in 

a local community, that community thrives. In fact, over 575 Illinois banks have been in business for more than 50 years, and the 

vast majority of them have been in operation for more than 100 

years. Hopefully, they will have the opportunity to continue to stay 

in business. 

As chairman of the IBA, I have traveled 2,000 miles in the last 

few weeks to meet with bankers throughout Illinois, and their message was strong and consistent about the negative impact the overwhelming regulatory burden and escalating compliance costs are 

having on their businesses and their ability to serve their customers, causing them to question their long-term viability. 

Last year, the Illinois Bankers conducted a survey, and the information gleaned from it was simply startling. More than 160 survey 

respondents said that in addition to compliance costs and the requirement to retain more and more capital and earnings in lieu of 

lending, they are likely to consider a merger or a sale of their bank, 

and this will have a significant negative impact on communities 

throughout our State. 

As prudential regulators and the Consumer Financial Protection 

Bureau attempt to streamline existing rules and develop new ones 

to implement Dodd-Frank, we urge you and all Members of Congress to hold all regulators accountable to determine those costs. 

Those costs of compliance are significant. 

We hope Congress will exercise prudent oversight over CFPB as 

they start to implement the rules, and we urge you to make sure 

that they replace layers of regulation as is intended and not simply 

add new layers of regulation. 

We also want to express our strong support for two bills that are 

pending in Congress: H.R. 3461, which seeks to address some of 

the examination environment and more precise and understandable classification standards for commercial loans, an expedited 

and independent appeals process, as well as an independent ombudsman to ensure consistency in the examination process. 

Also, H.R. 1697 and Senate Bill 1600 would provide banks with 

some needed regulatory and tax and other of many compliance requirements that disproportionately burden community banks. 

In closing, Illinois and the rest of the country can simply not afford to have fewer banks. Our communities depend on banks every 

day. The banks and thrifts that are doing the business in Illinois 

employ over 95,000 people and have significant local impact. In 

other words, they are businesses, too. 

Bankers are community leaders. Bankers provide leadership to 

countless local and regional organizations and activities that are 

essential to the vitality of the communities we serve. And lastly, 

banks create jobs. 

12 

Directly or indirectly, we all know that small business lending 

plays a vital role in the economic vitality and the recovery by providing and supplying capital that fuels the desperately-needed job 

creation and growth in communities across this State and indeed 

the Nation. 

Illinois bankers are committed to help restore our economy 

through lending and job creation, and we know Congress is committed to doing the same. 

Thank you again for coming to Illinois and listening to us, and 

we look forward to working with all of you to achieve our mutual 

objectives. Thank you. 

[The prepared statement of Mr. Roolf can be found on page 67 

of the appendix.] 

Chairman BACHUS. Thank you, Mr. Roolf. 

Congresswoman Biggert and I would like all the bankers to know 

that Chairman Roolf has been to visit us in Washington, he has 

visited with us here, and he requested that we hold a hearing in 

Illinois and pointed out many of the things about the Illinois banking community that you covered in your opening statement and 

some things we didn’t realize. 

There are States where there was a housing bubble, or circumstances in which underwriting standards were too lax, but Illinois was, I think, probably one of the best examples of a banking 

community that did things right and was the victim of others’ 

missteps, and much of Dodd-Frank is addressed to problems or solutions to problems which your banks didn’t have, and so I think 

it gives some valuable insight. 

We appreciate your efforts on behalf of Illinois banks. It will 

make all of our banks throughout the country stronger if we come 

here where you were doing things right before the recession. 

At this time, Mr. Renn is recognized. 

STATEMENT OF JAMES J. RENN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, LISLE SAVINGS BANK, ON BEHALF OF THE 

ILLINOIS LEAGUE OF FINANCIAL INSTITUTIONS 

Mr. RENN. Chairman Bachus, members of the House Financial 

Services Committee, and members of the Illinois delegation, thank 

you for holding a field hearing this morning and allowing me to 

testify today. 

My name is James J. Renn, and I am the chief executive officer 

of Lisle Savings Bank in Lisle, Illinois. We are a two-office mutual 

savings bank with $544 million in assets with capital just under 

$90 million. We were founded in 1917. 

I am also the immediate past chair of the Illinois League of Financial Institutions, which is a statewide trade association that 

serves State savings and community banking institutions. 

The league was founded in 1880, and its purpose is to serve the 

Illinois financial institutions’ business and public interests by fostering thrift in homeownership and by sustaining and promoting 

the legislative, regulatory, and business interests of its members. 

I believe the focus and culture of our bank is very representative 

of most of the Illinois League members, and it’s visually reinforced 

by viewing our Web site, lislebank.com. On our home page, you see 

13 

our motto: ‘‘Every person counts.’’ Our welcome mat is out for all 

local residents regardless of their income level or account balance. 

There is also a CEO message for our customers to read explaining the differences among investment banks, national or regional 

institutions, and community banks like ours. 

Among other statistics, it states the medium-size bank employs 37 people, has $154 million in assets; 3,000 banks have fewer than 

30 employees. 

Like other small community banks, we believe in developing and 

maintaining long-term relationships with customers. One out of 

every three banks has serviced a local community for more than 

100 years. 

Personally, I have been with our bank for 40 out of its 94 years 

in business, and I have seen many changes over that course of 

time. The most recent and dramatic changes, however, have taken 

place in just the past few years. 

We do have a plain vanilla business plan to gather local deposits 

and portfolio single-family home loans in our market area, yet each 

year, we feel unduly paralyzed by the time spent on compliance 

and regulatory monitoring. 

In today’s environment, we believe the objective of determining 

whether a bank is a threat to the FDIC insurance fund has evolved 

into micromanaging a private business. 

It’s also disheartening knowing that banks such as ours were not 

the cause of the housing crisis, yet we are saddled with the perceived remedies. 

We currently have 43 policies that require annual board approval. While there may not be a legal mandate of a one-size-fitsall approach to regulations and examinations, the policies and procedures of the very largest banks eventually become the best practices for the rest of us. 

We are struggling with the dichotomy of executing a Home Depot 

business plan while really trying to be a small town hardware 

store. 

For years, there was a calm, business-as-usual environment at 

Lisle Savings Bank during safety and soundness compliance and 

CRA exams, then loan delinquencies, and foreclosures in real estate demanded our full attention. 

In 2009, we were told our compliance management system was 

lacking because we didn’t have a full-time compliance officer. So 

during the compliance exam, we proactively asked one of our 

younger management trainees if he would be interested in learning 

the ins and outs of compliance and assume that responsibility on 

a full-time basis. He accepted the offer, as he knew promoting from 

within had always been our preferred practice. 

After spending nearly $100,000 on both training and independent 

compliance consulting services over a 12-month period, we saw that 

the promote-from-within concept was not going to work in this instance. The learning curve was too steep, and our compliance officer gave notice of his resignation, deciding the banking industry 

and serving in compliance were not for him. 

For the very first time, we were in the market to hire an officer 

from another bank. After six interviews, we learned that the cost 

of meeting the demands of the very experienced compliance appliVerDate Nov 24 2008 16:19 Jul 05, 2012 Jkt 072630 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 K:\DOCS\72630.TXT TERRIE
14 

cants would make our compliance officer the sixth-highest-paid person at the bank. 

I hope our pervasive concern with compliance and decision-making under the auspices of what will the examiner say can eventually become secondary to providing the best possible customer service and pursuing growth strategies. 

The increased regulatory burden and interpretations offered during exams result in overwhelming input to our bank’s compliance 

team which really consists of the supervisors of customer service 

departments. 

Compliance expense, excluding salaries, auditing, and training 

expenses was $80,000 in 2008, and grew steadily to $140,000 in 

2011. These costs are severely, severely understated if we’re to include the salary expense and allocate overall employee time to regulatory duties. The cost of Dodd-Frank is, as you know, really unknown. 

Thank you again for the opportunity to testify here this morning, 

and please know that your work on behalf of the Nation is greatly 

appreciated. 

[The prepared statement of Mr. Renn can be found on page 63 

of the appendix.] 

Chairman BACHUS. Thank you. 

Did you ever hire a compliance officer, or you just couldn’t find 

one? 

Mr. RENN. Our bank is similar to many smaller institutions in 

that people wear several hats, some certainly more than others, 

and we had a compliance officer for 15 years but doing IT, human 

resource work, but we had never had any compliance issues, and 

all of a sudden, in 2009, the work that he had done in the past apparently was not satisfactory. 

Chairman BACHUS. All right. We had some testimony about the 

young man promoted within the bank, and we’re hearing that more 

and more, people having to go outside their counties and their 

States to hire consultants. 

Mr. Schmitt? 

STATEMENT OF JOHN SCHMITT, PRESIDENT AND CHIEF EXECUTIVE OFFICER, NAPERVILLE AREA CHAMBER OF COMMERCE 

Mr. SCHMITT. Chairman Bachus, distinguished members of the 

Financial Services Committee, and members of the Illinois delegation, thank you for the opportunity to speak with you today. 

My name is John Schmitt, and I am the president and CEO of 

the Naperville Area Chamber of Commerce, a regional chamber in 

the Western Suburbs of Chicago. 

Your time is valuable, and I know that you might ask questions 

of the witnesses today, so I would like to read an abbreviated statement that we have prepared. 

The Naperville Area Chamber of Commerce is proud to have approximately 1,400 members of every size and sector. On behalf of 

all of our members, thank you for holding this field hearing and 

studying how recent legislation and regulatory changes are affecting the availability of credit for businesses. 

15 

Today, I am here to provide you with an update from the business community and to explain the environment small businesses 

are operating in, and the general themes we hear from our members about the availability and accessibility of credit. 

Our Chamber firmly supports sound consumer protection regulations. Our national economy and global economy are still struggling 

to recover from the depths of one of the worst meltdowns in the 

history of civilized society. 

Small businesses are the majority of our membership, and businesses in America have been hurt mightily during this recession, 

so while today we are discussing what changes can be made to improve the accessibility of credit, I think it is important to remember 

just where we have come from. 

The recession and its aftermath decimated the small business 

community. Small businesses are reeling from soft consumer demand, lowered home values, a difficult economic climate, and difficulty maintaining and obtaining credit. The culminant result of 

this is existing businesses have been pushed to the brink, and 

many have had to close. 

For reference, we recently completed a review and estimated that 

since January of 2008, 300 businesses that were members of the 

Chamber have closed and gone out of business. 

New businesses are finding it difficult to get started. While small 

business is inherently a risky enterprise during the good times, the 

recession and the resulting softness of our economic climate has 

been a toxic mix for too many entrepreneurs. 

While there is a need to save those too-big-to-fail institutions for 

the safety and soundness of America and the global economy and 

the financial system, today, it is the small businesses, the smaller 

institutions, and the American people who are paying the price to 

restore the financial system to health. 

I don’t know if regulators understand the perils and the risks of 

having tunnel vision on their quest to ensure that the mistakes of 

the past aren’t repeated and are having on the business community. 

The Chamber doesn’t fault them for this. It is the job of the regulatory community to regulate and prevent too much leverage from 

threatening the financial system, but we hope that they are hearing from you, our elected officials, on the importance of enabling 

banks to lend to small businesses and start-up firms. 

Loans to small businesses didn’t cause our economic meltdown, 

but it seems that our natural reaction to the financial collapse and 

the past abuses may be hampering our ability to recover by making 

it too difficult for small businesses to obtain credit. 

Unfortunately, I’m afraid that we are just at the beginning of a 

long and difficult struggle for small businesses to obtain the credit 

they need to stay open and expand their operations, hire additional 

workers, and invest in America’s communities. 

I say this because we repeatedly hear that business owners are 

spending more and more of their time working on obtaining credit 

rather than running their businesses and working on actually 

growing the businesses. 

One of the most puzzling and disheartening stories we repeatedly 

hear at the Chamber is a bank turning away or revoking credit 

16 

from a long-standing and long-established customer. Often with 

very little communication, small businesses are told that their existing arrangements must be reworked and will not be renewed or 

that a business must infuse a significant amount of capital and get 

the loan renewed. 

For a small business, this results in a frantic and difficult chase 

to secure financing. This is a distraction from running their business and weighs heavily on the decision to hire additional workers. 

At this point, I would ask permission to add in the following 

anecdotes to the record. I would like to ask permission in refraining from using business names or organizations that are seeking a 

loan. 

The Chamber isn’t passing judgment on why their experiences 

turned out as they did. I just want to provide you with some examples of what we have heard and what is important to note and 

what we have heard from several organizations that responded to 

problems accessing credit. Generally, they’re our long-established 

organizations, and the vast majority of our negative experiences 

come from businesses in the start-up phase of their business. 

On Main Street and in general, the business community has seen 

a change in banking relationships. There is a new party in the 

transition, and it is the banking regulator. Often, businesses seeking loans are told about this mysterious party, and often, bad news 

is delivered in the name of the regulator. 

Our Chamber is pleased provide meeting space and other assistance to the Fox Valley Score chapter. Every week, the volunteers 

of Score meet with individuals seeking the American dream, to 

start a business. Before the recession, generally, the advice focused 

on a need to develop a business plan and to submit it to the bank. 

Now, however, many of these entrepreneurs struggle to find available credit for their concept. 

A Score counselor recently told me that they were advising clients to seek access to private capital in lieu of traditional courses 

of bringing their business plan to the bank. 

That is not to say that every person who thinks of starting a 

business is taking this path, but I think it speaks volumes to the 

challenges facing new businesses. 

Another very successful retail start-up contacted us about the 

testimony today. This business owner has a great retail concept 

and has been doing very well since they opened their business a 

year ago. As they have pursued a loan to expand, they have been 

repeatedly denied. They have been told it is because they don’t 

have a three-year track record. This is why they put hundreds of 

thousands of dollars of their savings into the business they 

launched. They are growing increasingly frustrated at the inability 

to obtain financing. 

The retail businesses are risky enterprises, and if we want to fill 

the shopping centers, strip malls, and downtowns of America with 

the scores of workers we need, we need to have a ready supply of 

credit available to entrepreneurs with an idea and a concept. 

Another example from our membership I would like to share 

with you is a story of one of the Chamber’s Small Business of the 

Year winners and one of our Chamber board members. He has 

been trying to expand. He has been trying to do exactly what this 

17 

country needs, purchase another business, invest in it, take a new 

retail space, and hire additional workers. 

After being told by his bank, where he had a long-standing relationship, that financing would not be possible, this entrepreneur 

has spent the past 10 months trying to find someone else who 

would step forward to provide the financing. He is awaiting the 

final approval from an SBA lender, however, the inability to obtain 

financing has delayed the expansion and investment in the business. 

It is important to remember many small businesses, unlike large 

corporations, often rely on all of the above means of financing for 

their business. They use and risk their personal credit, their cash, 

their home equity loans, their collateral, their credit cards, anything and everything to get their businesses through lean times. 

Small businesses, entrepreneurs, and start-up companies’ most 

need of credit is to be available and cheap during the lean times. 

Small businesses need banks to give them loans when the small 

businesses need them, not when it works for the bank’s ratio or 

when they have a proven track record. 

As I said before, a small business is an inherently risky enterprise, but it brings with it the greatest reward possible in the 

American dream. 

We need a system that can evaluate and review concepts and 

new ideas and find ways to quickly and promptly provide an answer. 

Our Chamber believes endless and lengthy delays in obtaining 

credit are negatively impacting our economic recovery. 

We hope these examples today echo what you have heard, and 

I want to visit with you and your constituents so it leads the committee toward taking action making it easier for small businesses 

to obtain and access credit. 

Our economy relies on trial and error, success and failure. We 

urge you to keep a close eye on the regulatory and banking system 

to make sure that it is not stacked against funding the American 

entrepreneur. Our Nation desperately needs this talented group of 

people to bring us back to prosperity. 

In conclusion, we hope that you continue your efforts to understand why small businesses are finding it difficult to obtain loans. 

If at the end of the examination, you feel that the regulatory 

community is taking an inappropriate or overly conservative approach towards the availability of credit to small businesses, we 

urge you to use your regulatory and oversight authority towards 

making changes that will increase the lending and availability of 

loans to the budding local entrepreneurs and small businesses. 

Thank you for the opportunity to speak to you today. I’ll be 

happy to respond to any questions that you might have. 

[The prepared statement of Mr. Schmitt can be found on page 74 

of the appendix.] 

Chairman BACHUS. I’m wondering whether the entrepreneurs 

who started Apple or Google or Facebook would have gotten a loan 

for those risky endeavors? 

Mr. SCHMITT. That’s an interesting question. 

Chairman BACHUS. Thank you. 

Mrs. Dory Rand, Woodstock Institute. 

18 

STATEMENT OF DORY RAND, PRESIDENT, WOODSTOCK 

INSTITUTE 

Ms. RAND. Good morning. I’m Dory Rand, president of Woodstock 

Institute. 

Mr. Chairman, members of the committee, and other Members, 

thank you for inviting me here to share my perspective with you 

today on regulatory reform. 

My perspective is based on working with lower-wealth people 

and consumers at Woodstock Institute, and as an attorney at nonprofits in Chicago for over 20 years. I also served on the Federal 

Reserve Board’s Consumer Advisory Council for the last 2 years, 

and I have served as a member of the Board of Directors of the National Community Reinvestment Coalition. 

Woodstock Institute’s mission is to create a just financial system 

in which everyone, including lower-wealth consumers and communities of color, can create economic security and community prosperity. We do this by doing research and policy development on fair 

lending, wealth creation, and financial reform issues at the local, 

State, and national levels. We work closely with other groups that 

provide direct services such as housing counseling, legal services, 

and other services to consumers. 

While I’m sometimes critical of particular financial institution 

products and practices, I do have a history of partnering with 

banks of all sizes and credit unions, regulators, and other community members to develop services, products, and programs that 

serve the needs of underserved consumers and communities. 

Representatives of banks and credit unions have served, and do 

serve, on my Board of Directors, and many financial institutions 

contribute to Woodstock Institute, including some on the panel 

here. 

Our research has documented the negative impacts of high-cost, 

high-risk financial products and the deregulation we had that led 

to this crisis. We know from this research that the negative impacts—high debt, foreclosures, and neighborhood blight—damaged 

credit scores, caused bankruptcies, and affected broad segments of 

the community, but they are disproportionately concentrated 

among lower-wealth consumers: women; communities of color; service members; and older persons. 

The negative impacts of the risky mortgage products that precipitated the foreclosure crisis, often sold through non-depository institutions beyond the purview of the Federal prudential regulators, 

extend far beyond those consumers who directly obtained loans. 

The negative impact affects innocent victims including nearby 

homeowners, small businesses in communities that lost equity, consumers, customers, access to credit, jobs, and local tax revenue. 

Moreover, our local governments have incurred additional expenses for inspections, legal notices, code enforcement, and protecting vacant and abandoned properties. 

Woodstock Institute’s reports about these negative impacts on 

consumers and communities have been used to develop better evidence-based policies to protect consumers and communities. For example, our reports were used by the Illinois General Assembly to 

adopt payday loan reforms, by banks and Federal regulators to 

change tax refund anticipation loan policies, and by the City of 

19 

Chicago to pass an ordinance holding mortgage servicers accountable for maintaining vacant properties. 

We believe that the Dodd-Frank Wall Street Reform Consumer 

Protection Act of 2010 contains important provisions and tools that 

will address many of the problems that led to the current foreclosure and economic crisis and will make our financial system 

more effective, transparent, and fair for consumers, small businesses, and financial institutions. One of the key provisions requires additional oversight of financial institutions that pose systemic risk to our economy so that we do not again have to use taxpayer funds to bail out too-big-to-fail institutions. 

Another key provision of the Dodd-Frank Act is the creation of 

the Consumer Financial Protection Bureau, the CFPB. Among 

other things, the CFPB consolidates functions that were formerly 

spread out among several Federal agencies and levels the playing 

field so that similar financial products will be governed by similar 

rules regardless of the type of financial institution providing the 

product. 

The CFPB also has authority to conduct research, field consumer 

complaints, and develop new disclosure requirements so that consumers can better understand financial products and make wise 

decisions in a competitive marketplace. 

The CFPB is already doing a good job of using its authority to 

collect consumer complaints regarding credit cards, for example, to 

collect public input and draft new forms for disclosures regarding 

mortgage loans and to collect input on streamlining rules and possibly eliminating rules, as Representative Dold suggested may be 

needed. 

The CFPB has also conducted extensive outreach to industry, 

consumer advocates, and others requesting comments on how to define ‘‘larger market participants’’ that will be subject to its authority. 

As you know, many CFPB functions cannot be fully implemented 

until the Senate confirms a Director. These functions include prohibiting unfair and deceptive acts, writing rules related to model 

credit disclosure forms, defining larger non-depository institutions, 

and examining and enforcing laws against non-depository institutions such as mortgage brokers, payday lenders, student loan providers, and others. 

We hope that the Senate will act quickly to confirm the President’s nominee so that this important work can move forward. 

We believe Illinois residents are among those hardest hit by the 

foreclosure and economic crisis, and we need the Dodd-Frank Act 

and the CFPB to lessen the risk of future financial crises and to 

establish a safer and more accountable financial system that works 

for everyone. 

I ask that Members of Congress refrain from weakening this law 

and agency and instead give them time to be fully implemented, 

and I look forward to working with you on these issues. Thank you. 

[The prepared statement of Ms. Rand can be found on page 61 

of the appendix.] 

Chairman BACHUS. Thank you. 

Mr. Palmer? 

20 

STATEMENT OF BOB PALMER, POLICY DIRECTOR, HOUSING 

ACTION ILLINOIS 

Mr. PALMER. Mr. Chairman, and members of the committee, 

thank you for inviting me to testify. My name is Bob Palmer, and 

I’m a policy Director for Housing Action Illinois. 

Housing Action Illinois is a statewide coalition formed to protect 

and expand the availability of quality affordable housing throughout the State. 

One of our programs is to provide training and technical assistance to HUD-certified housing counseling agencies such as the 

DuPage Homeownership Center, the Interfaith Housing Center for 

the Northern Suburbs, and the Rockford Area Housing Coalition 

represented by some of the Members of Congress here today. Unfortunately, this work is far from done. 

Recent data released on the foreclosure crisis showed that more 

than 46 percent of all single-family homes with a mortgage in the 

Chicago area were underwater in this year’s third quarter, far 

more than the Nation as a whole. 

Nationally, 28.6 percent of homes with mortgages were underwater at the end of September, and 43.4 percent of all homes sold 

in the Chicago area in the third quarter sold for a loss compared 

to 34.4 percent nationally. 

A new report from the Center for Responsible Lending, that I go 

into some detail about in my written testimony, shows that we’re 

not even halfway through the foreclosure crisis. And this report 

also shows that some of the troubling mortgage products that Dory 

cited in her testimony are very much strongly linked with higher 

foreclosure rates. 

We know that the ephemeral question that there’s still no agreement on is whether the foreclosure crisis was a result of too much 

or too little regulation. 

Many people have tried to blame the Community Reinvestment 

Act for the crisis, but a February 2009 Federal Reserve Board 

study showed that 94 percent of the high-cost subprime loans sold 

nationwide in 2006 were issued by lenders who were not covered 

by the Community Reinvestment Act. 

We believe that if the regulatory provisions in the Dodd-Frank 

Act had been in place back in 2006, the housing market and the 

overall economy would have been much healthier today. 

Some of these provisions that have yet to be implemented include: requiring lenders to ensure a borrower’s ability to repay; prohibiting unfair lending practices, such as incentives for subprime 

loans, that encourage lenders to steer borrowers into more costly 

loans; establishing penalties for irresponsible lending; establishing 

consumer protection for high-cost mortgages; requiring additional 

disclosures for consumers on mortgages; and establishing the Office 

of Housing Counseling within HUD. 

One part of the Dodd-Frank law that the Consumer Financial 

Protection Bureau has already begun to implement is Know Before 

You Owe, an effort to combine two federally-required mortgage disclosures into a single simpler form that makes the costs and risks 

of the loan clear and allows consumers to comparison shop. Once 

this is completed, this will benefit both consumers and lenders. 

21 

In short, I think the Dodd-Frank Act will provide a more level 

playing field between different types of lenders, remove some of the 

problematic incentives in the mortgage market that led to the foreclosure crisis in the first place, and give consumers more tools to 

make informed decisions before taking out a mortgage loan. 

The experience of HUD-certified housing counseling agencies in 

Illinois has been that the overwhelming majority of predatory loans 

were made by bigger banks and previously unregulated nonbank 

lenders. Moreover, it is the big banks that are generally much 

harder for borrowers to work with in case of default. 

Before the housing bubble burst, the lack of regulation gave the 

big banks and unregulated nonbank lenders unfair competitive advantages against small and community-based lenders which were 

generally much more responsible in their lending. 

The Dodd-Frank Act authorizes the Bureau to examine all sizes 

of nonbank mortgage companies, payday lenders, and private education lenders, however, the Bureau generally will only be able to 

supervise larger participants in other markets for consumer financial products and services, and the Bureau must develop a rule, 

which they have yet to do, to define those larger participants. 

The Bureau will be able to examine companies which have never 

been subject to Federal oversight to ensure that no one is getting 

an unfair advantage by breaking the law. This will ultimately create more fair competition and more transparent markets for consumers. 

We also hope that the Senate will quickly confirm the President’s 

nominee to lead the Consumer Financial Protection Bureau so that 

this important work can move forward. 

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

of the appendix.] 

Chairman BACHUS. Thank you, Mr. Palmer. 

How many of you have worked with Mr. Palmer and Ms. Rand? 

When talking about the Consumer Protection Financial Bureau, 

how many of you—and you, Ms. Rand, have worked with them? 

Ms. RAND. Yes, sir. I have been to meetings there, and I have 

responded to their requests for published comments on a number 

of issues. 

Chairman BACHUS. Mr. Palmer, have you worked with them? 

Mr. PALMER. A couple of months ago, representatives from the 

Bureau had a roundtable discussion here in Chicago for housing 

counselors to find out what was happening, the latest trends in the 

market, I believe on the same day that we were making a presentation at the Mortgage Bankers meeting. 

Chairman BACHUS. Have any of the other witnesses been working with CFPB? 

Mr. OHLENDORF. I have been involved in four different meetings 

with Professor Warren, who was heading up the agency at that 

time and trying to get some input as to what we thought was important. 

One of our members who was in those meetings brought up 

mortgage disclosures from his loan which was 35 years ago, and it 

was four pieces of paper. When he bought the loan, when he closed 

the mortgage on his house with the bank, it was a stack that was 

several inches high, so we’re trying to show that some of these burVerDate Nov 24 2008 16:19 Jul 05, 2012 Jkt 072630 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 K:\DOCS\72630.TXT TERRIE
22 

densome regulations that have come on, if there’s a way of streamlining those things and a way to make it more meaningful to the 

consumer, I think it would be a positive step. 

Chairman BACHUS. One thing that you mentioned was the foreclosures and the new City law here in Chicago. 

Actually, I had talked with the regulators—Fannie Mae, Freddie 

Mac, and Mr. DeMarco with FHFA—and, of course, as you know, 

Fannie and Freddie are 100 percent owned by the taxpayers, and 

Mr. DeMarco believes that law is actually going to cost the taxpayers a considerable amount of money because of the loans that 

Fannie and Freddie made. 

It’s my understanding that this new law makes the lienholder of 

the first mortgage responsible for maintaining the property; is that 

correct? 

Mr. ROOLF. Yes, it is. 

Ms. RAND. That’s correct, sir. 

Chairman BACHUS. And these are abandoned properties? 

Ms. RAND. What our research showed was that after the filing 

of the foreclosure, the mortgage servicer just abandoned the property, didn’t proceed with the foreclosure process, but the residents 

had already moved out, and so the properties were causing blight 

in the neighborhood and cost to the city, and the servicers weren’t 

taking care of that property, they were just walking away from it. 

Chairman BACHUS. Then, was it that they weren’t able to foreclose or they just refused to foreclose? 

Ms. RAND. They chose not to proceed with the foreclosure proceeding. We don’t know why, but I can only speculate they thought 

it was more profitable to them to do that than to proceed with a 

foreclosure. 

Chairman BACHUS. I can’t imagine how it would be more profitable for them to not foreclose. 

Ms. RAND. It was happening thousands of times in the City and 

causing significant problems to lots of innocent neighbors. 

Chairman BACHUS. The interest is to see that the property is 

foreclosed as soon as possible and put back on the market, is that— 

Ms. RAND. Yes, for those properties that are confirmed as vacant 

and abandoned, we support a more rapid court foreclosure process, 

but for houses that are occupied by residents, of course, we want 

time to try and negotiate a loan modification or a principal reduction or some other outcome. 

Chairman BACHUS. If it is occupied, that would mean there’s 

no—is there an obligation on the lienholder? 

Mr. ROOLF. Mr. Chairman, if I may, I think we need to make a 

distinction between an owner of the property and a lienholder of 

the property. 

Chairman BACHUS. Yes. 

Mr. ROOLF. First off, as a lienholder, we cannot go on that property until the foreclosure is completed. 

We have worked in the past—the bankers have worked in the 

past to pass legislation in Springfield that would allow for a superior lien to be placed by the community if they plowed the snow 

and cut the grass and did other things to monitor and make sure 

that property stayed intact, if you will. 

23 

I think that’s a big distinction, because the foreclosure process 

right now in Illinois averages about 504 days from start to finish, 

and that’s a very extensive time. 

I can’t speak for all the mortgage servicers who perhaps looked 

at a property and suggested that it was simpler for them to walk 

away. That’s certainly not what I know bankers to do. We have 

worked through this process. 

Our biggest concern is that we’re in a ‘‘damned if we do, damned 

if we don’t’’ situation. If we were going to do something to modify 

property based on it being vacant before it’s foreclosed on and we 

actually take ownership, the individual who abandoned the property could come back and litigate against us. 

So, I would look for a balance on that if we could arrive at something, but my biggest concern is this ordinance will cause the secondary market to look at Chicago and, say, raise some questions, 

do I want to buy mortgages that are made in the City of Chicago 

because of this additional situation that has been precipitated by 

the ordinance, and that ordinance suggests that we have to be 

thinking about a last resort on every credit that we make. 

It’s difficult enough to assess the risk. It’s also difficult to suggest 

that the values of the properties and people who are underwater 

which is very unfortunate, but that’s a market force, that isn’t a 

banker force. 

I built a home 11 years ago that cost me $240,000 to build. Today, it’s valued at $250,000 after hitting a high of maybe 

$300,000. Do I like that? Absolutely not. Have I walked away from 

my responsibility to continue to pay the mortgage that I have? Absolutely not. 

Chairman BACHUS. I would think it would obviously impact community banks that own the mortgages on these vacant properties. 

It’s a cost that I’m not sure how you would make up unless you 

charge more for the actual mortgages or even vacated that market. 

Mr. OHLENDORF. Mr. Chairman, that is absolutely correct. The 

cost of originating, you have to take in all of the risks and expenses 

that we could theoretically incur. 

I have talked to bankers who, because of talk of this ordinance, 

have said that they’re just not going to participate in the market. 

Every time you withdraw participants from the market, you obviously end up with less competition and the opportunity for those 

that remain in the market for abusive practices and other things 

of that nature. 

If we have that loan in the marketplace, we have all the risk in 

the world, and walking away and taking zero is not the best alternative in most situations, at least in the small community banking 

world. 

Ms. RAND. Mr. Chairman, I would point out that this ordinance 

passed the city council twice unanimously. Between the first time 

it passed in July and the second time it passed in October, there 

were a lot of discussions with the bankers about some of these concerns and some of the definitions that were negotiated, and then 

the ordinance did pass again unanimously in October. 

And I think you have to balance these concerns with the impact 

on the neighbors and the communities in the city. This was costing 

the city $36 million a year, so something had to happen. 

24 

Chairman BACHUS. Thank you. 

Mrs. Biggert? 

Mrs. BIGGERT. Thank you, Mr. Chairman. Again, thank you all 

for being here. 

My question would be for Mr. Bates. 

Many bankers have told me that they have no recourse when 

they have a dispute with their regulator, in other words, the regulator is the judge, the jury, and the executioner for a dispute or a 

disagreement in the bank examination. 

Can you tell us more about the current appeals process when the 

bank management wishes to appeal the examiner’s findings it feels 

are unfairly stringent? 

Mr. BATES. The major appeal process—first of all, if there is a 

dispute, our primary regulator, which is the FDIC, attempts to resolve things in the field before they will even issue an examination 

report, however, if you can’t resolve things with the field examiner, 

there are steps through the FDIC to follow, and if the dispute remains, there is an ombudsman process that a bank can avail itself 

of, however, typically, because of the power that regulators hold, 

you do feel as though they hold all the cards. 

Mrs. BIGGERT. Is this ombudsman someone from the FDIC? 

Mr. BATES. Yes, it’s an FDIC or OCC employee, depending on 

whom you’re regulated by. 

Mrs. BIGGERT. Would it be better to have an ombudsman who 

was independent and wasn’t really with either of those agencies? 

Mr. BATES. It would probably be better if they were independent 

and separate from the agency, but currently, the process is they do 

work for the agencies. 

Mrs. BIGGERT. So many times, we have heard that the FDIC, the 

Director didn’t know what the field person was doing, in other 

words, there was a time where the field person went in and said 

that they needed to devalue a loan even though it was performing, 

even though there had been no lack of payments. The FDIC oversight stated that they would never do that, yet that happened; is 

that correct? 

Mr. BATES. Yes, there have been instances of that, I’m sure. 

Mrs. BIGGERT. Mr. Roolf, thank you for being here. You’re very 

close to my district, so welcome. 

In conversations with other bankers, have you found that the examination procedures are being applied appropriately? 

Mr. ROOLF. I think that’s one of the biggest challenges, Congresswoman, that it’s thought that the examinations are being basically 

performed based on the individuals and not necessarily a consistent 

application of the regulations. 

When you think of regulations and you think that there’s Reg A 

through Reg QQ, and then there are about 15 or 16 other Acts that 

all banks are expected to follow, it may be difficult for examiners 

to apply that uniformly. That might be a challenge. 

I have also heard that when there are those challenges and disagreements, oftentimes, the banker doesn’t even want to engage 

the regulator to talk about those differences because of consequences that might come as a result. 

They may not be implicit, but somewhere in there, there might 

be some retribution that comes as a result of that, and that’s the 

25 

independence in having someone who could visit with a bank and 

visit with a regulator independently to assess the situation. I think 

it would be a great way to handle that situation. 

Mrs. BIGGERT. Thank you. 

And Mr. Schmitt, thank you for being here from my district also. 

According to some, they say that the decline in loan activity is 

attributable in part to the dearth of qualified buyers, for example, 

a recent survey by the Federal Reserve and the National Federation of Independent Businesses indicates that the loan demand is 

generally weak. 

How do these surveys compare to your experience and why do 

they think the loan activity is down? 

Mr. SCHMITT. I think loan demand is lower today than it was a 

few years ago because we have gone back to having certain qualifications where we didn’t have qualifications before. 

Prior to being with the Chamber of Commerce, I was in real estate for over 20 years, and when I started, we had ratios that we 

had to adhere to, to be able to sell into the secondary market. We 

had to ensure that the loan to value was greater than 80 percent. 

Over time, a lot of those things went away, and so there were 

more people who came into the market who were able to borrow, 

and it created some issues. And now, we have had to go back to 

more or less like retro real estate, retro lending back with the rules 

and regulations again, but we don’t want to pile too many on there. 

Mrs. BIGGERT. I have one more question for Mr. Renn, from 

Lisle. 

We have heard from many bankers about the additional costs, 

and you presented in your testimony how the costs had gone up for 

compliance burdens. When do you get to the point where it’s too 

expensive for your bank to offer certain products or services? 

Mr. RENN. I wouldn’t say it has to do with the cost of the product. I think it’s the—I had that analogy of a Home Depot business 

plan for a small hardware store. 

As I said, I have been there 40 years as well. We have many employees who have been there a very long time, and I think the 

point is that the formality and the structure of how the business 

is run is just so much different than it was when—I don’t want to 

say when I started, because that does go back some time, but it 

seems like it’s more for the benefit of the examiner when they come 

in. It’s easier for them to look at the minutes of different committees. 

And all the formality of holding really strategic planning sessions 

for different departments has gone into just compliance and people 

on a committee because we really—and we had one compliance officer, and compliance is throughout the bank; there’s no question 

about that. 

So you’re taking really in our case employees who are customer 

service people in their respective departments, but because compliance also touches part of their jobs, you have these committee 

meetings that last long and with minutes, and you’re always proving up the daily activities of the bank. 

An example that I can give—and this is maybe a little bit away 

from compliance per se, but more with how the bank is run. 

26 

The examination process of banks, there’s the CAMELS rating 

which I presume some of you are familiar with. And 2 years ago, 

we had our exam, and the ‘‘L’’ in CAMELS is liquidity, and we 

have a two, which is okay. That’s good, but I asked a very commonsense question: ‘‘What do you have to do to get a one?’’ You’re always asking for some guidance. 

And there was a kind of a long pause, and they said, ‘‘Actually, 

your balance sheet has the characteristics of a one.’’ 

So I said, ‘‘So you’re saying that really, how we have managed 

the bank, we should have a higher rating than we do?’’ 

And he didn’t answer that directly, but he said, ‘‘Your problem 

is that you didn’t have minutes of your Asset and Liability Committee, and you didn’t stress that’s your portfolio’’ which is something else. 

But what’s interesting, when I started, there were only 12 employees; we have 65 now, and so that answer was like you achieved 

the results, but you didn’t prove how you got there, so the results 

don’t matter, but proving that you got there counts. 

The following year, we had an exam, and I asked that question 

again, because we did the things that they had asked, and so the 

response was, ‘‘You’re still a two.’’ 

Mrs. BIGGERT. Thank you. 

If I may, Mr. Chairman, I would ask to submit for the record 

statements from Michael Steelman, chairman and CEO of Farmers 

& Merchants State Bank of Bushnell, Illinois, and Peter Haleas of 

Bridgeview Bank & Trust of Bridgeview, Illinois, and the statements submitted by the Bolingbrook Area Chamber of Commerce. 

Chairman BACHUS. And they’re here in the audience? 

Mrs. BIGGERT. Yes. 

Chairman BACHUS. Would each of you gentlemen stand up? 

Thank you. 

Mr. Manzullo? 

Mr. MANZULLO. Thank you. I appreciate your coming here. 

Mr. Ohlendorf, what did your bank do to bring about this crisis 

in finance and home mortgage? 

Mr. OHLENDORF. Honestly, very little. Unfortunately, we were 

just kind of participating like a community bank for 95 years has 

participated, and something happened, and I’m not sure what. 

Mr. MANZULLO. Mr. Bates, what did you do wrong? 

Mr. BATES. Absolutely nothing. 

Mr. MANZULLO. Mr. Roolf? 

Mr. ROOLF. Nothing. 

Mr. MANZULLO. Mr. Renn? 

Mr. RENN. Nothing. 

Mr. MANZULLO. I closed over a thousand loans, I brokered at a 

couple of banks and even before RESPA when you had the three 

pages like that, and when you go to a closing nowadays, people 

don’t read them. You can’t. If you don’t sign them, you don’t get 

the house. 

So now we have more and more regulations including appraisers 

going out, doing RESPA for years, MERS came along, and we 

fought that like crazy because with the electronic recorder of the 

mortgages, you can no longer track who owned the note to the 

county offices on it. 

27 

And as I see what’s going on here, the Federal Reserve has always had the authority to govern underwriting standards and documents to the extent it has authority over banks, and it wasn’t 

until 2 years ago that the Federal Reserve actually came up with 

a rule requiring written proof of a person’s earnings before a person could borrow. 

The GSEs either as to the loans they would collateralize and sell 

to the secondary market or hold in their own portfolio have always 

had the authority. They have underwriting standards to the loans 

that they would accept. What did they do? They did nothing because housing went from a privilege to a right, then it became an 

entitlement, and at that point, all the standards fell. 

And so here we are with this biggest mortgage collapse going on 

because somebody didn’t use any common sense out there, and the 

people who did not cause the problem are now—many of them are 

sitting before us saying, ‘‘You have to do something.’’ 

We had a hearing, Mr. Chairman, I think it was last week, with 

the acting Director of the Consumer Financial Protection Board, 

and he said they’re examining over 10,000 transactions as to which 

they’re trying to determine whether or not they have authority. 

This is outrageous, but I would like to, Mr. Ohlendorf, ask you 

another question. 

I come from Northern Illinois, North Central Illinois, and I’m impressed with the force of bankers here, and I am very, very disturbed on Page 4 of your testimony when you talk about the qualified residential mortgage and because regulations are written incorrectly and then the Farm Credit System, the direct lenders can 

come in and actually threaten to take away your business. Could 

you expand on that? 

Mr. OHLENDORF. I’m concerned about several of the new mortgage rules and the definitions of what they’re going to be. 

In a community bank, it’s easy to understand a 30-year plain vanilla mortgage, and I wish everyone would qualify for one, but it 

just isn’t the truth. 

If you’re in rural areas like we are, all our homes aren’t cookie 

cutter subdivisions where all of them look alike and they all follow 

the same rules. We have people with horses and a barn and other 

things like that, and so we make balloon loans which are just a 

way that we can portfolio that, hold the interest rate exposure risk 

to 5 years, and then refinance the product as 5 years roll along. 

They’re starting to define disqualified residential mortgage and 

unqualified mortgage and what these terms will be and what the 

safe harbors will be. And our significant concern is as they define 

these terms, if they’re defining them too stringently, what’s going 

to happen is a lot of the loans that we as community bankers have 

made and the portfolio, which means we have the entire risk, the 

credit is on our balance sheet. If this loan fails, it’s ours. 

And then you tie the mortgage escrow requirements in on highcost loans and the way some of those indices were set which were 

set many, many years ago with interest rates as low as the Fed 

had allowed them to drop were triggering on very normally-priced 

loans triggering into high-cost mortgage loan territory, and so now 

I’m saying to my customer, ‘‘In order to give you this loan, we have 

to escrow your taxes.’’ 

28 

And we have had these customers for 10, 15, 20 years, and we 

have managed their finances quite nicely, thank you, and we have 

managed their escrow, and now we look at them and say in essence, what we’re saying is, ‘‘We don’t trust you enough anymore 

to handle it on your own, we now have to add another layer of bureaucracy.’’ 

That’s always very, very expensive to offer. A lot of community 

banks aren’t in that business because it is complex, it is cumbersome, and now I’m telling my consumer that, ‘‘We really don’t 

trust you anymore.’’ 

So what happens with all of these rules and regulations is that 

the type of loans that we make, we have been creative, we have 

helped people with unusual circumstances and situations become 

very successful, and now, because they’re not cookie cutter and 

they don’t follow what maybe the definitions turn out to be, all of 

a sudden, some of those loans we’re going to have a very difficult 

time doing. 

And again, I have heard bankers say, ‘‘We just may not be in 

that business anymore, we’re running out of businesses to be in.’’ 

Mr. Schmitt, you have a unique background, having come from 

the real estate industry. Why did these standards slip, why did the 

normal loan-to-value ratio and the amount of downpayment? What 

happened? 

Mr. SCHMITT. I don’t know exactly what happened totally. It 

might have been a little bit higher than my pay grade at the time, 

but I was always told that the loans had to be certain specifications 

and certain standards so that they could be sold onto the secondary 

market, and so they basically had to be cloned. Okay? 

Then I believe they had the ability and the secondary market 

began to buy them when they weren’t necessarily cloned and 

weren’t all the same, and it had to be greed. 

We used to insure anything more than 80 percent financing. 

Where it really got kind of absurd is when you would have an 80 

percent mortgage, a 10 percent mortgage, another 10 percent mortgage, and then can get a line of credit as you walk out the door 

of the closing and be underwater. 

Mr. MANZULLO. During the height of the real estate heyday, 

about 25 percent of the mortgages were collateralized with the 

GSEs, and now, it’s about 95 percent, but the GSEs had the authority at that time to insist upon strict underwriting standards. 

We have been looking at these all day in the subprime mortgages; am I correct? You would know that. That’s a matter of law. 

Mr. SCHMITT. Yes, I don’t know why it happened except, as you 

said, it went from a privilege up to almost an entitlement. 

Mr. MANZULLO. Thank you. 

Chairman BACHUS. Mr. Dold? 

Mr. DOLD. Thank you, Mr. Chairman. I appreciate it. Again, 

thank you so much for taking your time to be with us today. 

I have had an opportunity to talk to a number of financial institutions, and many bankers have actually had the opportunity to 

talk with me and my staff about the disproportionate impact of the 

increasing regulations that are out there, and I’ll go back to my 

earlier premise. 

29 

We need regulations. We want them to be smart regulations, we 

want them to be focused. We just don’t want more of them just to 

have them. 

Can you talk to me a little bit about how Dodd-Frank—and 

again, when we look at the rules and regulations that are out 

there, there are an enormous number of rules that have yet to even 

be written, and the uncertainty that’s out there that’s being placed 

not only on the financial institutions but on those that are looking 

to try to comply, can you give me some sort of an indication of how 

that’s impacting your business right now in terms of the small financial institutions in Illinois? 

I guess we’ll go more on this side. 

Mr. ROOLF. If I may? 

Mr. DOLD. Sure. 

Mr. ROOLF. I talked to a few bankers and I asked them to give 

me some live examples. And this happens to come from a bank in 

New Lenox, Illinois, a small community bank that was started 

about 6 years ago, and they’re a $125 million bank with 24 employees, and their annual cost right now is about $200,000 a year and 

growing. That’s a very significant, significant cost to put on a bank 

of that size. 

And I think when you recall I mentioned Regulations A through 

QQ, any one of those regulations is probably appropriately defined 

and put in place, but when you start looking at the cumulative impact that all of those are having, a bank that’s $125 million trying 

to comply with the same rules and regulations as someone that 

might have 400 people in their compliance division is just something that I think you’re going to cause banks like this to look at 

their organization and say, at what point have we spent so much 

money on compliance to a point where we can’t return on investment to their local investors. 

When you talk about these small community banks, their investors are the hardware store guy, the barber, the doctor, the dentist. 

They’re people in the community who invested in their own community, and thus, this bank plays a very intricate role in it. 

And I think that’s the concern, because there are, as I mentioned 

earlier, 584 banks that are headquartered in this State. They’re in 

communities as small as 700 or 800 people. If you take that bank 

and continue to layer on this regulation, their survival is indeed in 

question. 

Mr. MANZULLO. Any one of you can jump in also. 

Mr. OHLENDORF. Congressman, we understand as well, as you 

stated in your premise, that regulation is part of our business and 

it’s certainly required for many things. We get that, but it is akin 

to treating a patient with cancer. We don’t go in and kill the body 

because that would get rid of the cancer. We go in and try to surgically take out as little as we can and treat the area around it and 

then move on. 

And unfortunately, these regulations, especially if we have come 

down because of the mortgages and because some of the too-big-tofail institutions, we all get blanketed with the solution, and we’re 

looking for the opportunity to tier out the folks who didn’t do the 

wrong thing. 

30 

You have all said, and we appreciate that you’re understanding, 

that the community banks didn’t cause this problem. We have 

talked about that over and over, and we really appreciate your understanding there, but then also, we can’t just get blanketed with 

the solution, and so there have to be places in these regulations 

where we can find ways to surgically go after the things that didn’t 

go well and the folks who didn’t do the right thing and protect the 

rest of us from having to comply because it’s this overlap, as Mr. 

Roolf said, this overlap of regulation. One more regulation doesn’t 

seem like a lot until you add them all up. 

Mr. ROOLF. May I add one thing, Congressman? 

Mr. DOLD. Please do. 

Mr. ROOLF. Mr. Palmer made a statement earlier about 94 percent of the problem or the financial meltdown, if you will, was 

caused by unregulated financial organizations. That’s a critically 

important statement because the regulations and those who were 

playing by the rules are still playing by the rules. 

Don’t misunderstand our concern with whining. We are not 

whining; we are indeed concerned. And the 6 percent of us who operate in the world by the regulations, however many of them there 

are, are not saying we shouldn’t have regulation, but what we’re 

saying is we need to be meaningful in terms of reviewing what’s 

there and what continues to be applicable and modify it accordingly. 

Mr. DOLD. One of the concerns that I have had is the one-sizefits-all kind of mentality that Dodd-Frank has really placed on 

some of the financial institutions and its impact as Mr. Schmitt, I 

think, brought up in his testimony on some of the entrepreneur 

small businesses that are out there. 

As a small business owner, let me just tell you I recognize that 

access to capital is absolutely critical just to run the business each 

and every day, and if your receivables are up a little higher, you’re 

going to need to dip into perhaps a line of credit that you have at 

a bank or something along those lines. 

One of the things that I hear about is we have heard about the 

banks that have to limit that line of credit in light of that, a 

$100,000 line of credit, $50,000 line of credit, and all of a sudden, 

if you have $20,000 off on that $50,000 line and you drop that line 

to $25,000, all of a sudden, that impacts your credit score because 

now you have borrowed a significantly higher percentage. 

And so, you find those that are in performing mortgages right 

now that all of a sudden, banks are going back to them and saying, 

‘‘By the way, your loan to value is now underwater, and we’re going 

to require that you put in additional capital,’’ which for most small 

businesses is devastating. They come to you for the access to capital; you’re not supposed to go to them and ask for additional capital. And these are the performing mortgages. 

And so we hear about the entrepreneur that is 100 percent occupancy in a building that they’re operating that has to go to 22 financial institutions just to get access to additional liquidity. 

Is this something that you’re experiencing in the banks in your 

day-to-day operations, and could you shed a little bit of light on 

that? 

31 

And more importantly, really more importantly why we’re all 

here is what should we be doing in the United States Congress to 

try to rectify that, because I can tell you I have an instance, we 

have a thriving practice, physician practice, up in the 10th District 

that purchased a building and a piece of property, and the banks 

came to them and said, ‘‘Look, we’re going to have to foreclose unless you come up with an additional million dollars.’’ 

They were able to come up with that additional million dollars, 

but I would argue that the highest and best use of that land and 

that facility that was built for them is to run this physician practice. They never missed a payment. 

Running a small business, I can tell you that when you factor in 

things like rent, that you know you have to pay the bank ‘‘X’’ number of dollars each and every month, and whether the bank views 

that as underwater, they’re viewing it as a block between running 

their business. 

If you have any examples, I would welcome that, and then we’ll 

come down to this end of the table because we don’t want to deny 

you the opportunity. 

Mr. ROOLF. I have an example of that. 

You’ll recall I mentioned that I had traveled about 2,000 miles 

without leaving the State of Illinois over the last few weeks talking 

to bankers in preparation for today, and let me read it just because 

I haven’t been able to study it sufficiently, but I think it’s a good 

example. 

It says: ‘‘Allow me to highlight a specific example. We have a 

local borrower who owns a gas station which faced an enormous 

real estate tax increase. This tax increase caused the borrower to 

come to us and plead for assistance, parenthetical, a lowered rate 

and a modified amortization schedule, yet because we would be 

forced to carry this loan in a troubled debt/restructured category or 

TDR as it’s known in the industry, it results in a classified asset. 

‘‘We told this borrower we could not help him. As a result, he 

shut his business down and fired his employees. The bank was left 

with no alternative but to incur a loss via the sale of the asset in 

order to avoid carrying the classified asset on the books for an extended period of time. 

‘‘These actions forced upon us were morally gut wrenching. We 

did not help an individual, and we certainly did not assist in economic recovery.’’ 

This banker specifically asked if we would review the requirements of the troubled debt restructure. 

If we take a borrower who is struggling and we modify the terms 

of their agreement in any way, it becomes a troubled debt restructure, and as such becomes classified. When it becomes classified, 

they charge capital, make the loan provision, and it erodes your 

capital base. 

This is a very significant issue so this is one that we could look 

at very much so. Particularly if the borrower over the last 5 years 

has paid as contractually agreed to, we should be allowed to work 

with those individuals, and we can’t. 

Mr. DOLD. If I can just turn a little bit—and I certainty want to 

talk more about this as we go another round. I just want to talk 

about the FSOC and then the CFPB for just a second. 

32 

The CFPB has a decision that they make concerning your view 

on this and the perspective. 

In order to overturn a decision that the CFPB makes or perhaps 

the Director, who right now, the sole power really rests with the 

Director of the CFPB, and we can all agree that we want consumer 

financial protection. I don’t think there’s anybody who wants to see, 

or in the room who doesn’t agree that we should be able to have 

some protection for the consumers but a decision made by the Director. 

And really, what I would like to do is take it forward 10 years 

from now so that we take all politics out of this. So whoever the 

President appoints as the Director to the CFPB, that individual 

will have a significant amount of power. 

The decision that they make, should it be overturned by the 

FSOC or Financial Services Oversight Council, right now, it’s a 

two-thirds majority to do so. Is that too high a threshold for the 

CFPB in terms of something that would have systemic risk? 

Mr. OHLENDORF. Congressman, I’m very concerned about that, 

and I’m concerned about the single Director as well. I would love 

to see it be a panel. I think there’s a lot of power vested if you appoint one individual. 

Once the CFPB is cut away and it’s out standing on its own, my 

prudential regulator which is responsible for safety and soundness 

also did my compliance in days gone by and wrote the rules, and 

they knew when they wrote those rules—they knew my safety and 

soundness situation, they knew the bank safety and soundness. 

They were very close. I think there’s a nice relationship there. 

Now, we have stripped that and put it over in some corner, and 

this two-thirds requirement—and it’s not just two-thirds, it’s twothirds under some very limiting circumstances where a rule could 

be overturned. Prudential regulators would really pull away from 

that. 

And they have the regulators, they’re in the banks, they’re in the 

bank every year, every 18 months. They’re gathering a lot of good 

information about what’s really happening in the field, and I think 

it’s very important that they’re staying involved, and I’m very concerned that the bar has been set too high and also the criteria upon 

which a decision can be overturned is also very stringent. 

Mr. DOLD. Ms. Rand, if you just wanted to chime in, go ahead. 

Ms. RAND. No surprise, I disagree with that opinion. I think it’s 

extremely important that the Director and the CFPB have independence and autonomy within the context of consulting with the 

prudential regulators. 

I think part of the reason we got to this foreclosure crisis is because the prudential regulators were in what we call regulatory 

capture; they were too closely identified with the banks that they 

supervise. 

In fact, I think it was Mr. Chairman who even said, ‘‘the regulators are there to serve the banks,’’ and that’s really how a lot of 

them looked at their job. So I think having an independent agency 

whose sole purpose is to look out for consumers is absolutely essential. 

Mr. DOLD. I guess I— 

33 

Chairman BACHUS. Ms. Rand, that has been a quote that has 

gone around. 

My statement was that the regulators were public servants, and 

that means they should be public servants to the banks as well as 

to their customers, and that was taken out of context. 

Actually, it wasn’t even taken out of context. It’s a misstatement 

similar to the 60 Minutes show where it said that Immelt told 

Paulson that GE might default on some of their obligations, and 

that Paulson may have told me, and that I short-sold GE. 

I bought GE, so it was a total misrepresentation, but those 

things, they take on a life of their own. 

Ms. RAND. Mr. Chairman— 

Chairman BACHUS. And I can tell you that you see that on some 

of the blogs, but if you go back to the original article, you can see 

that I said that the regulators should consider themselves as public 

servants. 

And the question was, do you consider them as public servants 

to the banks, and I do. I think they’re there to serve the banks and 

everyone else, but you took that out of context. That’s why they’re 

called public servants. 

Mr. DOLD. I guess if I can follow up. 

Chairman BACHUS. But I also said that they should enforce the 

rules and that they should enforce them right. 

Mr. DOLD. I guess if I could just—for clarification, it wasn’t the 

existence or whether we should have a CFPB or an FSOC, it was 

the threshold of two-thirds, should two-thirds of the FSOC have 

the vote because that’s an extraordinarily high threshold. Should 

it be a simple majority when you look at just who comprises the 

FSOC? 

And that was really my question, should it be at two-thirds or 

the smaller— 

Ms. RAND. I think it should be the two-thirds requirement because I believe it’s necessary to preserve independence of the agency, yes. 

Mr. DOLD. Okay. Thank you. 

Mr. Chairman, thank you. 

Chairman BACHUS. Actually, the CFPB is a voting member, so 

it’s seven out of nine, which is actually greater than two-thirds, but 

someone mentioned the burden. 

The burden of proof is that the rule would bring down the entire 

American economy, and I doubt that one rule—it may bring down 

all of the community banks, it may bring down all of the insurance 

companies, but anyway, that’s a debate we are having, whether one 

person ought to have that much power, and there are differences 

of opinion. 

Mr. Schweikert? 

Mr. SCHWEIKERT. Thanks, Mr. Chairman. And it’s always sort of 

fun trying to explain the differences between selling short and actually buying long. 

Chairman BACHUS. And obviously, if you were in a meeting and 

someone said ‘‘GE is going broke tomorrow,’’ and 2 days later, you 

went out and bought the stock, I have hearing aids, and maybe my 

hearing aids were off, but I was a railroad lover and a representative of GE years ago, and they make the only diesel engines for the 

34 

trains, and I bought it because I thought they had a good business, 

and the stock had fallen and fallen and fallen. As opposed to short 

selling it because ‘‘I didn’t have faith in the financial industry, I 

was buying it—produced British aircraft engines.’’ 

They also said I went out and bought financial—here I am the 

Financial Services Committee Chairman, and I went out and got 

financial services, ETF, and I won’t bore you with what ETF is— 

and that I shouldn’t have been doing that, I should have bought 

energy or technology and something else. 

I didn’t buy financial; I bought energy futures. They were an energy company, but that doesn’t prevent those stories that will be 

out there till the day I die, sort of like all of us in this room, where 

do you go to get your reputation back? 

Mr. SCHWEIKERT. Mr. Chairman, two things I have learned in 

my 11 months now doing this job: you would be stunned how much 

public policy is done by folklore; and I’m heartbroken to find out 

how often a good story is the story that you can just make up. 

Because I’m the guy from out of town, I want to try to do this 

quickly, because I know our time is somewhat limited. 

Ms. Rand, before there was a part of the discussion of how, I 

guess, these local regulations in regards to what a lender—we’re a 

nonrecourse mortgage state here, yes? 

Ms. RAND. We’re a judicial foreclosure state. 

Mr. SCHWEIKERT. Yes. 

That the lender is obligated to go in and maintain and board up 

a property that’s declared abandoned by a municipality? 

Ms. RAND. I don’t have the details at my fingertips, Congressman, but my understanding is that for confirmed vacant and abandoned properties where the foreclosure is not yet complete, the 

servicer has some obligations under the ordinance that require 

some upkeep so that— 

Mr. SCHWEIKERT. So there’s an ordinance that actually allows 

them to gain access onto the property? 

Ms. RAND. It requires them to do some maintenance so that it 

doesn’t become a blight on neighboring properties. 

Mr. SCHWEIKERT. I appreciate the blight thing. We have dealt 

with that. 

What I mean is just how the municipality—specifically how the 

municipality from a governmental standpoint is able to gain access 

to the property, and very often, they attach a lien. 

It’s an interesting property rights issue if you’re going to have a 

lienholder who now goes and has access to that. I will make a point 

to read about this. 

I must tell you, we have been—one of the things I have great interest in is mortgage insurance and the way you securitize some 

of these, the mechanics out there, and I always have this great concern we’re heading towards a time where there will be a differential in the pricing of loan mortgage guarantees because of if it truly 

takes 500 or 600 days to do a judicial foreclosure here, you’re a lot 

more expensive than a deed-of-trust State such as I come from 

where it can be—I think we’re averaging 4 or 5 months. 

Just reality, you deserve to pay a premium on your loans because 

your loans are more expensive, and why should my folks in Arizona 

be subsidizing your mortgage instruments? 

35 

Just understand—and as you stack other things on, just understand that you will—not only for your court system, the type of 

loan instruments you do or your regulatory system, you deserve to 

pay a premium. Other folks in other parts of the country, why 

should we be subsidizing them? 

I have a great interest because it’s not often we get to sit down 

with community bankers in this type of forum, I hear lots of discussion in literature about the mark-to-market and how often we’ll 

have an occasion where you have a performing strip center. And I’ll 

use this because I have a little article with me about this very situation. 

A strip center, long-term tenants, a couple of them even credit 

tenants, the strip center down the street goes through foreclosure, 

sells here. The regulator walks in and says, ‘‘Yes, this is a performing loan, yes, you have some credit tenants, but yes, you have 

too high a debt ratio when we adjust to the sale over here, go get 

your owners to bring in some cash.’’ 

Have any of you had that experience? I’ll take anyone. 

Mr. ROOLF. I would say that’s not an untypical situation. I think 

that those occurrences happen across the State. 

In terms of working with bankers as I have, as I said, over the 

last few weeks, I have heard examples from them where they were 

required to ask for additional equity and for additional collateral 

of some sort, equity in your business or additional collateral that 

helps bring that loan to value and balance. 

Mr. SCHWEIKERT. When you have had that type of occurrence, 

has your discussion with regulators looked at either the tendency 

or the cash flow? Because I come from the world where you would 

look at the cap rate and say yes, the cap rate works and my payment history works, but even though those things would look fairly 

solid, you would still be having to go into the capital call. 

Mr. ROOLF. We would still be challenged in that regard, yes. 

Mr. SCHWEIKERT. Is that a consistent story here you come 

across? 

Mr. ROOLF. It would be unusual to ask for a show of hands, but 

you could ask the bankers in the room specifically, and I would not 

be out of line to suggest that every one of them has had that experience over the last 2 or 3 years. 

Mr. SCHWEIKERT. While it’s a concern to so many of us, if you 

have an ongoing concern that’s working, you have just pushed on 

a level of uncertainty to not only the lender but also that other 

business saying just because some—forgive my language—screwball made a mistake and this all of a sudden, is your gas station 

example—the economic future now is in the hands of not your loan 

performance, not your quality of your capital and not your history 

but this becomes now that mark-to-market issue. 

Mr. ROOLF. And you have taken out the judgment that the banker uses to assess the risk and the character of the individual 

they’re doing business with. That’s an important component of the 

loan arena. 

We have to know our borrowers and we have to understand what 

it is they’re trying to do, and if we can’t give them the benefit of 

the doubt, then we have a vertical climb trying to make loans anywhere. 

36 

Mr. SCHWEIKERT. Mr. Chairman, I know I’m out of time, but this 

goes to anyone else in the room. I am trying to collect— 

Chairman BACHUS. You’re actually 2 minutes shy. 

Mr. WALSH. Mr. Chairman, don’t tell him that. 

Mr. SCHWEIKERT. I’m sorry. I’m the guy from out of town. Okay? 

Did I mention all the sales tax revenue? 

Mr. WALSH. Yes. 

Mr. SCHWEIKERT. In all sincerity, I’m doing my best to collect 

something beyond those examples, sort of regulatory examples, so 

I can sort of ferret into it where regulatory policy needs to go so 

we stop creating this sort of uncertainty and this sort of wake of 

damage that comes with this sort of policy, so thank you, Mr. 

Chairman. 

Mr. SCHMITT. We have used the term a lot, ‘‘performing loan,’’ a 

performing loan, and there’s no credit for a performing loan anymore. 

Many times, with some of these rules and regulations, the performing loans are forced into noncompliance and they can’t perform 

anymore so we have seen the example that you have used and everything throughout our community with a number of people. 

Chairman BACHUS. Adam? 

Mr. KINZINGER. Thank you, Mr. Chairman, and thank all of you 

for coming out. And those in the audience, thank you for coming 

out as well and taking an interest. 

And specifically, Mr. Ohlendorf and Mr. Roolf, as district residents, it’s great to have you here. 

I want to say that one of the things I have seen in just the 10 

or 11 months I have been in Congress now is, I get people from all 

over the place coming in and talking about this thing, Dodd-Frank, 

and talking about how it’s going to affect them. And this is to the 

level of what I never expected when I went to Congress. 

I have had people who run grain elevators come in and talk to 

me about the impact that Dodd-Frank is going to have on their 

business and people from all walks of life. It’s like this is a monster 

that really has its hands in places you never would have imagined. 

I wouldn’t be surprised if a little league team doesn’t come in and 

start talking about how it affects their life. 

But, in the process of all this, we’re trying to find that balance 

between too much government regulation, which freezes up the system and continues to stagnate the economy, and no government 

regulation, which also is bad for the economy, and we saw to an 

extent in the past what no government involvement or no regulation has done, so we’re trying to find that. 

But let me just—I want to get more of a 10,000-foot view on this 

because we have had a lot of good discussion here, and I’m not 

going to take my time just to take it, but as regulators are implementing Dodd-Frank, as they’re coming in, they’re barely even 

making a mark so far on what needs to be done, but as that is 

being implemented, if you could give these folks who are implementing it one takeaway of one thing to keep if mind as they’re 

building this up, what would it be? What would be—I’ll just go 

down the line. 

What would be from each of you the one thing that you would 

love to tell these folks? 

37 

Mr. OHLENDORF. Congressman, it is good to see you. 

What we would like to see is that the community bank business 

model be taken into consideration while these rules are being written. 

I think in real life, there is an opinion on Dodd-Frank in a number of places regarding the difference between large banks systemically and more financial institutions and community banks, and 

you see it littered in the bill, in the law now, and there are places 

where community banks were given some exceptions and 

carveouts. 

There are also a lot of places in the rule-writing process where 

that can also take place, and I think there has been given some 

rope in order to craft the law and write the rules in such a way 

that community banks are considered and are considered as being 

different. 

And again, we have all said how many times that we didn’t create it and we’re different and we serve a different market. 

I think every time there’s a rule written, the folks who are writing the rule, whether it’s an agency or whether it becomes another 

piece of legislation, we have to consider the impact on community 

banks, we have to consider how the rule could be written so that 

it has the appropriate impact on those who need to have the impact 

and no inappropriate impact on those who are just sort of left as 

collateral damage. 

Mr. KINZINGER. Thank you. 

And the rest of you, I also want you to keep in mind that some 

of these rules are going to span multiple agencies, and that can be 

a situation that’s going to be even more difficult and more confusing. 

Mr. BATES. I would echo what Mr. Ohlendorf said, and I would 

like the regulators to remember that even though there may be exemptions for community banks on certain things, a lot of the regulations that will go into place will then turn around and be used 

as best practices that over time, community banks will have to adhere to, and again, the cost of implementing these best practices 

as well as the actual regulations that we have to comply with come 

around them. 

Mr. KINZINGER. It also takes out of the—it seems like from what 

I hear from folks, this is going to take out of the community bank 

process the ability to make a decision based on you are part of that 

community, you know somebody, you know their history. Beyond 

just what you see on paper, it’s maybe the experiences that you 

have, and I think maybe that’s a touch that community banks have 

that big banks don’t. 

Mr. Roolf? 

Mr. ROOLF. They clearly have that issue. 

Have you ever closed a business and then walked into the same 

supermarket, the same aisle with the individual you put out of 

business? I can tell you it isn’t fun. 

I think as we look at all of the regulation that’s out there, if I 

could do one thing in this whole great scheme, it would be to make 

sure that people understand that we are not trying to eliminate 

regulation; we just want it to be done in a consistent and rational 

fashion. 

38 

Now, that may be one large, large task to accomplish as we look 

at the myriad of regulation that’s out there already. Some have 

clearly outlived their usefulness. 

So if we could look at—if I could have one thing, it would be to 

look at what we have eliminated and establish what’s appropriate 

and practical in today’s environment. 

I will restate it. We are not for eliminating regulation. We are 

for making sure that it’s well-thought-out, practical, and something 

that is consistently applied throughout our industry. 

Mr. KINZINGER. Mr. Renn? 

Mr. RENN. I believe you used that phrase ‘‘the 10,000-foot view,’’ 

and Dodd-Frank is really just it’s an add-on to rules that we have 

now, and I think that my point of my testimony is that you can 

accomplish things and that substance over form and Mr. 

Ohlendorf’s comment about have things applicable to what we’re in 

business for. 

Our balance sheet is a little bit different than our business model 

is a little bit different than the other witnesses, but that’s my biggest take on it is that you have to have rules and policies, procedures and you’re examined for things that are applicable to your 

business, that we don’t feel that we’re—we feel that we’re micromanaged. 

Mr. KINZINGER. For the next three, I’ll have to ask you to keep 

it real brief. We’re up against time. 

Mr. SCHMITT. Mine would be basically you cannot write rules and 

regulations for one-size-fits-all. We have different size banking, and 

we have different size businesses. There has to be some flexibility 

coming into account, some judgment calls when dealing with these 

various businesses and organizations. 

Chairman BACHUS. Ms. Rand? 

Ms. RAND. I think the CFPB should continue to do what it started, which is to create evidence-based policies based on input from 

consumers, from the industry, from the general public, and take all 

that information, look at real facts and then create—I agree with 

Jim—practical, consistently-applied policies that protect consumers. 

Mr. KINZINGER. Thank you. 

Mr. Palmer? 

Mr. PALMER. And I would say that Dodd-Frank levels the playing 

field between the big banks, community banks and the previouslyunregulated others so I think in the long term, leveling the playing 

field is actually good for community banks because the foreclosure 

crisis happened because big banks and unregulated lenders were 

able to make really risky loans that the community banks didn’t, 

and because of that, they captured more market share so eliminating that situation, again, is good for consumers and is good, 

again, for community banks. 

Mr. KINZINGER. Thank you, sir. Mr. Chairman, thank you again. 

And a special thanks to Mr. Schweikert. 

Chairman BACHUS. Mr. Palmer, one thing. You’re correct what 

you have said of unregulated and subprime lenders. 

Some of the large regulated banks bought unregulated subprime 

lenders. They were actually a sub—they were an unregulated affiliate. And we actually changed that in a subprime lending bill about 

39 

a year before Dodd-Frank, and it included provisions which I had 

written and introduced in 2005. 

But you’re right, the big banks sort of fooled us when we would 

say, are you doing this, no, but the story was they were doing it 

in their unregulated affiliates. 

So once bitten, twice shy, but yes, they were coming in the back 

door. 

Mr. WALSH. Thank you, Mr. Chairman. I’ll be very brief. 

A couple of questions for our four bankers. And Mr. Ohlendorf, 

let me go off of your analogy. 

In attacking the cancer, did Dodd-Frank kill the body, or would 

you describe it as a whole as surgical precision? If the four of you 

could give a concise answer to that? 

Mr. OHLENDORF. It was clearly a mixed bag, and the jury is still 

way out. 

There were certain things inside the deposit insurance reform, 

and the raising of the deposit insurance limits was very important 

in the community banks, there’s no question. 

There are so many—I think the statistic was 28 percent of the 

rules actually haven’t been written and the scope and size of the 

legislation is very, very challenging. The interchange is going to be 

a big problem. There are a lot of things that came into the bill that 

are going to be a big problem. 

We knew it would have been naive to suggest that a bill of this 

sort wouldn’t have come out, but Congressman, unfortunately, I 

think the jury is still out on a lot of it. 

We’re very concerned about how CFPB gets done, and to talk 

about what Chairman Bachus was suggesting, the unregs are still 

unregulated. There is nobody who is able to go after those folks so 

that piece of carveout that was written, I’m sure, at 3 a.m., was 

pretty clever, and those folks are still unregulated. 

So all the unregs and the CFPB right now affect all of us here 

at the table, and the ones that we were most concerned about that 

were in my analogy of cancer are still out there without any regulation. So it’s going to take a lot to see how that all gets reined in, 

and I’m going to leave the verdict out there for now. 

Mr. WALSH. Mr. Bates, did your government kill the body, or was 

it surgically precise? 

Mr. BATES. To extend the analogy, community banks, for the 

most part are the healthy tissue in the body, and we want to ensure that the solution does not further endanger the healthy tissue 

and does work to root out the cancer so we’re essentially hoping 

that the regulators and the government will be very prudent in 

what they do and enact regulations that will protect consumers 

without raising the costs and the risks to community banks to do 

business. 

Mr. WALSH. Mr. Roolf? 

Mr. ROOLF. Congressman, we had an opportunity to meet with 

some of our regulators in Washington during the month of September. In a couple of instances, at the very highest level within 

those regulatory agencies, it was suggested to us that Dodd-Frank 

would not differentiate between the very largest and the very 

smallest, even though there are some thresholds identified or embodied within that legislation. 

40 

And further, they used the health care analogy of, you break 

your arm, you go to the hospital, and they treat you with radiation 

and chemo, and you die. That’s essentially what they told us DoddFrank would do, and it was startling to me that regulators would 

be really that candid, but I think that’s the concern that’s out 

there. 

Think of driving—and all of us have revelations from time to 

time. I had one the other night. 

I was driving on the interstate, and it was a crystal clear 

evening, and I was thinking about Dodd-Frank and thinking about 

today and the things I would say and more importantly not say. 

And it dawned on me that I was driving 65 miles an hour on a 

moonlit night. The road was clear so I was able to keep doing my 

business, if you will, without any question. 

All of a sudden, I hit a wall of dense fog, and I’m driving and 

I’m thinking somebody’s behind me, in front of me, I don’t know 

if they’re on the other side of the road or directly in front of me, 

coming from the side or coming right side or left side. All of a sudden, I’m in a fog, and I’m not really sure what to do. 

I think that’s what Dodd-Frank has done in many respects to our 

industry because there are so many unknowns in this process—28 

percent of it has been—the rules have been developed. There are 

4,000 pages for 28 percent. That’s 4,000 pages on top of Regulation 

A through QQ plus all of the other Acts that I have referred to. 

It’s an inordinate amount of business and regulation that has 

been placed on an industry where, quite frankly, consumers have 

many options. And if we don’t do our job and do it effectively, that 

customer is going to say, ‘‘Jim, I’d like to bank with you, but because of ‘‘X,’’ I’m going somewhere else, because they do it a little 

better than you and a little less expensive.’’ 

So I guess I would encourage all of the Members of Congress to 

understand that while we need to make sure that we are protecting 

the consumer, don’t underestimate the intelligence of the American 

consumer. They’re pretty good at it. 

Mr. WALSH. Mr. Renn? 

Mr. RENN. Being the fourth person, I don’t think I can add that 

much more to what has been said. The only thing that I might 

think of is when we have an exam, the examination team oftentimes quarrel among themselves about certain things, their viewpoint on certain things. 

And so when this is all sorted out, I guess one thing I would like 

for you to think about, for us to think about, is that when you’re 

examined, whatever this monster would look like at the end, will 

the people who are looking at you have uniform application of the 

law, will they understand it, and will they agree among themselves 

on certain aspects that they’re looking at? 

Mr. WALSH. Again, just being a freshman in Congress, that’s 

probably my biggest frustration with this job is you have described 

it as a monster. We know it’s a monster. We’re not quite clear what 

it’s going to look like yet, but we tend to create these monsters, and 

then we scramble for the next few years to try to make that monster look like something, but it’s still a monster. 

I’m going to try to pin you down on it for a yes-or-no answer. 

This monster, if you go back a day before Congress approved DoddVerDate Nov 24 2008 16:19 Jul 05, 2012 Jkt 072630 PO 00000 Frm 00044 Fmt 6633 Sfmt 6633 K:\DOCS\72630.TXT TERRIE
41 

Frank in toto, if this entire bill was plopped in your lap a day before the previous Congress passed it, would you have advised us to 

vote yes or no on the entire package? Yes or no? 

Mr. Renn, I will start with you. 

Mr. RENN. No. 

Mr. WALSH. Mr. Roolf? 

Mr. ROOLF. No. 

Mr. WALSH. Mr. Bates? 

Mr. BATES. No. 

Mr. WALSH. Can you top that, Mr. Ohlendorf? 

Mr. OHLENDORF. I don’t know what to do with that. There’s no 

good answer to that, Congressman. I’m sorry. 

Mr. WALSH. Mr. Chairman, thank you. 

Chairman BACHUS. Thank you. 

This concludes our hearing. 

I want to say this: Consumers were abused, and the regulators 

did not do their job in protecting consumers in many cases, and so 

the American people were, I think, sometimes traumatized and demanded action. 

We did have a credit card boom, we had a subprime boom, and 

we had Dodd-Frank, and there are parts of Dodd-Frank, the Stability Oversight Board, that could—I think could be beneficial. 

And if the Consumer Financial Protection Bureau would spend 

its time on going after the bad actors, I will say Elizabeth Warren 

did state almost every time she spoke that she wanted to go after 

the unregulated bad actors. And we know they’re there, we know 

we have been there, and the bank regulators don’t have jurisdiction 

over them, and I think there could have been a better solution. 

And another thing that happened, not only did the banks buy unregulated affiliates, some of them, not your entities, but they also 

padded these securitizations and sold them to the American people, 

and so they are—but the community banks are the victims of someone else’s malfeasance and misconduct. 

But we appreciate your time and we appreciate all of the views, 

and by having everyone’s views, I think we’re better off for it. 

[Whereupon, at 11:17 a.m., the hearing was adjourned.] 

(43) 

A P P E N D I X 

December 5, 2011 

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