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AN EXAMINATION OF THE CHALLENGES FACING 

COMMUNITY FINANCIAL INSTITUTIONS IN OHIO 

FIELD HEARING 

BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS 

AND CONSUMER CREDIT 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

APRIL 16, 2012 

Printed for the use of the Committee on Financial Services 

Serial No. 112–116 

( 

(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 

JAMES H. CLINGER, Staff Director and Chief Counsel 

(III) 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

SHELLEY MOORE CAPITO, West Virginia, Chairman 

JAMES B. RENACCI, Ohio, Vice Chairman 

EDWARD R. ROYCE, California 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JEB HENSARLING, Texas 

PATRICK T. MCHENRY, North Carolina 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

MICHAEL G. GRIMM, New York 

STEPHEN LEE FINCHER, Tennessee 

CAROLYN B. MALONEY, New York, 

Ranking Member 

LUIS V. GUTIERREZ, Illinois 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

RUBE ́ N HINOJOSA, Texas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

NYDIA M. VELA ́ ZQUEZ, New York 

GREGORY W. MEEKS, New York 

STEPHEN F. LYNCH, Massachusetts 

JOHN C. CARNEY, JR., Delaware 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

April 16, 2012 ................................................................................................... 1 

Appendix: 

April 16, 2012 ................................................................................................... 33 

WITNESSES 

MONDAY, APRIL 16, 2012 

Barnes, Stan, Chief Executive Officer, CSE Federal Credit Union ..................... 4 

Blake, William J., Deputy General Counsel, KeyBank ........................................ 7 

Cole, Martin R., President and Chief Executive Officer, the Andover Bank ...... 13 

Fireman, Steven, President and General Counsel, the Economic and Community Development Institute ................................................................................. 11 

Haning, G. Courtney, Chairman, President, and Chief Executive Officer, the 

Peoples National Bank, on behalf of the Ohio Bankers League ...................... 9 

APPENDIX 

Prepared statements: 

Barnes, Stan ..................................................................................................... 34 

Blake, William J. .............................................................................................. 60 

Cole, Martin R. ................................................................................................. 82 

Fireman, Steven ............................................................................................... 88 

Haning, G. Courtney ........................................................................................ 92 

(1) 

AN EXAMINATION OF THE CHALLENGES 

FACING COMMUNITY FINANCIAL 

INSTITUTIONS IN OHIO 

Monday, April 16, 2012 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

AND CONSUMER CREDIT, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

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

Carl B. Stokes U.S. Courthouse, 801 West Superior Avenue, Cleveland, Ohio, Hon. Shelley Moore Capito [chairwoman of the subcommittee] presiding. 

Members present: Representatives Capito, Renacci, and Duffy. 

Chairwoman CAPITO. The hearing will come to order. 

I would first like to thank the City of Cleveland for welcoming 

the Financial Institutions and Consumer Credit Subcommittee to 

the Carl B. Stokes U.S. Courthouse, which is beautiful, and for allowing us to use this chamber for our hearing. So thank you to the 

City of Cleveland. 

I am going to kind of walk everybody through today’s hearing. 

Obviously, this is a field hearing, so we will be a little more informal than we might be in the regular hearing room. 

Mr. Renacci and Mr. Duffy and I will each give an opening statement, and then our witnesses each will be recognized for a 5- 

minute opening statement. And then, we are going to have a couple 

rounds of questioning where each Member will be recognized for 5 

minutes. We should be finished in plenty of time for us to catch our 

flights back to Washington. We are returning after a 21⁄2 week 

Easter recess. 

I haven’t gotten a chance to really compare notes with my colleagues, but I think we have—I certainly did, in my 2 weeks home, 

get a lot of feedback where people are questioning what direction 

we are going, and a lot of frustration, really, and concern. So I hope 

that, with the great witnesses that we have today, we will be able 

to dig down deep in some of this, at least in terms of the Financial 

Institutions Subcommittee. 

Over the past year, we have held field hearings across the Nation 

to gain a better understanding of the unique challenges faced by 

financial institutions in different regions of the country. 

In Georgia, which has had the highest number of bank failures 

since the financial crisis, they have very unique difficulties. 

2 

In Wisconsin, in Mr. Duffy’s district, we heard from community 

banks, credit unions, and small businesses about ways to promote 

economic growth. 

I also went to San Antonio last month where community bankers 

and credit unions also discussed the growing regulatory burden 

and cost of compliance. 

And our most recent field hearing in Nevada provided me and 

other Members with insight into private sector solutions to mitigate foreclosures. They have an enormous issue with their real estate in and around Las Vegas and in the State of Nevada. 

Each hearing has been a learning experience for me, further providing solutions to our Nation’s problems and also reinforcing that 

those solutions aren’t going to necessarily come out of Washington 

D.C. They will come out of the heartland of America. 

By the way, I am from West Virginia, for those who haven’t had 

a chance to hear me brag about that. There are a lot of West Virginians here in Ohio. And I did say that if you all would just learn 

how to drive, we would feel a lot better about that. But, please, no 

West Virginia jokes. I don’t want to hear them. 

This will mark the fifth field hearing for us. And I would like to 

thank Mr. Renacci for serving as our host. He is my vice chairman 

on the subcommittee, and he brings a wealth of experience and a 

broad-based business background that has been extremely helpful, 

not just in the subcommittee, but to me, in particular. And I want 

to thank him for that. 

We also have Mr. Duffy from Wisconsin, who is a freshman, as 

well. And he has led the charge on some of our CFPB legislation 

and others. So I want to thank him for coming today. 

Today, we are going to continue on the theme of a better understanding of the local financial institutions. Our panel of witnesses 

will provide insight as to the unique challenges faced by financial 

institutions of varying sizes. 

We will hear from small community banks and credit unions 

about the regulatory impediments to promoting economic growth, 

and KeyBank will provide Members with a better understanding of 

the unintended consequences of the Volcker Rule, the very complicated Volcker Rule. 

Finally, we will hear from a community development financial institution about their efforts to splurge off growth. 

As with other hearings, we are here to listen and learn, and I 

look forward to that. 

We normally have a timer, but I was just informed that the timing device is in California. I don’t know what it is doing there, but 

there is another field hearing in California. I left my watch in West 

Virginia when I left at 5:30 this morning, so I have my dutiful staff 

members back there to tap me on the shoulder. So if you hear me 

kind of wrestling around, you will know it is time to move along 

a little bit. But I appreciate everybody, really, the witnesses and 

the audience for coming. 

And I would like to now yield to Mr. Renacci for the purpose of 

making an opening statement. 

Mr. RENACCI. Thank you, Madam Chairwoman. And I want to 

begin by thanking you for holding this important hearing and for 

being gracious enough to hold it in the wonderful City of Cleveland. 

3 

I also want to thank all the witnesses here today. I can’t emphasize enough what a pleasure it is to be in front of a hometown 

crowd this morning. 

I am proud to say that Ohio is home to some of the finest financial institutions in the country, and I have no doubt these institutions are committed to helping our economy achieve a more robust 

and sustainable economic recovery. 

When I travel around the 16th District, meeting with small business leaders, I find a frustrated group who are eager to expand 

their businesses, but are prohibited from doing so because they 

cannot access the necessary capital. 

At the same time, the financial institutions in my district repeatedly say they are ready to extend credit to these small businesses 

and have the capital to do so, but are unable to do because of overzealous, inconsistent, and ever-changing regulations. We are here 

today because cities like Cleveland and institutions like yours are 

the ones affected by Washington regulations. I believe part of the 

problem is that, for too long, lawmakers have legislated from 

Washington with no real sense of how the regulations will impact 

people across the country. 

I have no doubt that most regulations are drafted with the best 

of intentions. The most problematic regulations are the ones that 

sound reasonable on their face, but, taken accumulatively, have a 

devastating impact. A perfect example is the Dodd-Frank Act. The 

drafters’ intentions were noble: to prevent another financial crisis 

and prove transparency; to stop banks from taking excessive risks; 

to prevent abusive financial practices; to and end too-big-to-fail. 

Unfortunately, instead of sound regulation aimed at reining in 

fraudulent and destructive behavior, we ended up with hundreds of 

pages of hastily thrown-together regulations. Instead of preventing 

the next financial crisis, we have managed to paralyze our financial 

institutions by creating a sense of uncertainty and confusion. 

Instead of sound regulations, we have left many of our financial 

institutions standing on the sidelines unwilling and unable to provide liquidity to our markets because they are unsure what the 

rules are and when they might be unilaterally changed again. The 

uncertainty in costs of new regulations is having an especially profound impact on smaller institutions. Without a large compliance 

staff or back office legal teams, our smaller institutions are forced 

to divert precious capital to keep up with new regulations; this is 

capital that would be better used in the hands of its customers. 

That is why we are here today. I want to hear the issues being discussed inside our community institutions. 

I want to hear how regulations coming out of Washington, D.C., 

are impacting access to credit, how they are impacting your institutions’ ability to conduct business. I realize that many of you are 

tired of telling your stories. I know sometimes it seems like no one 

is listening. I want to assure you that we are listening and we care. 

Myself, Chairwoman Capito, Mr. Duffy, and many other members of this committee have heard from similar institutions across 

the country and we recognize that your institutions are the key to 

our economic recovery. 

Thank you, again, for being here today, and I look forward to 

hearing your testimony. 

4 

Chairwoman CAPITO. Thank you. I now recognize Representative 

Duffy for the purpose of an opening statement. 

Mr. DUFFY. Thank you. And it is an honor to be here in Cleveland. This is my first trip to Cleveland, and I only got to see it from 

about midnight last night until this morning, but what I have seen 

so far is fantastic. 

It is also great to be here with Chairwoman Capito, who has 

done a fantastic job leading our subcommittee, and also to be here 

with Mr. Renacci. As part of the freshman class, we serve on financial services together. But, also, as a freshman class, he is one of 

our greatest leaders and does a fantastic job moving this herd of 

a freshman class, driving us forward, and is respected by everybody 

and is, again, one of the best leaders we have. 

So it is a privilege to be here in Cleveland today. 

I come from central and northern Wisconsin. I have had a chance 

to talk to our small banks and our credit unions time and time 

again, and I keep hearing the same thing over and over; the regulations are killing them. It is making it harder for them to do their 

jobs, to get capital out into their communities. They talk about regulations that are stifling their community and stifling their business. 

They talk about the regulators coming in and these outrageous 

reviews that take place, and standards are changing from one regulator to the next, year over year. And the outcry has been quite 

loud. 

I guess I am interested today to see if you gentlemen have the 

same stories that I hear in central and northern Wisconsin. And 

if it is just a Wisconsin phenomenon or if it is a phenomenon that 

takes place around the country. 

I would also like to hear if you gentlemen have any ideas for solutions. Obviously, we know we have to change the law and the 

structure, but it would help if you would say, ‘‘There is a lot to be 

done, but if you could really focus on this area first, that would do 

the most for us to help us do our jobs better.’’ 

So I am here with open ears and I look forward to hearing your 

testimony. 

Chairwoman CAPITO. That concludes our opening statements. We 

will now turn to our panel. Your full written statements will be 

made a part of the record, and I will introduce each of you individually to give a 5-minute summary of your testimony. We will then 

get to the question portion of the hearing. 

First, I would like to recognize Mr. Stan Barnes, CEO of the CSE 

Federal Credit Union. Welcome, Mr. Barnes. 

STATEMENT OF STAN BARNES, CHIEF EXECUTIVE OFFICER, 

CSE FEDERAL CREDIT UNION 

Mr. BARNES. Thank you, Chairwoman Capito. 

Chairwoman CAPITO. I don’t know if your microphones are on or 

working. Is there a green light on? 

Mr. BARNES. Yes, there is. 

Chairwoman CAPITO. There we go. 

Mr. BARNES. Thank you, Chairwoman Capito, and members of 

the subcommittee. Thank you for this opportunity today to represent Ohio’s 377 credit unions and 3 million Ohio credit union 

5 

members and to share with you on their behalf the difficult circumstances facing community-based credit unions in the form of 

overburdensome regulations and lack of transparency in the examination process and to update you on the current and future role 

of the credit union movement. 

My name is Stan Barnes. I am the president and CEO of CSE 

Federal Credit Union in Canton, Ohio. We are a $150 million notfor-profit financial service cooperative, and we proudly serve 30,000 

members in the northeast Ohio area. And like every credit union, 

we do so under the business philosophy of not for profit, not for 

charity, but for service. 

Regulatory burden and the cost of compliance, as you have noted, 

is the number one concern among Ohio credit unions. Attached to 

my testimony and submitted for the record are the Federal regulatory requirements for both banks and credit unions, which should 

put into some perspective the time, the effort, and the cost tied to 

compliance. 

In many cases, when credit unions should be dedicating resources to the financial livelihood and benefit of their members, 

they are instead challenged with the increasing burden of following 

far-reaching rules and regulations. 

And these regulations are particularly onerous on small asset 

credit unions, which are subject to the same regulations, but struggle to adhere to these guidelines due to thin operating margins and 

small staffs. In fact, the vast majority of Ohio credit unions, 65 percent, are small credit unions under $35 million in assets. 

To give you a sense of the increasing regulatory burden, since 

2008, Ohio credit unions have been subjected to more than 160 new 

rules and regulations from 27 different Federal agencies. 

Additionally, there are at least 27 rulemaking proposals pending 

at various agencies, including the National Credit Union Administration, the Federal Reserve, the Consumer Financial Protection 

Bureau, the Department of Housing and Urban Development, the 

Financial Accounting Standards Board, the Treasury FinCEN, and 

the Federal Trade Commission, among others. 

Unfortunately, even though the natural person credit unions that 

I represent did not cause the financial crisis, they have been subjected to a flood of regulation that creates unnecessary burden 

without any measure of the effectiveness of the changes. With regard to examination standards and inconsistencies, the experience 

of the majority of Ohio credit unions is that the high standard of 

transparency and accountability expected of financial institutions is 

underwhelmingly practiced by the National Credit Union Administration (NCUA) during the examination process. 

Credit unions have voiced to the NCUA that their examiners are 

practicing regulatory micromanagement and overreach. Quite simply, regulators are dictating the business of operating a credit 

union. 

It is important that examiners not overregulate or exceed their 

authority and substitute their judgment for that of the volunteers 

and the executives in the governance, management, and operations 

of credit unions. 

6 

While the relationship that I enjoy with my examiner is transparent, professional, and rooted in mutual respect, colleagues of 

mine have experienced the exact opposite. 

I urge the committee to consider improvements to the examination process. H.R. 3461, sponsored by the chairwoman, is a good 

step in that direction. It does address the examination process and 

is a positive step in balancing the relationship between the regulated and the regulator. 

It also provides for a more transparent and consistent examination process. And I know that the Credit Union National Association (CUNA), of which CSE is a member, supports the legislation 

and is working closely with the NCUA to incorporate examination 

enhancements and transparency. 

CUNA has also urged the NCUA to take several steps to improve 

the regulatory process and relieve credit unions’ regulatory burden. 

I have submitted a copy of a letter from CUNA to NCUA Chairwoman Debbie Matz that recommends immediate actions to relieve 

overwhelmed credit unions. 

Credit unions have called on the NCUA to impose a moratorium 

on new regulations for at least the next 6 months, and have suggested that the agency reinstate the regulatory flexibility program 

which provides well-managed and well-capitalized credit unions an 

exemption from certain regulations that are not statutorily required. 

Despite the issues caused by regulatory overreach and examination transparency, I am proud to say that credit unions continue 

to serve their members with responsible and affordable financial 

products and services. Over the years, credit unions have grown 

considerably and play an important role in local communities. In 

fact, research by the Credit Union National Association finds that 

credit unions save Ohio members $132 million annually by offering 

better-priced, conservatively-managed products and services. The 

not-for-profit cooperative model is working and, in my opinion, it 

is best suited to meet the needs of all Ohioans. 

I have submitted as part of my testimony examples of the Credit 

Union Difference in Action and how credit unions are helping Ohioans in today’s economy through financial education. 

But credit unions can do more. With commonsense regulation 

that would essentially double the arbitrary cap on small business 

lending, credit unions can infuse $13 billion of new capital into 

small businesses. 

We ask that you support S.2231 and H.R. 1418. 

Similarly, H.R. 3993, which would allow well-capitalized credit 

unions to receive supplemental capital, a much needed financial resource as credit unions face a difficult revenue building environment and increased pressure to perform by regulators. Again, we 

ask for your support in that measure. 

We look forward to continuing to work with Congress to resolve 

issues facing community-based financial institutions. We ask that 

as you consider legislation in this arena, you regularly consult 

credit unions in your districts. We want to be a solution to the economic issues facing our State and country and we are here to help. 

Thank you for the opportunity to present to you this morning, 

and I am happy to answer any questions that you may have. 

7 

[The prepared statement of Mr. Barnes can be found on page 34 

of the appendix.] 

Chairwoman CAPITO. Thank you, Mr. Barnes. 

Our next witness is Mr. Bill Blake, deputy general counsel of 

KeyBank. 

Welcome. 

STATEMENT OF WILLIAM J. BLAKE, DEPUTY GENERAL 

COUNSEL, KEYBANK 

Mr. BLAKE. Thank you. Thank you, Chairwoman Capito, Congressman Renacci, and Congressman Duffy. It is a privilege for me 

to be invited here today to talk about the Volcker Rule and the proposed regulation. KeyBank and other regional banks submitted a 

joint comment letter on the proposed regulation several weeks ago. 

The letter was signed by Branch Banking and Trust Company, 

Capital One, Fifth Third, KeyCorp, PNC, Regions Financial, 

Suntrust, and U.S. Bancorp. 

All of our institutions have one thing in common. Our primary 

mission is to serve our local communities by providing traditional 

banking services: deposits; loans; and trust and asset management. 

We are regional banking organizations who share the same concerns about the Volcker Rule. We are not the complex, global, 

interconnected businesses that Dodd-Frank was intended to address. Our organizations don’t engage in proprietary trade, nor do 

we have any substantial interest in running hedge funds or private 

equity funds. 

Congress did not intend the Volcker Rule to unduly restrict traditional banking and customer-facing activities or impose substantial compliance burdens on banking organizations primarily engaged in traditional banking activities. 

The proposed implemented regulations too often take a one-sizefits-all approach that results in unintended consequence. 

In today’s testimony, I would like to highlight four areas in 

which the rule negatively affects our ability to serve our customers, 

manage risk, control costs, and avoid losses. We are concerned that 

the proposed regulation will actually increase, rather than decrease, the risks to safety and soundness of our organizations. 

First, the proposal hampers our ability to meet the liquidity 

needs of customers, especially small and middle-market companies. 

We have long provided liquidity through our market-making activities and market-making operations. Small and mid-market companies have security issuances that are relatively small in size and 

traded less frequently than large companies. 

Under the proposed rules, our legitimate market-making activities and less liquid securities face a substantial risk of being improperly viewed as illegal proprietary trading. The implementing 

regulations need to ensure that issuances of small and middle-market companies are not disadvantaged compared to larger companies. 

Second, effective hedging and asset liability management activities are critical to the way we manage risk and ensure the soundness and safety of our institutions. The proposal fails to clearly protect bona fide hedging and ALM activities. 

8 

Organizations like ours will operate in a continuous zone of uncertainty, unsure whether bona fide hedging and ALM activities 

and trades will, on an after-the-fact basis, be determined by an 

agency to constitute impermissible proprietary trading. 

Without the ability to execute our critical asset liability activities, banks may scale back even traditional lending if the risks associated with them cannot be appropriately hedged. Small and middle-market businesses, as well as municipalities, may see a reduction in lending and an increase in borrowing costs. 

Third, our organizations are committed to maintaining strong 

and effective compliance programs that are appropriate to the size, 

nature, and complexity of our organization’s activities, but the costly, detailed programmatic compliance requirements of the Volcker 

Rule proposal go beyond what is appropriate for regional banking 

organizations that do not in any way, in a meaningful way, engage 

in trading that could be viewed as proprietary. 

We do not believe our organizations need such programs to prove 

a negative in the fact that we don’t do proprietary trading. Instead, 

we think the Volcker Rule dollar threshold for a programmatic 

compliance program should be raised from $1 billion to $10 billion. 

In fact, raising it to even $15 billion would still capture more than 

97 percent of the total trading assets and trading liabilities of all 

U.S. banking organization. 

Finally, the rule requires banking organizations to divest existing legacy investments in private equity funds, subject to certain 

extensions. The purpose of this extended period was to allow banks 

to unwind these investments in an orderly fashion without the 

need for fire sales. Most of these investments provide capital to 

small and middle-market companies. 

All of the investments were legally made at the time they were 

acquired, but the Volcker Rule now requires us to dispose of all of 

them. The rules, as written, would likely result in forced sales of 

private equity fund interests at distressed prices, which would 

transfer significant value from the regulated banking industry to 

private investors. 

The rules essentially negate the availability of the statutory 5- 

year period for running off illiquid investments. The Volcker Rule 

provisions in Dodd-Frank are scheduled to go into effect on July 21, 

2012, a little more than 3 months from now. The proposed rules 

generated over 17,000 comments from academia, Members of Congress, trade groups, public interest groups, and other interested 

parties. 

We and a growing chorus of other interested parties believe that 

substantial revisions to the proposed regulations are necessary. 

Accordingly, a final point I would like to make is that our regional banking group strongly supports the efforts being made by 

a bipartisan group of Senators, including Senators Crapo and 

Hagan, to delay the effective date of the Volcker Rule, and we ask 

you to support their initiative. 

Key, along with other regional banks who share our view, filed 

a comment letter with the agencies on February 13th to explain 

our concerns. I am submitting a copy of our comment letter with 

my testimony today. I encourage you and members of your staff to 

9 

consult it to get a better understanding of the problems that we 

face. 

I sincerely appreciate the opportunity to testify today, and I especially thank you all for coming to Cleveland. We, the regional 

banks, are committed to helping restore our economy and we look 

forward to working with you. 

Thank you. 

[The prepared statement of Mr. Blake can be found on page 60 

of the appendix.] 

Chairwoman CAPITO. Thank you. 

Our next witness is Mr. G. Courtney Haning, chairman, president, and CEO of the Peoples National Bank. Thank you. 

Welcome. 

STATEMENT OF G. COURTNEY HANING, CHAIRMAN, PRESIDENT, AND CHIEF EXECUTIVE OFFICER, THE PEOPLES NATIONAL BANK, ON BEHALF OF THE OHIO BANKERS LEAGUE 

Mr. HANING. Chairwoman Capito, Congressmen Renacci and 

Duffy, my name is Courtney Haning, and I am the chairman and 

present CEO of the Peoples National Bank of New Lexington, Ohio. 

I am also chairman of the Ohio Bankers League (OBL), and I am 

here speaking on behalf of its members. 

The OBL is the only trade association in Ohio representing the 

full spectrum of insured depositories, including mutual thrifts, community banks, and multi-State holding companies. 

Today, I am here to focus particular attention on the challenges 

facing community banks. While larger banks care about their customers, they do not share the same vested interest in my community that I do. In many cases, we are the only economic engine in 

the area we serve. If my customer is forced to leave because he 

cannot find a good job, I cannot follow him. So my bank must closely align with local needs. My expertise is that I am a close friend 

to my customers, which gives me added insight. This means I can 

make more loans safely than my bigger competitors that rely on 

mathematical models. Many successful businesses in Ohio started 

with a close call on a loan made by a community bank, which could 

say ‘‘yes,’’ because it knew its customer well. 

Unfortunately, this ability to exercise good judgment based on 

local market knowledge is being threatened by both recent regulatory burdens and inconsistent decisions by regulators. 

Most banks in the Midwest did not participate in the underwriting practices that contributed to the recent recession. Sadly, 

however, we are paying for the past through costly new regulatory 

burdens, anxious examiners, and customers who are unwilling to 

borrow. These remedies are hitting all segments of our financial 

statements, as costs are going up, opportunities to earn revenue 

have been curtailed, and the amount and cost of capital we need 

is increasing. 

I know that your subcommittee has heard a great deal about the 

issue of too-big-to-fail. That is an important problem. However, 

today, I would like to talk about whether, under the new environment, community banks have become too-small-to-survive. While 

we see the cumulative effect of new regulations and exam procedures, community bankers are concerned that policymakers don’t 

10 

understand that we don’t have the same resources to meet new 

compliance demands as multi-State banks. 

There are numerous new recordkeeping burdens set to take effect. For example, under the rules proposed by the SEC, banks will 

have to register as municipal advisors just to offer the same deposit 

and loan services we have always provided to local governments. 

The goal of the new statute was to provide oversight for advisors 

that fell in gaps between the banks and security regulators, not to 

duplicate oversight for banks that are already regulated. 

Yet, the proposed rule will add to our overhead without providing 

additional protections for consumers. 

Examiners have a hard job that is made even more challenging 

in difficult times. Yet, there can be no doubt that examiners are 

becoming more rigid, leaving less room for judgment. This is particularly detrimental for local bankers, since our competitive advantage is our knowledge of that local marketplace. If the examiners take away that flexibility through a one-size-fits-all approach, 

it will handicap our ability to compete. 

For example, while fighting discrimination is an important goal 

of government, as a result of recent changes, we are now hesitant 

to loan to long-time customers if they do not qualify based solely 

on objective criteria. 

Now, everyone has to fit in a box. If the customer doesn’t fit, yet 

we approve the loan, that borrower becomes an exception. If we 

create such an outlier, we must justify the reasons for making the 

loan. 

Our examiners will demand similar exceptions for outliers in a 

protected class or the bank risks referral to the Department of Justice for prosecution. As a result, bankers stopped making exceptions. 

All banks and customers are different, so that it does a great disservice for examiners to create a one-size-fits-all approach. 

Finally, I would like to thank you for introducing H.R. 3461 to 

restore consistency to the bank exam process. We would encourage 

you and your colleagues to follow through and see that the good 

ideas in the proposal become law. 

I believe bankers and examiners still want the same thing: a 

healthy, vibrant, competitive banking system. 

H.R. 3461, the Financial Institutions Examination Fairness and 

Reform Act helps all parties achieve that goal. 

In conclusion, I sincerely appreciate the opportunity to testify 

here today, and I would like to thank the Members of Congress and 

their staff for coming to my home State to gather information on 

issues of vital importance. Banks have served this country well and 

will continue to provide a significant engine for economic growth 

and job creation if we are allowed to perform without excessive regulatory burden or inconsistent examination oversight. 

We would urge the House of Representatives to continue on the 

path they started at the beginning of the 112th Congress. Hold 

bank regulators, including the CFPB, accountable for the cost of 

compliance and ensure that the layers of regulation do not accumulate to the point where it is no longer feasible for community banks 

to continue to serve their local markets. 

Thank you. 

11 

[The prepared statement of Mr. Haning can be found on page 92 

of the appendix.] 

Chairwoman CAPITO. Thank you. Our next witness is Mr. Steve 

Fireman, president and general counsel, the Economic and Community Development Institute. 

Welcome. Thank you. 

STATEMENT OF STEVEN FIREMAN, PRESIDENT AND GENERAL 

COUNSEL, THE ECONOMIC AND COMMUNITY DEVELOPMENT 

INSTITUTE 

Mr. FIREMAN. Thank you, Chairwoman Capito, and Congressmen 

Duffy and Renacci. Thank you very much for having us. 

On behalf of the board of directors and staff of the Economic and 

Community Development Institute (ECDI), we want to thank you 

for hosting this conversation regarding the challenges faced by 

Ohio’s community-based financial institutions. 

The Economic and Community Development Institute is a 

501(c)3 nonprofit economic development organization, U.S. Small 

Business Administration intermediary microlender, and a U.S. 

Treasury-designated community development financial institution. 

Since 2004, ECDI has made $10.5 million in loans to around 550 

local small businesses in central and southwest Ohio creating and/ 

or retaining approximately 1,650 jobs. Because of our success in 

central and southwest Ohio, ECDI has recently been approached by 

funders and stakeholders in the Cleveland area and asked to expand our microenterprise development services to northeast Ohio. 

The organization will open a branch in Cleveland in July 2012. 

In addition to filling the gap in the credit industry by offering 

loans ranging from $500 to $100,000 to small local businesses 

through our revolving loan fund program, ECDI addresses the 

needs of very small business owners in the creation and expansion 

of small business. 

Challenges: Our challenges are quite different than some of the 

challenges that are being discussed today. However, our popularity 

is a direct result of the challenges being discussed by the witnesses 

today. There is no doubt about that. 

First and foremost, we are faced with the challenge of demand 

for capital. As one of the few microlending organizations in Ohio, 

there has been an increased demand for ECDI to make business 

loans. As a young and dynamic organization, ECDI is committed to 

scaling up to meet the increasing demand. Since 2009, ECDI has 

demonstrated consistent and dramatic growth in the amount of 

loan capital disbursed and the businesses served. 

In addition to seeing increased demand in our central Ohio market, ECDI has expanded our services from 7 counties, when we 

were doing business in 2009, to 49 counties currently at the request of stakeholders, including SBA, the Ohio Department of Development, and the aforementioned Cleveland Foundation. The 

surge in demand for small business loans, as well as the geographic 

expansion, has caused some challenges for EDCI. 

The first challenge we have faced is keeping up with demand for 

capital. At the end of 2010, EDCI’s loan funds were nearly 100 percent deployed. EDCI faced this challenge head-on by creating an inVerDate Nov 24 2008 15:20 Aug 23, 2012 Jkt 075088 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 K:\DOCS\75088.TXT TERRIE
12 

vestment instrument approved by the Ohio Securities Commission 

called Invest Local Ohio. 

Invest Local Ohio gives community members the opportunity to 

invest in small business by investing in EDCI. Every dollar invested in the Invest Local Ohio fund is loaned to Ohio small businesses and leveraged with at least two more dollars from other existing ECDI loan funds. ECDI investors receive a 2 percent return 

on their investment for a 3-year note, and a 3 percent return on 

a 5-year note. Challenge number two is related, but a little bit different. It involves demand on our capacity. This challenge is caused 

because, in addition to outreach, assessment, training, processing, 

and servicing loans, ECDI’s model differs a bit from the banks and 

credit unions in that we commit to provide ongoing technical assistance to our portfolio beginning with the loan and continuing 

throughout the life of the loan. We like to tell our customers that 

when you do a loan with us, it is like getting married; you are not 

going to get rid of us. 

This is critical to building successful businesses and, therefore, 

we proactively work with clients to keep a healthy portfolio. 

This is also very, very costly. As an SBA intermediary microlender, ECDI receives a yearly allocation of technical assistance 

funds to spend time with our clients on building strong business 

and capacity. This is very valuable, but 75 percent of the funding 

is restricted to working with the clients only after the loan is 

closed. Not only is this a huge compliance-related burden associated with allocating and tracking staff time, but very little of the 

SBA technical assistance allocation is able to be used in working 

with potential loan clients before the loan is closed. And none of 

the funding is able to be used for general loan administration such 

as underwriting, processing, and servicing. 

Another challenge that we have is the unpredictability of Federal 

funding. I don’t think I need to say much more about that, actually. 

But it is enough to say that, every year, we have to compete for 

our Federal funding, CDFI and SBA money, which is okay. We appreciate the competition. However, it is just a difficulty in building 

an organization to scale when you have to plan year-by-year, as opposed to a few years out. 

Another challenge that we face, and this is very different from 

the other banks sitting at the witness table with me today, is that 

the philanthropic communities are not wired to think about small 

business development as a viable target for their dollars. 

According to a report from the Foundation Center entitled, ‘‘Spotlight on Economic Development Grantmaking in Ohio,’’ although 

the amount of dollars granted to economic development initiatives 

by foundations in Ohio increased by 152 percent in the period of 

2005 to 2008, grants specifically targeted towards small business 

development decreased by a third. 

Another related challenge or similar challenge has to do with 

State economic development initiatives. Just as traditional philanthropy is not wired to understand the importance of small business 

development, the majority of Ohio’s sponsored economic development initiatives are not wired to understand the importance of microenterprise development. Instead, they focus time and money on 

13 

traditional economic development strategies such as attracting and 

retaining large corporations. 

Start-up initiatives that the State does put their money into, 

such as Ohio’s Third Frontier Program, benefit the high-growth 

technology sector. While this is crucial and it is very valuable, it 

neglects a large portion of Ohio’s potential employers: small businesses that employ five or less employees. 

As a result, we have to spend a lot of time screaming and yelling 

and trying to get in front of the Ohio Department of Development, 

and now Jobs Ohio people, and explain our story and why small 

business, really small business development is crucial for job creation. Without continued Federal support and education on the 

State level, microenterprise will not have the opportunity to create 

the jobs that we have the potential to create. As you can see, with 

each challenge, we try to look for creative ways to continue to meet 

the capital demands of Ohio entrepreneurs and microbusinesses. 

Thank you for the opportunity to communicate these challenges 

we face in serving small business. I hope this testimony is useful 

as you return to Washington. 

One other example I would like to give on a regulatory burden 

is, we were the recipient of Small Business Loan Fund dollars, 

SBLF dollars, a small allocation in the form of a loan, a low-interest loan, which is how we get a lot of our capital, like SBA capital 

and/or bank capital. And it seemed like a good idea at the time. It was $203,000, 

which we deployed to small business. However, the process took approximately 6 months. We had auditors in from three different 

States, which is probably all good shepherding of Federal dollars, 

but—and then the closing. I went back and forth with the closing 

attorneys from New York 16 times to get to the actual deal closed. So I can imagine that our $203,000 loan probably cost—I don’t 

even want to think about what it cost. But it was quite an expensive deal. 

I think that demonstrates some of the regulatory burden that we 

face, as well. 

Thank you very much. 

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

88 of the appendix.] 

Chairwoman CAPITO. Thank you. 

And our final witness is Mr. Martin Cole, president and chief executive officer of the Andover Bank. 

Welcome. Thank you. 

STATEMENT OF MARTIN R. COLE, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, THE ANDOVER BANK 

Mr. COLE. Thank you, Madam Chairwoman, Congressman Duffy, 

and Congressman Renacci. Thank you for bringing this hearing to 

Ohio, and for your invitation to testify today. 

My name is Martin Cole. I am present CEO of the Andover Bank. We are a rural, State-chartered community bank with $330 

million in assets, which has been in existence since 1884. I have 

been there for 36 years. Viewed from enough distance to gain perspective, the structural flaws in our financial regulatory system are 

clear. 

14 

In the early 20th Century, the average consumer or small business only had one resource for financial services, a bank. Thus, policymakers viewed banks as vital to the public’s interest and Congress enacted safeguards. Deposit insurance and on-site regular examination provide two examples. Please note, banks pay the entire 

costs for both. 

The marketplace constantly innovates. Active regulation can impede innovation. If one path is blocked, the marketplace will blaze 

another. Significant government costs for banks pushed the marketplace to invent non-banks to avoid these costs. 

Simply put, bank supervision is far more intrusive and expensive 

to banks than government regulation is to any of our non-bank 

competitors. 

Let me try to reinforce the public policy importance of equivalent 

regulation with an Ohio example. Leading up to the collapse of the 

housing market, Federal mortgage lending laws theoretically applied to mortgage brokers, but in Ohio, no one enforced those laws. 

As a result, Ohio suffered from rampant predatory lending as 

criminals and charlatans slipped through the enforcement gap. 

When Ohio belatedly licensed brokers, its process included criminal 

background checks. As I understand the numbers, an estimated 

2,000 brokers, who had been operating, never applied for licenses. 

Of the roughly 10,000 who did, 14 percent were found to have 

criminal backgrounds. 

My bank’s primary marketplace is a single county. For my bank 

to prosper, I must invest in the communities we serve. As a small 

bank, my sustainable competitive advantage is that I can know my 

customers. Thus, I can safely make a small business loan that another bank, relying only on credit reports and credit scores, would 

rationally deny. 

Across Ohio, there are thousands of successful businesses, some 

grown large, that exist because of the initial insights and handson help of a community banker. For that process to work, the regulator must allow us to use informed judgment. 

Today, what I hear from peers is that they feel that bank examiners are not allowed to respect the judgment of skilled bankers. 

Let me be clear that I believe the financial services industries 

should and must be regulated. I have enormous respect for my regulators. Their job is very important and very, very difficult. 

Let me turn to consumer regulations. As a community banker, I 

will succeed or fail based upon my reputation. We have powerful 

incentive to work very hard at treating our customers fairly and 

helping them make decisions that are best for them. We understand there are bad guys in the marketplace and that we need consumer protections. 

However, for a smaller bank, every change in a regulation imposes real cost and distracts my colleagues from our customers. 

That is okay if the consumer gets a benefit that outweighs the cost, 

but far too often, he or she does not. 

The Ohio Bankers League, which represents Ohio’s banks and 

savings and loans from the smallest to the largest, operates an online exam evaluation system. This system is new. Its purpose is to 

provide useful feedback to agencies to help them improve their procedures and training. 

15 

Evaluations of recent exams give cause for concern. Forty-two 

percent of the participating banks reported that their examiners 

were neither flexible nor open to the exchange of views. Less than 

half of the banks believe their examinations have resolved issues 

and recommended corrective actions in a fair and reasonable manner. 

I would commit two bills pending before the House. 

The first is H.R. 3461. We are encouraged by its clear focus on 

timely, fair, and effective examination. 

Finally, while I understand that H.R. 1697 content is too diverse 

to be considered by a single committee, I would ask for your review 

of those provisions under your jurisdiction. Please understand that 

redundant regulation or regulation designed for larger, more complex institutions can severely harm the ability of a small bank to 

respond to the legitimate needs of its community. 

I want to specifically thank Congress for recently raising the 

SEC’s shareholder threshold from 500 to 2,000. That single change 

will make it far easier for smaller banks like mine to raise capital 

in the future. 

We have 460 shareholders. We have a list of individuals who 

would like to buy our stock. We can now proceed with capital expansion plans without fearing costly additional regulatory requirements. Thank you. 

In the movie, ‘‘It’s a Wonderful Life,’’ George Bailey had a crazy 

Uncle George who unintentionally and inadvertently almost destroyed the financial institution he loved. 

I have a crazy uncle, also. His name is Uncle Sam. I believe he 

has inadvertently and unintentionally destroyed community banking. Maybe you can be my Clarence. 

I am grateful for your interest in Ohio and its communities. I 

would be happy to respond now or in the future to any questions 

you may have. 

[The prepared statement of Mr. Cole can be found on page 82 of 

the appendix.] 

Chairwoman CAPITO. Thank you. Thank you all very much for 

your testimony. I think we have a good variety of witnesses here, 

so I think we can get some good questions. I am going to begin the 

question-and-answer portion. 

Mr. Blake, I want to ask you about the Volcker Rule. Knowing 

the complications of it, and I am glad you mentioned that the Senate was making a move to postpone this, but there has been a rush 

to get this onto the books and sort of in the barn. 

But the question I have is, you talked about safety and soundness. What are the compliance costs? You mentioned disproving a 

negative, so disproving that you are not engaging in this. Have you 

been able to calculate what the compliance costs would be to 

KeyBank? Have you already hired people to try to meet these challenges? 

Mr. BLAKE. We have not. We are waiting for more guidance on 

the final rule and where it would wind up. 

The proposed rule would certainly require us to, in my view, at 

least hire a full-time compliance officer for nothing other than the 

Volcker Rule. 

16 

But the reach of the Volcker Rule is so extensive that it requires 

significant record-keeping, significant analytical work, significant 

testing that the compliance program that is part of the rule has, 

I think, about 24 different statistical analyses that banks have to 

perform. Fortunately, we don’t fall into the biggest category, but we 

still would have to do a number of those. 

It is a little bit difficult without more guidance from the Federal 

regulators to know exactly how much it is going to cost. 

But, for example, we have to identify every single trading desk, 

and that is every area where there would be a trade made. So we 

have a broker dealer, for example, that does marketing. We have 

a treasury group that does asset liability management. Each of 

those desks has to have procedures and policies. Each of the trades 

has to be identified and tracked. And on an after-the-fact basis, 

regulators will come in and let us know whether any of that activity is proprietary trading. 

Chairwoman CAPITO. Thank you. There has actually been a lot 

of criticism, too, about the international implications of what this 

rule could mean to our financial institutions. 

I want to get to—I think Mr. Haning and Mr. Cole mentioned 

this in their testimony. I was at a small bank in my district over 

the holiday, and this whole theory, or not theory, but, I guess—I 

don’t want to say fear, because that might be too strong, but consequence of community banks sort of being swept under and, really, being forced to either merge or be acquired because you meet 

the compliance costs, is really going to, I think, endanger that oneon-one personal relationship. Your bank has gone back, what did 

you say, 200 years— 

Mr. COLE. Since 1884. 

Chairwoman CAPITO. Yes, 1884. I am sure you have relationships 

with probably everybody in your community and know a lot of the 

folks in your communities. 

In my bill, in the examination bill, we are trying to get the consistency in there, the timeliness of it, the ability for you to have 

questions answered and to appeal certain decisions. 

Have you in your experience through your examinations, tried to 

appeal decisions that have been made? And what has been the result of that? Not yes or no, but really, do you have any frustrations 

with that, I guess is what I am asking? 

Mr. COLE. Not specifically in the safety and soundness area. We 

do in the compliance area, and we have just recently, because of 

the time period between examinations, the 4-year period. And my 

discussion with the policymakers at The Federal Reserve was that 

there was too much of a gap in communication, a lack of understanding of what they wanted versus what the regulations state, 

because there is a lot of nebulous interpretation under the guise of 

fair lending. 

As an example, I have been forced to go out and hire a full-time 

compliance officer with salary and benefits of about $60,000 a year. 

We are currently employing the services of a consultant at $1,200 

a day. They are spending about 2 days a week in there; just coming 

in, assessing what we need to do, trying to interpret the—in anticipation of rules coming from the CFPB or any other agencies. 

17 

It is the uncertainty and the unknown that we most fear. And 

our bank is doing quite well. We are coming off of our third consecutive year of record earnings. So it is not that we are struggling 

in this market. The concern is the future. 

This afternoon, when I return to the bank, I have an appointment with a gentleman from a much larger banking institution to 

discuss the possibility of merging. 

So it is an option we have to consider for our shareholders. Unfortunately, it would be a huge loss for our particular area because 

of the services we provide. 

Chairwoman CAPITO. What county are you in? 

Mr. COLE. Ashtabula County. 

Chairwoman CAPITO. Which is up to the east? 

Mr. COLE. The very northeastern part. 

And we have the number one market share in Ashtabula County. 

We are a significant financial institution playing a significant role 

in our community, and it would be a tremendous loss. 

But the reality is, what we see in the headwinds of compliance, 

based on our size, we feel we have to generate a larger size in one 

fashion or another to absorb the cost just to meet regulatory compliance. 

Chairwoman CAPITO. I am going to move on to Mr. Renacci. I 

will get back to you, Mr. Haning, in our second round. 

But I am sure this will give you great comfort to know that one 

of the top 10 fastest-growing occupations in this country is compliance officers in the financial institutions, compliments of DoddFrank, I am sure. 

Mr. Renacci is recognized for questions. 

Mr. RENACCI. Thank you, Madam Chairwoman. 

I do want to thank all of you for being here. After listening to 

all your testimony, it continues to reinforce some of the concerns 

that I have over regulations. 

And, Mr. Fireman, your comments about certain unpredictability. 

Without uncertain predictability, things get frozen up, too. So I appreciate that. 

I will open this next question up to anyone on the panel. Secretary Geithner has stated that FSOC will coordinate an interagency review to identify and eliminate regulations that are outdated, unnecessary, or unduly burdensome to insure depository institutions. Have your trade associations been active participants in 

this process based on the agency’s work to date? 

Should we be optimistic that their efforts will yield constructive 

recommendations for reducing regulatory burdens that your institutions face? 

Again, anyone on the panel who would like to address that? 

Mr. Haning? 

Mr. HANING. I can’t say that I have seen any efforts on our part 

of our association. Unfortunately, it sounds like a little bit of government rhetoric. 

I am sure they don’t want anything to happen that would cause 

undue harm to the financial institutions in Ohio or across the country, but in the efforts, obviously, from Dodd-Frank and the interpretation of much of what we have yet to see, I can’t see the efforts 

of reducing burden, more so of it increasing. 

18 

Mr. BARNES. Congressman, if I could respond to that, also? 

Our association works diligently to work with all of the agencies, 

whether that is reviewing new rules and regulations on behalf of 

credit unions and then filing comment letters with respect to all of 

those on potential consequences or alternatives or things like that. 

So, our association certainly has. 

What we hope the outcome of that will be is to bring an element 

of common sense back into this regulatory process to eliminate 

those things that are of no value, that simply increase cost, and 

minimize the ability of local financial institutions to serve consumers, and to restore some common sense to the process. 

My colleague from Andover Bank—that is $350 million, if I understand that correctly—just spoke to you about the incredible 

amount of effort that they have to input to comply with that. And 

as I said in my testimony, 65 percent of credit unions are $35 million or less. That is one-tenth of his size. So you can imagine complying with those same rules. 

So, we certainly are hopeful that any process to minimize, 

streamline, and eliminate burdensome and duplicative regulations 

will be successful, and we will do anything we can to help. 

Mr. RENACCI. Mr. Blake, I am going to come back to the Volcker 

Rule. The Volcker Rule was championed as an easy solution. Simply stop banks from taking excessive risk with federally-insured deposits and we would have all the answers. The argument was that 

banks could not engage in proprietary trading and financial systems would be safer. However, reinstating a 1930s regulation in today’s complex financial world, of course, has proven to be very, very 

difficult. 

When regulators went to draft the so-called easy fix, the result 

was a 298-page proposal that included more than 1,300 questions 

seeking comments on nearly 400 topics. 

Defining proprietary trading is not an easy task, is it? Why is it 

so complicated? 

Mr. BLAKE. I think it is complicated because while, in fact, I believe Mr. Volcker himself said that proprietary trading is one of 

those things that you know it when you see it, but, otherwise, it 

is very difficult to detect. 

I think the difficulty is that when Congress and when regulators 

think of proprietary trading, they think of the larger institutions, 

the money center banks, the investment banks. And those institutions had proprietary trading desks. They gave their desks a certain credit limit, a certain dollar amount limit, and allowed them 

to trade for the firm itself. So, they were buying and selling securities, derivatives, credit default swaps, and making money or losing 

money for the institution. 

Most banking institutions never did that. Most banking institutions focus on their core business, which is providing deposits, 

loans, and other traditional banking services. 

Mr. Barnes used a phrase earlier that I think is really appropriate here. He called it ‘‘regulatory micromanagement.’’ That is 

really what we see with the Volcker Rule. What the agencies are 

doing is trying to find proprietary trading in every nook and cranny. 

19 

So if we are engaged in asset liability management, for example, 

and we have a fixed-rate loan portfolio that we are trying to hedge, 

if we don’t do a perfect hedge, we make money. And, oddly enough, 

making money is one of the indicia of proprietary trading. 

So it is micromanagement, overregulation, but certainly micromanagement of the individual pieces of our business that make 

proprietary trading and the Volcker Rule so complex. 

Mr. RENACCI. Just a quick follow-up, and you said this in your 

testimony. In addition to raising costs, how could the proposed rule 

actually increase the risk to a financial system? 

Mr. BLAKE. If we are not able to do asset liability management, 

that leaves us exposed to risk. 

And, it is an old system. We take in deposits at one rate and 

make loans at another rate, and the difference is the spread where 

we make our money. 

When we make fixed-rate loans, we have to hedge against the 

possibility of interest rates raising. When we make variable rate 

loans, we expect interest rates to drop, and we may hedge that. So 

we have a fairly complex and fairly sophisticated asset liability 

management system. 

What the Volcker Rule does is require us to look at that after the 

fact and say that, if our hedges were not perfectly correlated—the 

phrase that the regulation uses is ‘‘reasonably correlated to the 

risk.’’ But the problem with the regulation is, it looks at it in hindsight. If we weren’t able to predict the degree of increase in the interest rates or the timing of the increase in the interest rates, our 

hedges may actually make us money. And curiously enough, that 

would, again, be indicia that we are engaged in proprietary trading. 

And that is why I say one of the fundamental problems with it 

is the regulatory micromanagement; getting into the nitty-gritty of 

asset liability management and looking at it on an after-the-fact 

basis. 

Mr. RENACCI. Thank you. I yield back. 

Chairwoman CAPITO. All right. Mr. Duffy? 

Mr. DUFFY. Thank you. 

I come from a rural part of Wisconsin. I grew up in a town that 

has roughly 2,000 people. The bigger Wall Street banks necessarily 

weren’t participating in my community. We had credit unions and 

small community banks. 

I have spent my adult life in smaller rural parts of Wisconsin, 

and I have had an opportunity to deal with the smaller banks, and 

I have had a chance to deal with the larger institutions. And the 

larger institutions do good work, but I guess I see the value that 

the smaller banks provide in the rural areas across America. 

And one of my concerns is that the rules and the regulations that 

are coming out have a disproportionate impact on the small credit 

unions and the smaller banks as compared to larger Wall Street 

banks. 

And I guess, if you look at the background as to why we are seeing all these rules and regulations, it might be from some of the 

bad actors that Mr. Cole referenced, but, also, some of the behavior 

that has taken place on Wall Street and not necessarily the behavior of the financial institutions that are before us today. But the 

20 

smaller institutions that didn’t have that role in the crisis are bearing the brunt of the new rules that are now coming out. 

Am I misguided in my comment or analysis on how I am seeing 

this? 

Mr. BARNES. No. I think you are dead on, Representative Duffy. 

We certainly believe that what you are stating is true. You are exactly right. 

Credit unions that I represent had no impact or cause or weren’t 

a cause of the financial crisis, but, yet, we see regulations being 

written to the lowest common denominator. 

And our credit unions have always worked—as have many community banks—with people to try to get to know them, to treat 

them on a one-to-one basis, to give them a fair and honest deal 

from the very beginning without ever beginning told to by Congress 

or a regulatory agency. 

But the problem is, with the regulations, when they are so onerous and designed to curtail certain awful behaviors that created 

such a problem, that there are so many unintended consequences 

that we see that inhibit a small credit union’s, or any credit union’s 

ability to continue to provide that working one-to-one relationship 

without a huge burden of regulatory experience. 

So we believe you are right on target. 

Mr. HANING. Congressman Duffy, I agree wholeheartedly. I am from southeastern Ohio. My financial institution is $110 

million, so I am about a third of the size of these guys to my left 

and right. I also had to go to a full-time compliance officer, $50,000 plus 

benefits, which, prior to 5 to 7 years ago, was about a third to a 

half position. Twenty hours a week would be max for compliance, 

and now I have a full-time compliance person. Plus, I pay for an 

outside audit to check the rules and regulations. 

Unfortunately, community banks get caught in the trickle-down 

effect of rules and regulations that are set for larger financial institutions. They have a rule. 

They have a good position. 

I have a large institution one block to the left of my main bank, 

and a large institution one block to the right of my main bank. 

They both offer the same products that I do. They are mandated 

by law. They set the price for lower standards or lower pricing. 

Where is your customer going to go? Is he going to go to the big 

buy at the lower price or come and see you and pay more? 

So we, in effect, through trickle down, have to comply with rules 

and regulations that are set for all financial institutions. 

A good examples of that is the debit card fee structure. We were 

mandated in the amount that we could charge for processing debit 

card transactions. We complied. We made some noise and squirmed 

a little bit, but we complied. With some mediation, we got the price 

upped a little bit, but still below the cost of doing business. The 

merchant has taken that and run. 

Home Depot and Fortune 500 companies are announcing to their 

shareholders that they are going to have increased earnings from 

debit card fees. They are not passing it onto the consumer. 

So while the middle man had good intentions, it never got to the 

bottom-line consumer. Those are issues. 

21 

We also have the same issues with the examination process. My 

bank is on an 18-month cycle. Over the last three exams, I have 

seen a force of examiners come in. Completely different, new faces. 

I had some disagreements. 

We are a highly-rated, well-capitalized financial institution. My 

earnings have stayed the same over the last 3 years because of increasing expenses. 

I had the opportunity to have to call a district office. I had some 

discussions with them, didn’t get the answer that I wanted or I 

thought was appropriate. Finally, I ended up talking to the people 

in Washington. So, the next exam came in. I had a whole new 

team. We had a wonderful examination and—but some consistency, 

I guess, is where I am going with that. I think the biggest problem 

we face is not knowing what to expect when they walk in the door, 

and then sitting there not knowing when we are going to get the 

report back. 

Mr. DUFFY. I have heard the same thing in Wisconsin. 

But to the point of—if you look at the small institutions and the 

impact that it has on that institution, the new rules and regulations, as compared to a larger financial institution, is it fair to say 

the larger institution has a broader base to defray those costs over, 

as opposed to a smaller institution and, therefore, the burden isn’t 

equally worn by the larger and the smaller institutions? It is unfairly placed on the smaller institution. Is that not right? 

Mr. COLE. Absolutely. And your presumption of what exists out 

there is exactly right. Many legislative individuals have indicated 

that same thing to me. 

And even at the beginning of the crisis, my own Representative, 

my own Senator told me, ‘‘Marty, we understand you are not the 

cause of it. We will make sure that this doesn’t impact you.’’ 

We were in Washington last month. We spoke with Governor 

Raskin of the Federal Reserve. She also indicated her understanding and sensitivity to the community banking industry. 

I have read many articles about—stating, again, this sensitivity 

to the community banking industry. 

I think there is a feeling of sensitivity towards our industry and, 

again, an appreciation and, I think, truly a love for our industry 

by the public and, I feel, by Washington. 

The disconnect is in its execution. The policymakers, I think, in 

theory believe that there should be some kind of different regulatory system for large and small institutions. They don’t know how 

to execute it, quite frankly. 

And my complaint to Governor Raskin, my complaint to the policymakers here at the Cleveland Fed is the lack of understanding 

of the theoretical application of policy and the execution in the 

field. Again, the intention is not being carried out. 

My compliance examiner bragged about his years of experience 

of working as a compliance individual for a large bank. He was already biased by what he had known and seen at a larger institution and was expecting the same from us and, I think, was surprised at the lack of sophistication that we displayed. He didn’t 

have the understanding of the differences in the different institutions. 

22 

Many of the examiners, again, just don’t understand how we can 

operate the way we are—safely, soundly, profitably—without the 

sophistication. And quite frankly, it is challenging, but we are able 

to do it because it is different. 

I think that theory and philosophy is where it gets disconnected 

through the system because, obviously, it is a bureaucratic system. 

Mr. DUFFY. To that point—I know I have to yield back in one 

second. But I think we do—it is true. There is an affinity for the 

smaller financial institutions. 

And I think we have seen the difficulty in saying, ‘‘How do you 

structure one set of rules for a smaller institution as opposed to a 

larger institution?’’ I think that can be problematic and there is a 

lot of struggle with that. 

But I think it then goes to the point that, if you continue to overregulate and have all of these different rules and do not use a scalpel to make sure you have reforms in place that actually address 

the lessons of the crisis, but, instead, you use that crisis to wildly 

expand government into this sector, the net impact is borne by the 

smaller institution, and I think that is what we are seeing, and trying to make sure we have a structure in place that allows that 

weight to be lifted off everybody. 

I think it allows you all to compete more effectively. 

I know my time is up. I will yield back. 

Chairwoman CAPITO. If you don’t mind, we will do another 

round. I have a couple more questions. 

I wanted to ask, Mr. Fireman, you have mentioned in your testimony the unpredictability of the Fed funds, and then you mentioned two funds that you get funds from, the CDFI, and was the 

other one SBA? 

Mr. FIREMAN. Yes. SBA. We are a microlending intermediary, so 

we borrow money from SBA. And the uncertainty there is not necessarily the ability to borrow funds. That has been fairly consistent. As an intermediary, each organization or agency at any one 

time can borrow up to $5 million. That just got raised, as did the 

definition of a microloan from $35,000 to $50,000. So that has not 

been—knock on wood—the issue. 

The issue, though, is, a year later—each year, you apply for SBA 

technical assistance money. That is what I was referencing, concerning our ability to take care of our portfolio, other than unrestricted funds that we generate ourselves or raise or get invested. 

We have to apply—we use money that is a formula based upon 

dollars on the street, average size loan, and performance of the 

portfolio, all of which are fine. 

However, there are 180 of us applying for a certain amount of 

money, also. So that is what I was— 

Chairwoman CAPITO. Okay. I am interested in the economic development issues that you stated. Just briefly, what is the unemployment rate in Ohio? I know it is above the national average, correct? 

Mr. FIREMAN. It is somewhere around 8.5 percent. 

Chairwoman CAPITO. What kinds of businesses are you seeing 

expanding? I am certain they are all small, obviously. And are any 

of these—how does it shake out? Woman-owned businesses? Are 

23 

there more woman-owned businesses growing? I am just kind of 

wondering if you have noticed anything like that. 

Mr. FIREMAN. Our portfolio consists of 44 percent woman-owned 

businesses. We work with main street businesses. We don’t work 

with tech companies. 

Chairwoman CAPITO. So, retailers mostly. 

Mr. FIREMAN. Retail, a lot of food-based businesses, local foodbased businesses, transportation, home healthcare. 

Chairwoman CAPITO. It also has to do with healthcare. 

Mr. FIREMAN. And, some like tech service, business-to-business 

service industries in general. 

Chairwoman CAPITO. Are there one or two of those that seem to 

have more growth potential in your mind? 

Mr. FIREMAN. We have seen some growth potential. A couple of 

our home healthcare companies have gone from 3 or 4 people to 60 

or 70 jobs. And then some of the restaurants have grown to multilocation chains or the same owner who has several businesses, employing 40, 50, 80 people, as opposed to 5 or 6 people. 

Chairwoman CAPITO. Let me just make a statement, and then I 

will ask you all to react to it. The CFPB was created, and DoddFrank itself was created to protect consumers, those who had been 

harmed. And Mr. Cole talked about some of the unscrupulous lending behavior, subprime loans, so we are certainly aware of that. 

My fear with everything that I have heard today, and I am seeing it in my district, Mr. Haning said you are no longer, or at least 

you are hampered now sometimes in the lending to your long-time 

customers because of the way they are rated or because of other 

issues. 

In the pursuit of extending consumer protection, we are really 

hurting or have the potential to harm those people who are falling 

in the questionable category. There are more of them. There is less 

availability of credit. Credit has tightened up. 

If you are spending $50,000 and you are spending $60,000 for a 

compliance officer, that is $50,000 or $60,000 you are not lending 

on a car loan or a small business loan or whatever. 

And so, obviously, in the examination process, the riskier loans 

and the riskier consumer is going to be the one who is going to get 

shut down first because it is going to make your balance sheets and 

everything else in your exams look less favorable if you keep engaging in those kinds—am I going down the right path here? This 

is something I am very concerned about. And I am starting at the 

credit union, and we will just go down the line quickly, if you all 

want to make a quick statement. 

Mr. BARNES. Yes, ma’am. Certainly. 

Chairwoman CAPITO. If you have an anecdotal issue, that would 

be helpful to us. 

Mr. BARNES. Sure. As was referenced before, when certain loans 

don’t fit inside of a box, those become exceptions. 

Our credit union has worked very hard over the last 7 or 8 years 

to remove a lot of barriers in our lending policies to really reach 

out and serve every member in our community. We really take seriously the credit union mission to serve people of small means. 

Chairwoman CAPITO. Right. 

24 

Mr. BARNES. But many times, those loans, and you can’t have all 

of those. There has to be a balance. So we have developed a lending 

program that has allowed us to enter in and engage in that type 

of lending. 

But the issue for us is, the relationship we have with our examiner currently is positive. However, that can change. And with this 

not-on-my-watch mentality that exists amongst so many regulators 

when they come in, that is in jeopardy. 

I would hate to think of what Stark County, Ohio, would be like 

if it weren’t for CSE doing the kind of lending that we are doing. 

We do it safely, we do it soundly, and we do it profitably. But when 

the rules change, or we don’t know what those rules will be in the 

future, that certainly— 

Chairwoman CAPITO. Mr. Blake, I know you have a larger institution. Certainly, you have seen this? 

Mr. BLAKE. Yes. I would add, I think, one thing from our perspective of the larger institutions. We go through the CCAR process, the Comprehensive Capital Analysis and Review, which are 

those stress tests that are generating so much publicity. 

The stress tests apply a reverse economic scenario as to our existing loan portfolios and predict losses in the future. To the extent 

that our portfolio includes the lower-quality loans, the regulators 

project larger losses. Larger projected losses impact our ability to 

pay dividends or potentially pay dividends, to share buybacks or 

take other capital action that we think are necessary. 

So like the smaller institutions, we also feel the same pressure. 

Chairwoman CAPITO. Mr. Haning? 

Mr. HANING. Madam Chairwoman, a couple of issues. Number 

one, we do have money to loan. I know you have heard that on the 

trail, too. What we lack is consumer confidence. 

There are consumers out there who still don’t have great confidence in the economy yet and they don’t come in, or there are 

those people who just don’t qualify. We have not increased our 

lending standards. They are the same as they were. We were conservative 7 or 8 years ago. We still are. It is just, the standards 

have not changed, therefore, less people qualify. 

The interpretation of the rules from legislators to regulators to 

the bank is an issue, which gets me to the point, you saw me shaking my head, of not-on-my-watch. We have Federal regulators from 

the OCC, now the CFPB, the Federal Reserve, the FDIC, who were 

jockeying for position at one time, so they were a little more stringent in their examination procedures, which causes you to pull in 

the reins a little bit. 

And the issues are such that, if we can’t make loans, we can’t 

make a return, we can’t get the money to the capital line to grow 

the bank and to make mortgage loans. 

Chairwoman CAPITO. Mr. Fireman? 

Mr. FIREMAN. Our business—we were formed, and our mission is 

to help underserved, underbanked, and unbanked communities and 

make them bankable. 

What has happened over the last couple of years is our portfolio, 

or our originations, have gone from 70 percent start-up to 70 percent existing business. All of the things that the gentlemen are 

talking about have led to our bank partners, credit union partners, 

25 

community bank partners referring us more and more of the customers who, historically, wouldn’t have been exceptions, or maybe 

it would have made sense for them to work with, so they come to 

us. And what that does is, it has the unintended consequence for 

those who were actually formed to serve getting pushed out of the 

credit marketplace. 

We are in the business of providing opportunity and accepting 

risk, and that is why we get paid to do the technical assistance, 

that hand-holding that we do. And we still do that. 

It doesn’t mean that all of the customers being referred are cherries or gems, but, by the same token, it does have an adverse impact on those we used to serve. So that is kind of how we see this 

whole— 

Chairwoman CAPITO. Mr. Cole, did you have anything to add? 

Mr. COLE. Yes. I just wanted to state that you are 100 percent 

correct in that I think the intentions of the CFPB and others that 

are wanting to protect the consumer are going to have unintended 

consequences of the opposite. 

And, I believe that community banks operate very much, as my 

colleague from the credit union is. We are very similar. And I am 

very aware—my sister is the president and CEO of the largest 

credit union in our marketplace. We compete head-to-head. 

Chairwoman CAPITO. That must make for great family relations. 

Mr. COLE. Interesting Thanksgivings. 

But, actually, we share a common goal, and that is to improve 

the quality of living in our county, which we both were raised and 

grew up in. We both dearly love it, and we both contribute back, 

her, in her way, and me, in my way. 

So I am very familiar with the credit unions and how they operate. We are very, very similar. Our focus is on everyone in that 

community, especially the underserved. 

And when you look at regulations, like the Community Reinvestment Act, the credit unions do not have to comply because they recognize that it is not necessarily given, how they function, but we 

have to comply. And, again, it is overburdensome because, again, 

the way we operate, we have to reinvest back in our communities. 

There are many regulations out there that simply do not apply to 

us by our inherent nature. 

And my recommendation would be—not that I want another regulator, God forbid, but instead of the CFPB—and Congress and 

Washington recognize the distinctive difference between the size of 

banks when they come out with $10 billion. I don’t know if that is 

the number. But since I am trading under $30 billion, I am okay 

with $10 billion. But, anything less than $10 billion should be 

treated differently. 

Now, our concern is that the rulings coming out of the CFPB are 

going to become best practices, just like the stress test of larger 

banks, are going to become best practices. Examiners are going to 

see these as best practices and apply them to us, as well. 

My recommendation would be: the establishment of a community 

bank regulator; that banks of a certain size are regulated by people 

who understand community banks; that we are not subject to the 

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26 

lator, made of panels and advisories of community bankers who can 

work through these execution issues and policy issues. 

Chairwoman CAPITO. I appreciate that. Before I turn the microphone over, I want to reiterate that consumer protection is a huge 

issue for all of us and for everybody sitting here, and you wouldn’t 

still be in business if you didn’t try to engage in good consumer 

protection. Striking that right balance is going to be difficult. 

Mr. Renacci? 

Mr. RENACCI. Thank you, Madam Chairwoman. 

And it is interesting. Mr. Cole, I was listening to your comments, 

and I agree wholeheartedly. We had issues with the big banks, the 

big Wall Street banks, and what we have done is, we have thrown 

a blanket over everybody, which also includes some of the smaller 

institutions, which just isn’t fair. 

So I kind of want to put a human face on this issue. 

There are some who say regulatory relief is really just shorthand 

for the desire of financial institutions to cut costs or avoid burdensome regulations. 

I remember 28 years ago when I came to Ohio, I went to a small 

institution. I had a good credit history. And I borrowed some 

money and started a business, and grew that business because a 

small institution believed in me and they believed in my background. They believed in my experience. 

So I question, for example—let’s talk about the customers for 

once. How are we affecting Mr. Barnes and Mr. Cole and maybe 

Mr. Haning? Put a human face on that. 

Do you have those people, like I was 28, 29 years ago, who come 

to your institutions looking for that first step to employ people, to 

start a business, to engage in entrepreneurship and, all of a sudden, these regulations are stopping you from helping them? 

Mr. COLE. Absolutely. I, myself, own a business. I am a small 

business. Our bank is a small business. I am an entrepreneur. 

Before I became president and CEO, I was a commercial lender. 

I can tell you stories of many people who came to us, just like yourself, and we started them, and now are successful businesses employing numbers of people who wouldn’t have gotten the start otherwise because other institutions wouldn’t have seen the person 

and the character and what is behind the numbers. So as a community banker, growing up in the community and knowing people, 

there is a value there that extends beyond the numerical evaluation. So, yes. 

We have people coming today, and because of the way we have 

to rate loans—and I am still part of the credit committee. And I, 

as a former commercial lender, struggle when I hear my credit analyst and my loan people and my person in charge of loan administration say, ‘‘Well, you know, if we make this loan, it is going to 

be immediately classified and we will have to reserve.’’ 

Seriously? And, yes. 

And so we struggle. We struggle with that. And given economic 

factors, we may not make that loan that, in my heart, in my day, 

had I been making that—I would have made that loan all day long. 

So, yes. That situation does exist. 

Mr. RENACCI. I am sure my first loan would have been classified, 

too. That is the problem. 

27 

Mr. Barnes, any comments? 

Mr. BARNES. Congressman, yes. Thank you. 

We do see many people with business opportunities who come to 

us looking for financing, who have been turned down by either 

banks or have had lines of credit terminated. 

Our credit union does do some business lending, but we are not 

involved at a huge level. So what we usually do is try to pass those 

referrals onto credit unions in our area that do provide that. 

But they all come with a similar story; they have gone elsewhere 

and they have either had lines of credits terminated or they are not 

able to get a loan, or what did qualify at one time no longer meets 

certain criteria or fits in that box. So, certainly, from the business 

standpoint, we see that. 

We also see it on the personal side, especially with residential 

mortgages. And I don’t mean any disrespect to anybody on the 

panel, but sometimes some of the larger institutions don’t have an 

interest in doing small mortgages. 

And a lot of it comes down to regulation. There is a ton of regulation and compliance that is involved in executing a mortgage for 

a member. And that cost and that level of compliance is the same 

on a $200,000 mortgage as it is on a $25,000 mortgage. So, we see 

many members coming to us with small mortgages. In Stark County, Ohio, there are a lot of repossessed homes that can be purchased for that amount of money. 

One example in particular, it was a young kid, 26 years old, no 

credit, but he was a good kid. In fact, my dad was an elementary 

school principal, and his mom taught school for my dad. This was 

a kid that she had, and my dad knew him from years ago. We were 

able to help him because of the personal relationship, which anywhere else, I don’t know if that would have happened. 

Mr. RENACCI. Mr. Blake, do you agree with that? I am going to 

put you on the spot, seeing that you are a bigger bank. 

Mr. BLAKE. I think, because of our size, we tend to be more statistically driven when it comes to making loans because our regulators tend to look at us and drive us statistically. 

We certainly try in our community branches to be the kind of 

personal lender that my compadres over here are, but, obviously, 

because of the size of the institution, we aren’t always able to do 

it as well as they are in those kind of situations. 

Mr. RENACCI. Mr. Haning, Mr. Cole, financial institutions often 

tell me they have no recourse when they have a dispute with the 

regulator, be it the FDIC, the OCC, or the Federal Reserve. In 

other words, the regulator is the judge, the jury, and the executioner for any dispute or disagreement in a regulatory examination. 

How could the appeal process be improved in your mind or your 

thoughts? And could the office also be strengthened to give it more 

substantial power? 

Mr. HANING. Congressman Renacci, I have a tendency to want to 

agree with that assessment, but I also feel like there is a process 

in place. The Ohio Bankers League also has a procedure in which 

we can do some things anonymously and have the association pass 

on the rule and regulation. 

It comes down to the point of, we need to make a conscious decision, is it worth the time and effort and possible retribution of disVerDate Nov 24 2008 15:20 Aug 23, 2012 Jkt 075088 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 K:\DOCS\75088.TXT TERRIE
28 

agreeing with an examiner, what the outlying results would be if 

we just let it go and try to comply. But having an opportunity or 

a process that understands is very critical. I think they have those 

things in place. 

I have not taken that process, so I can’t address that specifically, 

but it is needed. There does need to be an avenue to share your 

findings without a specific name and number. 

Mr. RENACCI. Just a quick follow-up, because you said something 

that is very important, possible retribution. Do you believe banks 

fear that, possible retribution? I know, a lot of times, they don’t 

want to appear in front of a panel because of possible retribution, 

so— 

Mr. HANING. I don’t think it is anything, yes. 

They will come in and they may dig a little deeper. They may 

find a particular area that they want to drill down on and find possible issues. So it is a possibility. I think, in general, it is not something that happens on a regular basis, but that is always a concern. 

Mr. RENACCI. Mr. Cole? 

Mr. COLE. I think it depends on, from my perspective, who the 

regulator is. 

We are a State-chartered bank, so, thereby, we are regulated by 

the State of Ohio. John, who is in the audience, who is director of 

the department of financial institutions, individual financial institutions, we have a great relationship with him. If I have issues, I 

can pick up the phone and call John. So I think the relationship 

there is different than it is on the national level. From what I have 

heard from my peers, the SEC is a little different. 

I also have a good relationship with the Federal Reserve Bank 

here in Cleveland, and I know policymakers, and I can pick up the 

phone and call. 

If you are not—unfortunately, the way the system works, I think 

it is a matter of who you know. 

Also, the issue is, is there blood in the water? 

Unfortunately, what I have seen over my career is, once there is 

blood in the water in a bank, there is very little motive for the regulator to not be more aggressive. They are not rewarded on the 

basis of public interest in terms of making loans. They are not rewarded to see that banks—how much banks do in the community. 

They are rewarded on the—and I think they have gotten unfairly 

punished on this last crisis, so I think they took a beating. And so 

if I am in their shoes, what am I going to do? I am going to err 

on the side of being overly conservative because I am not rewarded 

to do otherwise. 

So if there is a situation out there where there are potential 

problems, I don’t want my regulators walking away from that and 

not identifying everything. 

When there is blood in the water, yes, I think they can get overly 

aggressive, and I think the options for the individual banks are 

very limited. And, yes, I do think they fear that. At that point, having not been a CEO in that situation, but just surmising, if that 

were to occur, I would be very compliant. 

Mr. RENACCI. That is an interesting analogy, blood in the water. 

I will remember that one. Thank you so much. 

29 

I yield back. 

Chairwoman CAPITO. Mr. Duffy? 

Mr. DUFFY. In regard to retribution, I hear a lot of my institutions telling me stories, but saying, ‘‘Make sure you do not use my 

name. I don’t want my name out there associated with the story 

I am telling you, and I don’t want to go public. You can use it, but 

put a different name to it or leave it out.’’ 

Just maybe a little follow-up on the ability to make this—is it 

a character loan, or is it, you said, informed judgment, and how 

that is now scrutinized. And I think Mr. Renacci made a good 

point. You had someone who was willing to make an informed judgment or look at his character and take a little larger risk on him. 

And I imagine, in all of our communities, our financial institutions 

being willing to make that kind of call have bred more success than 

failure, I would imagine. That is why you can do it and there are 

factors you can look at. 

I think that is one of the concerns that I continuously hear; you 

can’t use your judgment as a banker to invest in a business where 

the owner has good character and is a good risk, because when the 

regulators come in, it will be classified. 

Is that basically what your point was, Mr. Cole? 

Mr. COLE. Yes. I did commercial lending for 20 years, and I think 

maybe I was luckier than I was good, because I had a lot of success. In the whole 20 years, I only had a few loans go bad, and I 

had many businesses prosper. 

And, yes, I used a lot of intuitive judgment and was given the 

flexibility at that time to do that, as long as I had a good rationale 

to support the loan. 

Today, it is not that way. The same loans that I made then, I 

would not be allowed to do today. And the document has to be supported numerically. Again, there is a grading system. 

And there is a heavy, heavy emphasis, a flawed emphasis, on collateral and collateral values that, to me, is a whole other subject 

in how this appraisal process is working. 

But, again, my evaluation of collateral in my community, which 

I probably know better than anyone, would not be able to be used. 

So there are a lot of things that have changed, and we have become more sophisticated. There is modeling that must be done, 

which has been going on in all aspects of the banking industry. 

And we saw in the crisis that these models fail. These models 

should never have replaced intuitive judgment, should never have 

replaced human intelligence. Unfortunately, those models are being 

used as the only intelligence. 

Mr. DUFFY. Maybe just one other thought, and I will then yield 

back. Switching gears to the CFPB and consumer protection. 

One of the concerns we have had on our committee is, we have 

our basic standard of safety and soundness, and then, here, we 

have the CFPB with a different standard of consumer protection 

and, at some point, those may sing in unison, but at some point, 

they may be contradictory, which has led us to have, I think, a lot 

of concern as to how we are going to deal with safety and soundness and consumer protection. 

Maybe if I can, again, echo what somebody else said earlier, if 

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30 

sumers over and treating them unfairly, they will go across the 

street to another bank or credit union and you do not stay in business for very long, unless you are one of the bad actors who are 

able to set up shop on the corner and engage. 

Have you thought through the consumer protection regulation 

side as opposed to safety and soundness? Has that had any points 

of concern for any of you? 

Mr. BARNES. It certainly has been a concern for credit unions. 

With respect to the CFPB, generally, credit unions support their 

mission. Taking care of and making sure consumers get a good deal 

is at the heart of what we do, what we have always done. So, we 

want to see that continue. 

And we also feel that the Director—certainly, we, in Ohio, have 

a good relationship with Mr. Cordray and we believe that he certainly intends to do the right thing. 

With that said, however, there are issues and concerns that we 

do have about the Consumer Financial Protection Bureau. First of 

all, the existence of a single director is troublesome for us. We 

would prefer to see a panel, similar to the NCUA board, and appropriate congressional oversight. We feel that is important. 

The other thing that we see about the Consumer Financial Protection Bureau is this: Credit unions have always given their members a good deal. I will say that over and over. And that is what 

the Consumer Financial Protection Bureau is in place to ensure. 

So, as they are looking at rules and regulations and processes, 

even though they are not in charge of the enforcement of the majority of credit unions, we still have to follow their rules. And any 

time rules change, while the outcome may be the same, and consumers, our members, still get a good deal, those new rules come 

along with an increased cost of compliance. 

And then the second thing is, we just don’t want to see mission 

creep. We want to make sure that the Consumer Financial Protection Bureau really does what it was intended to do, and that is, 

take over the administration and enforcement of those rules and 

regulations, as opposed to adding new ones to the mix. 

So we are concerned about that, and we are keeping a close eye 

on it. But that is our position on that, sir. 

Mr. DUFFY. Mr. Fireman? 

Mr. FIREMAN. I was just going to say, with regard to the CFPB, 

I had meetings last month with the Director and I discussed with 

him, not as related to us, but just concerns in various sectors that 

I have heard about the agency, fear. And his message was, ‘‘Have 

them come talk to me. I am a reasonable guy.’’ And I think everybody knows that he is. So, I just wanted to send that message. 

Mr. DUFFY. And I have heard a lot of positive comments that the 

concern, when you set up an agency, will he be a lifetime appointee? Probably not. You will see other heads of the agency, 

which has raised some concern. But I think—is he in Mr. Stivers’ 

district? Maybe I am wrong on that. 

And one of the other concerns that we brought up in a bill that 

I introduced was the fact that, if there is going to be a rule that 

comes up from the CFPB that is undermining safety and soundness, it can be overturned by FSOC with a supermajority vote. 

31 

I just have a hard time believing that Mr. Barnes or Mr. Cole 

could make that appeal to FSOC; that a rule that affects you two 

negatively will then, therefore, affect safety and soundness in the 

country. I don’t know if they are going to listen to you. 

But, in essence, if you are a bigger—and, Mr. Blake, maybe not 

even you. I think if you have a larger Wall Street bank, though, 

no doubt, they can make that argument. 

And, again, you have empowered those institutions that did not 

necessarily have other—those institutions that were involved in the 

crisis and have left voiceless those who didn’t have any real role 

in the crisis with this agency that was supposed to address consumer protection. 

So, I appreciate you all coming in. And I don’t know that I will 

get another chance to question you, but I appreciate your honesty 

and your willingness to share with us. 

I yield back. 

Chairwoman CAPITO. Thank you. 

Do you have any other further questions, Mr. Renacci? Would 

you like to make any comments? 

Mr. RENACCI. Thank you. I am going to go back to the CFPB because I did ask Mr. Cordray, and Mr. Cordray is a good man, but 

I asked him a question last week or 2 weeks ago in a hearing, that 

he is walking into all of these examinations with an attorney. Can 

you all tell me what your thoughts are when the CFPB walks into 

your establishment—if they have, or if they haven’t yet—with an 

attorney? 

Mr. HANING. Congressman Renacci, I would like to address that. 

I also met with Director Cordray last month in Washington, and 

I talked with one of their newly-hired employees who said their 

count was up to 100, and 87 of them were attorneys. So everybody 

in his group has a legal background. 

He also assured us that, for the best of the order, their regulation wouldn’t affect community banks, but that is not the case, because what the examiners hear in the way of review trickles down 

to us in the terms of best practice. 

They don’t need to learn six or seven different ways of reviewing 

the same type of loan, so they are going to use a best practice. 

And although we have a good relationship with Mr. Cordray and, 

once again, as my colleagues here said, we are not on board with 

their method of reporting, we do have concerns. We do have compliance issues. And if the best practice comes down, I think we are 

all going to be looking at the same regulations. 

Mr. COLE. Here is the analogy I would like to draw, in that I 

think you all remember when the Cuyahoga River was on fire and 

we couldn’t fish out on Lake Erie, couldn’t drink or swim in Lake 

Erie. And so, there was a need for an intervention by the government to put safeguards in place to protect the citizens. And having 

grown up in this area, I was all in favor of it. And now we have 

an opportunity with drilling in Ohio, to have a significant economic 

boom in my area. And we want to make sure that the EPA, again, 

acts responsibly to safeguard the citizens, and at the same time, 

allow for economic development. 

I see that same application as it applies to the CFPB, as the new 

EPA of the financial word. It has a purpose. There was damage 

32 

that was done. There were consumers who were harmed. And I 

think we all want to see that fixed and corrected, but at the same 

time, we have to make sure that it doesn’t impede economic development, because, of those same citizens that they are protecting, 

they are going to be harming. 

Mr. RENACCI. I would always use the analogy, and I have used 

it many times, I was a fireman at one point in time, and everybody 

thought that the way to save the building was to throw more water 

on it. Sometimes, when you throw more water on it, the building 

burns faster. Keep that in mind as we talk about regulations going 

forward. 

But I do also want to thank all of you. You have been very honest, and I appreciate your comments. I look forward to working 

with you over the rest of this year and into the future. 

Thank you. 

Chairwoman CAPITO. I want to thank our panelists and our audience. And I think we have gotten some excellent testimony. I want 

to thank you for taking time out of your busy days, particularly on 

a Monday, to come before us. 

The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, this hearing record will remain open for 30 days 

for Members to submit written questions to these witnesses and to 

place their responses in the record. 

This hearing is adjourned. 

[Whereupon, at 11:45 a.m., the subcommittee was adjourned.] 

(33) 

A P P E N D I X 

April 16, 2012 

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