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THE IMPACT OF THE DODD-FRANK ACT: 

UNDERSTANDING HEIGHTENED REGULATORY 

CAPITAL REQUIREMENTS 

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 

MAY 18, 2012 

Printed for the use of the Committee on Financial Services 

Serial No. 112–130 

( 

(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: 

May 18, 2012 ..................................................................................................... 1 

Appendix: 

May 18, 2012 ..................................................................................................... 15 

WITNESSES 

FRIDAY, MAY 18, 2012 

McCardell, Daniel, Senior Vice President and Head of Regulatory Affairs, 

The Clearing House Association L.L.C. .............................................................. 3 

Wald, Richard C., Chief Regulatory Officer, Emigrant Bank .............................. 5 

APPENDIX 

Prepared statements: 

Canseco, Hon. Francisco .................................................................................. 16 

Grimm, Hon. Michael ....................................................................................... 17 

King, Hon. Peter ............................................................................................... 18 

Maloney, Hon. Carolyn .................................................................................... 19 

McCardell, Daniel ............................................................................................. 24 

Wald, Richard C. .............................................................................................. 32 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Maloney, Hon. Carolyn: 

Written statement of the New York Bankers Association (NYBA) .............. 36 

Letter from Sheila Bair, Senior Advisor, the Pew Charitable Trusts, 

and former Chairman, FDIC ........................................................................ 38 

Renacci, Hon. James: 

Written statement of the American Council of Life Insurers (ACLI) .......... 40 

Written statement of the Financial Services Roundtable ............................. 43 

(1) 

THE IMPACT OF THE DODD-FRANK ACT: 

UNDERSTANDING HEIGHTENED REGULATORY 

CAPITAL REQUIREMENTS 

Friday, May 18, 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 11 a.m., in room 

2128, Rayburn House Office Building, Hon. Blaine Luetkemeyer 

presiding. 

Members present: Representatives Capito, Renacci, Pearce, 

Luetkemeyer, Huizenga, Duffy, Canseco, Grimm; Maloney, McCarthy of New York, and Scott. 

Ex officio present: Representative Frank. 

Mr. LUETKEMEYER [presiding]. I think we will begin. Chairwoman Capito and Vice Chairman Renacci will be joining us later, 

so for now, you get a substitute Chair. 

Thank you all for coming this morning. 

I believe we have agreed to waive opening statements from both 

sides? Okay. Everybody is going to waive their opening statement 

except the ranking member, Mr. Frank, and so we will recognize 

him for 5 minutes. 

Mr. Frank? 

Mr. FRANK. Thank you. 

I want to address the procedural question here. There are two 

issues here, procedural and substantive. I don’t have any objection 

to either, but I do think it is important for our commitment to regular order that we be clear about this. 

The piece of legislation we are talking about today affects one institution. I have no objection to that, but I must be honest and say 

I was asked if we could do this in a way that would move quickly, 

and my answer was, yes, I would like to move quickly, but I think 

it is important that it be done in the light of day. Frankly, I think, 

had it not been done this way, somebody might have drawn adverse inferences about the legislation which aren’t justified. 

I will say that the underlying bill, the trust-preferred, when this 

amendment was offered—and it was an amendment that came 

from the Senator from Maine, Senator Collins—I thought it went 

too far. It was something that was prepared by the FDIC. I thought 

that for smaller banks, community banks, it was a little bit harsher 

than it should be right away. So I was, at that time, trying to ameVerDate Nov 24 2008 18:33 Sep 24, 2012 Jkt 075736 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\75736.TXT TERRIE
2 

liorate it, and I thought the phasing in of the grandfathering was 

very important. 

We now have one bank which misses, I guess, the date by a very 

small amount of time, and I don’t think that does any substantive 

harm. And, as I said, it was a provision of a bill of which I had 

some questions. But I did think it was in the interests of all of us 

to have this done in an open way. 

I believe, at the end of this process, it is unlikely that anyone 

will have substantive objections. I do think we should be asking the 

regulators. We asked the FDIC, and they told us they had no position on it. I think it is important that that be the case. The FDIC 

had been a strong advocate of the underlying amendment by Senator Collins, and it, I think, would have been a problem if we had 

gone ahead and not asked them, because I have had a great deal 

of respect for the way the FDIC has operated. So we have a view 

by the FDIC that there is no—they have no objection, they are neutral on the subject. I think it is important to have that out there. 

And now, I hope that we will have a conversation. This is an opportunity, if anyone thinks there is anything wrong with this, they 

have the opportunity to say so. I, myself, have not seen substantive 

objections that seem to me to have appropriate weight, but I did 

think it was important that the process be this way. And I would 

expect, as a result of this hearing, if we don’t hear any substantive 

negative objections, this bill will proceed, it will get voted on, and 

I think that is the way it ought to be. 

Thank you. 

Mr. LUETKEMEYER. Okay. With that, we will recognize the ranking member of the subcommittee, Mrs. Maloney. 

Mrs. MALONEY. I waive my opening statement and ask unanimous consent to place in the record a statement in support of the 

bill from the New York Bankers Association; a statement from 

Sheila Bair, former Chairman of the FDIC; and my own opening 

statement. 

And I want to publicly thank Ranking Member Frank for his 

commitment to openness, regular order, and a fair voice for everyone, and I also thank him for his leadership in authoring DoddFrank and for his leadership in so many areas. 

So I thank you, and I yield back. 

Mr. LUETKEMEYER. Without objection, it is so ordered. 

With that, the balance of the opening statements—anybody else 

who wants to have one can put them into the record. 

But, with that, we will hear testimony from our witnesses here 

this morning: Mr. Daniel McCardell, vice president and head of 

regulatory affairs for The Clearing House Association L.L.C.; and 

Mr. Richard Wald, chief regulatory officer for Emigrant Bank. 

Gentlemen, you have 5 minutes. The little machine in front of 

you there will light up. And please pull the microphone close and 

speak as clearly as possible. 

Mr. FRANK. Mr. Chairman, would you yield to me briefly, just so 

I can clarify? We have the letter from Sheila Bair. Sheila Bair, 

when she was head of the FDIC, was the major advocate for this. 

And we did ask her specifically if she had any comment on the legislation, and, once again, she had no particular comment. 

3 

I think it is important to say that she is a strong supporter of 

the underlying amendment but has no objection nor approval for 

the bill that we are talking about for the one institution. And given 

her role in this, and the justified reputation she has for integrity, 

I think her saying that she has no comment one way or the other 

is an important piece of this and is in line with what I said earlier. 

Mr. LUETKEMEYER. Do you have a letter to that effect? 

Mr. FRANK. The gentlewoman— 

Mr. LUETKEMEYER. Okay. 

Mr. FRANK. That was in the letter. The letter is about the underlying bill, but I think there was some question, would she object 

to the particular bill— 

Mr. LUETKEMEYER. Okay. 

Mr. FRANK. —and she has no objection to make to the particular 

bill. And I will say, from my experience with Ms. Bair, if she 

doesn’t like something, you know about it. She is a woman of very 

few secrets about her dislikes, and we have benefited from that 

openness. 

Mr. LUETKEMEYER. Okay. Thank you for that clarification. 

Mr. McCardell, you are recognized for 5 minutes. 

STATEMENT OF DANIEL MCCARDELL, SENIOR VICE PRESIDENT AND HEAD OF REGULATORY AFFAIRS, THE CLEARING 

HOUSE ASSOCIATION L.L.C. 

Mr. MCCARDELL. Thank you. 

Mr. Chairman, Ranking Member Maloney, and members of the 

subcommittee, my name is Dan McCardell, and I am senior vice 

president and head of regulatory affairs for The Clearing House Association. I appreciate the opportunity to appear before you today 

to discuss Section 171 of the Dodd-Frank Act, commonly known as 

the Collins Amendment. 

By way of background, The Clearing House was established in 

1853 and is the oldest banking association and payments company 

in the United States. It is owned by 24 commercial banks that collectively employ over 2 million people. The Clearing House is a 

nonpartisan advocacy organization representing its owner banks on 

a variety of systemically important banking issues. 

Before I address the specific topic of today’s hearing, let me begin 

by reiterating our strong support for recent U.S. regulatory reform 

efforts which have substantially increased the quantity and quality 

of capital that banking organizations are required to hold. This is 

critically important, as insufficient capital at some institutions 

clearly contributed to the onset and escalation of the financial crisis. As I will discuss, U.S. banking organizations have already significantly increased the amount of capital they hold as a result of 

these regulatory reform efforts. 

We have also consistently supported significant and fundamental 

changes to financial services regulation in order to establish a regulatory framework that both protects the financial system against 

potential systemic risks and enables banks to play their critical 

role in fostering economic and job growth. We are concerned, however, that certain specific aspects of these capital reforms could potentially work at cross purposes with these important policy objectives. 

4 

The Collins Amendment does three things of particular importance to our members. First, it imposes a minimum risk-based capital floor consisting of the Basel I base requirements on certain 

large U.S. banks. Second, these so-called Basel II banks are required to calculate their minimum capital requirements under both 

Basel I and Basel II in perpetuity. Third, with a limited exception 

for smaller bank holding companies, the Collins Amendment requires a phaseout of trust-preferred and other hybrid securities 

from inclusion in Tier 1 capital. 

The Collins Amendment’s imposition of the Basel I floor is but 

one of a number of U.S. and international regulatory reform initiatives that have increased the amount and quality of capital that 

U.S. banks are required to hold. For example, the final Basel III 

capital and liquidity frameworks have been the foundation for postcrisis international efforts to address capital adequacy and liquidity 

risk. The Federal banking agencies have also adopted the capital 

plan rule, which requires that covered banks demonstrate their 

ability to maintain capital above existing minimum requirements 

under severely stressed conditions. 

The heightened capital requirements under Basel III alone will 

require U.S. banking institutions to increase the amount of Common Equity Tier 1 capital by over 100 percent from the amount 

held before the crisis. In addition, as a result of the imposition of 

Basel III’s quantitative, qualitative, and risk-rating requirements, 

the 7 percent minimum Common Equity Tier 1 ratio under Basel 

III is equivalent to a 14 percent Tier 1 common equity capital ratio 

under the pre-crisis Basel I rules. 

Furthermore, Basel III and related enhancements to the capital 

framework made under Basel II.5 not only address aggregate capital requirements but also the specific areas in which excessive risk 

was thought to have been incurred. For example, Basel II.5 dramatically increases, often by 400 percent or more, the capital 

charge on trading positions held by banks. 

There will also be significant practical challenges in complying 

with the Collins Amendment’s Basel I floor requirements. As I 

mentioned, Basel II banks in the United States will be required in 

perpetuity to calculate their capital requirements under two different regimes. This will entail a significant amount of duplication 

that we believe will make capital planning a needlessly complex 

endeavor, as these institutions will need to organize their capital 

planning policies and procedures and operations around two separate and distinct capital regimes. Significant supervisory resources 

will also need to be expended by the Federal banking agencies to 

monitor this duplicative capital exercise. 

In addition to these administrative complexities and 

redundancies, the Collins Amendment’s Basel I base floor and 3- 

year phaseout of hybrid securities could place U.S. institutions at 

a competitive disadvantage. Other jurisdictions have not adopted 

the Collins Amendment’s approach of imposing a Basel I floor. Accordingly, the potentially higher resulting capital requirements will 

apply to U.S. banking institutions but not to their overseas competitors. 

An implicit assumption underlying the Collins Amendment’s 

Basel I floor appears to be that requiring more capital is always 

5 

a better policy outcome. However, we believe that there is a significant underappreciation of the tradeoffs between ever-higher capital 

levels and the risk of reducing economic and job growth and pushing financial transactions to the shadow banking sector. 

In conclusion, we believe that the policy concern that apparently 

gave rise to the Collins Amendments Basel I base minimum capital 

floor—namely, that the Basel II approach could require too little 

capital—has been separately and more appropriately addressed by 

other regulatory reforms that have resulted in significant enhancements to both the quantity and quality of capital held by U.S. 

banking organizations. We urge policymakers in Congress, the Administration, and the Federal banking agencies to keep these 

issues in mind as the financial services regulatory reform efforts in 

the United States and internationally are evaluated and considered 

on an ongoing basis. 

Again, I thank you for the opportunity to testify before you 

today, and I look forward to any questions you may have. 

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

24 of the appendix.] 

Mr. RENACCI [presiding]. Thank you, Mr. McCardell. 

Next, we have Mr. Richard Wald, chief regulatory officer, Emigrant Bank. 

You are recognized for 5 minutes. 

STATEMENT OF RICHARD C. WALD, CHIEF REGULATORY 

OFFICER, EMIGRANT BANK 

Mr. WALD. Thank you, Mr. Chairman, and members of the subcommittee. Thank you for allowing me this opportunity to provide 

testimony in support of H.R. 3128. 

By way of background, I began my career as an attorney with 

the FDIC. For the last 20 years, I have been with Emigrant Bank. 

I currently serve as the chief regulatory officer of Emigrant and the 

CEO of the residential and commercial real estate lending divisions. 

Chartered in 1850 as a mutual savings bank, Emigrant is the 

oldest savings bank in New York City. Its 32 branches are mostly 

concentrated in the outer boroughs, where we do most of our residential and small-balance commercial lending. As of today, Emigrant has approximately $10.5 billion in assets and is considered 

by its regulators to be well-capitalized and in compliance with all 

regulations. Emigrant has operated with less than $15 billion in 

assets for most of its history. 

The bank supports passage of H.R. 3128 because we believe it is 

consistent with the original intent of the Collins Amendment to 

allow institutions with less than $15 billion in assets to continue 

to include trust-preferreds in Tier 1 capital and, thus, be grandfathered from the bill’s limitations. In this regard, the bill furthers 

the public policy of enhancing credit availability to residential borrowers and small-business owners. 

Specifically, the bill seeks to establish an additional lookback 

date for the part of the Collins Amendment that sets the criteria 

for which institutions are grandfathered. Under Collins, an institution may no longer count its trust-preferreds as Tier 1 capital, 

eliminating such amount by one-third in each year for 3 years comVerDate Nov 24 2008 18:33 Sep 24, 2012 Jkt 075736 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 K:\DOCS\75736.TXT TERRIE
6 

mencing this January. This capital restriction affects all institutions except those with assets under $15 billion as of December 31, 

2009. 

The Collins Amendment grandfathered these smaller community 

banks, and while we believe the policy for such grandfathering is 

sound, it is the lookback date for which assets are measured that 

needs to be expanded. We believe an additional lookback date of 

March 31, 2010, is necessary as a matter of promoting credit availability. Every other cutoff date in the Collins is May 19, 2010, or 

later. 

Importantly, Emigrant was briefly and temporarily over the $15 

billion asset size on December 31, 2009, because of a prudent, cautious move to increase its liquidity during the height of the financial crisis. During the first quarter of 2008, as the financial crisis 

appeared to escalate, we analyzed the extent of our uninsured deposits above the $100,000 deposit insurance limit. We determined 

that we had $2.3 billion in uninsured deposits that were most at 

risk of being pulled from the bank if the financial crisis worsened. 

To be extra cautious, the bank borrowed $2.3 billion from the Federal Home Loan Bank of New York at 21⁄2 percent. 

Soon after we borrowed these funds, the deposit insurance limit 

was raised to $250,000. This would have largely eliminated our 

need for this liquidity insurance. However, these Home Loan Bank 

borrowings could not be prepaid without penalty except starting 

during the first quarter of 2010. The penalty on such prepayment 

would have been $40 million. 

We held this liquidity insurance as an asset at the Federal Reserve because of the safety and ease of access of keeping them at 

the Fed. Ultimately, all of these Home Loan borrowings were repaid during the first quarter of 2010, and we used the assets held 

at the Fed to retire this borrowing. Thus, by March 31, 2010, Emigrant was once again a sub-$15 billion community bank. Indeed, by 

the end of that quarter, we had about $13 billion in assets. 

So the cruel irony here is that because we were prudent and prepared for a worst-case scenario that never came to pass, we were 

temporarily above $15 billion in assets on December 31, 2009. 

Today, we are unable to avail ourselves of the grandfathering provision that was established for community banks like us. Consequently, without the bill, we would be required to begin to eliminate $300 million in trust-preferred from our capital over the 

course of the next 3 years. In year one alone, we would lose the 

capacity to originate $2 billion in one- to four-family, bread-andbutter residential real estate loans. 

Given Emigrant’s role as a 150-year-old community bank primarily serving the outer boroughs of New York City, this would be 

an odd result and inconsistent with the very purpose of the 

grandfathering provision of the Collins Amendment—to ensure 

that community banks like Emigrant could provide sorely needed 

residential and commercial lending in the communities they serve, 

especially during these difficult and uncertain economic times. 

We thus urge passage of H.R. 3128 in order to address the unintended consequences of the lookback date now in the Collins 

Amendment. This will allow Emigrant to continue to fulfill its imVerDate Nov 24 2008 18:33 Sep 24, 2012 Jkt 075736 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 K:\DOCS\75736.TXT TERRIE
7 

portant mission as a portfolio lender of residential and small business loans in the New York City boroughs. 

Thank you for the opportunity to testify, and I would be happy 

to answer any questions. 

[The prepared statement of Mr. Wald can be found on page 32 

of the appendix.] 

Mr. RENACCI. Thank you, Mr. Wald. 

We are now going to recognize Members for 5 minutes each. 

First, I will recognize myself for 5 minutes. 

Mr. Wald, in your testimony, you say that under the Collins 

Amendment, the bank would be required to eliminate $100 million 

of the trust-preferred securities that count toward its Tier 1 capital 

ratios each year for 3 years. How will Emigrant Bank look to replace this Tier 1 capital? Will you raise capital or reduce your assets? 

Mr. WALD. As a privately-held institution, it is a little bit more 

difficult for us to access the equity markets to raise capital. What 

we have normally done over the years is to build capital the oldfashioned way, through retained earnings. 

Mr. RENACCI. Let’s assume Emigrant Bank phases out their 

trust-preferred securities and it cannot replace them with a qualified form of Tier 1 capital. What would that mean for the bank and 

for its customers? Will you have to cut back on lending, or what 

would you be doing? 

Mr. WALD. As of today, we are already at $10.5 billion. So we we 

may, in fact, have to face this elimination of trust-preferreds. And, 

consequently, I think it will impair or curtail lending. 

Mr. RENACCI. Okay. 

Mr. McCardell, according to the Federal Reserve, 85 percent of 

bank holding companies with more than $10 billion in total assets 

included hybrid capital in their Tier 1 capital. Trust-preferred securities accounted for 82 percent of the hybrid capital instruments. 

What are the other types of hybrid capital? And what made 

trust-preferred securities so popular? 

Mr. MCCARDELL. Thank you for the question. 

Trust-preferred securities were obviously tax-beneficial. They 

were a hybrid of debt and equity. They provided certain tax benefits. They were useful in terms of using for Tier 1 capital. 

That said, since the phaseout, particularly for large banks, since 

the Collins Amendment, our member banks have basically been required to find other forms of capital to replace that. And our member banks are on track to do so. 

Mr. RENACCI. Okay. 

How many bank institutions will fall below the minimum 

amounts of regulatory capital if trust-preferred securities are excluded from Tier 1 capital? Any thoughts or ideas? 

Mr. MCCARDELL. I don’t have any data on that. Again, I know 

that our member banks are complying with Collins and are on 

track to phase out trust-preferred securities and replace those with 

other forms of capital in Tier 1. 

Mr. RENACCI. Okay. 

I have no more questions. I am going to recognize Mrs. Maloney 

for 5 minutes for questioning. 

8 

Mrs. MALONEY. I want to thank you for calling this hearing, and 

I want to thank the panelists today for your testimony. 

And I would like to ask Mr. Wald, your testimony states that Emigrant was above the $15 billion threshold for a period of approximately what, 2 years? 

Mr. WALD. Yes, for a couple of years. 

Mrs. MALONEY. Okay. Can you elaborate on the decisions that 

made the bank over the threshold? 

Mr. WALD. As I said in the testimony, we, and I am assuming 

a lot of community banks during the financial crisis, were evaluating the extent that they were holding deposits that were above 

the $100,000 deposit insurance limit. And, obviously, to the extent 

that those deposits exceeded $100,000, they were the most vulnerable deposits that could leave the institution in the event of a continuation of the crisis. 

So what we tried to do was create a replacement liquidity as insurance just in case an event like that did occur. Fortunately, nothing happened. And, in addition, shortly after that, the FDIC recognized that this was a concern, I guess, not only of us but of other 

institutions, and raised the deposit insurance limit to $250,000. 

Mrs. MALONEY. And the assets in your bank are what, $10 bil- lion, $13 billion consistently, basically? 

Mr. WALD. We are currently $10.5 billion, projected to be under $10 billion by the end of the year. 

Mrs. MALONEY. So during the economic crisis, in probably early 

2008, you took steps basically to enhance the finances, the flexibility and the capital to be able to have a greater financial firewall 

in light of the uncertainty of the times. And it seems like a perfect 

example here that no good deed goes unpunished. You took steps 

to protect your depositors, to protect the safety and soundness of 

your institution and, therefore, the larger economic community, 

and inadvertently you have been caught in this, what I would describe as an unfair, unintended consequence. 

I would like you to describe the consequences of this bill in terms 

of, first, the number of bank holding companies on which it could 

confer grandfathered status—or, Mr. McCardell, you might want to 

weigh in on these questions—second, whether a change in grandfathered status would affect the capital adequacy of such bank 

holding companies; and, third, the resulting public policy benefits 

of expanding the scope of the grandfather. And as I understand it, 

there will be two dates now. 

Would you like to elaborate? Either of you? 

Mr. WALD. I can only speak to Emigrant itself. We have enough 

to deal with now with the implementation of Dodd-Frank as it is 

going forward. But I really don’t know whether or not it affects 

other institutions. 

Mr. MCCARDELL. Again, our institutions are adapting. 

I would just highlight one additional issue, in fact the core issue 

that we have with Collins on behalf of our member banks, and that 

is the transition schedules, in which we see there is a 3-year transition schedule for Collins, and yet a 10-year transition schedule for 

trust-preferreds under Basel III. We would actually like to see that 

addressed and perhaps see those two reconciled. 

Mrs. MALONEY. Okay. 

9 

I have no further questions, and I yield back. 

Mr. RENACCI. Thank you, Mrs. Maloney. 

Before recognizing the next Member, I want to ask unanimous 

consent that the following items be made a part of the record: a 

letter from the American Council of Life Insurers; a letter from the 

Financial Services Roundtable; and the opening statements of Mr. 

Bachus, Mrs. Capito, Mr. Hensarling, Mr. Canseco, and Mr. 

Grimm. 

At this time, I recognize Mr. Luetkemeyer for 5 minutes. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. 

I am just kind of curious, Mr. McCardell, if we don’t do anything 

with this amendment, if this amendment would not pass or would 

not be implemented, what is the risk that we have? 

Mr. MCCARDELL. Our member banks that are the largest commercial banks in the country are complying with Collins; we are on 

track for that. We are finding new forms of capital to replace trustpreferreds— 

Mr. LUETKEMEYER. What kind of capital? When you say new 

forms, can you explain? 

Mr. MCCARDELL. Common equity, for instance, among others, 

which is the most stable form of— 

Mr. LUETKEMEYER. Selling more stock? 

Mr. MCCARDELL. Correct. 

So we are adapting, our member banks are adapting. Again, I 

would just flag the issue I mentioned a minute ago, which is the 

transition schedules, where there is a disparity between the Collins 

and the Basel III. So suffice it to say that our members are adapting. 

Mr. LUETKEMEYER. Okay. My question, though, is, what is the 

risk if we don’t do this? 

Mr. MCCARDELL. To our members, we don’t see a significant risk. 

Mr. LUETKEMEYER. What is the risk if we do it? Is there enhanced risk? Is there less risk? 

Mr. MCCARDELL. Again, we did have some issues with Collins, 

but are on track to comply. I think our banks are doing a good job 

in moving in a direction to comply with Collins. 

Mr. LUETKEMEYER. Okay. I am kind of curious—I think I know 

the answer, but let me ask you, if a bank goes under and it has 

trust-preferred securities, where does it stand in the loss column? 

At what point—is it lost like stockholders, or are they part of the 

group that would be paid back something? 

Mr. MCCARDELL. I believe for trust-preferreds, it is lower than 

common equity. I would need to confirm that for you. And, again, 

that is in the process of being phased out right now over the next 

several years. 

Mr. LUETKEMEYER. So that is one of the concerns, I would assume, and the reason for the amendment, in that there is concern 

that it really isn’t equity, that there is some ability to pay it back. 

The stockholders or whomever has stock in the bank should be the 

last to realize anything out of it if things go bad. And you should 

be able to go back to those capital accounts, which are the dollars 

that are invested in stock, to be able to absorb whatever losses. 

And if you can’t use those trust-preferred securities as something 

10 

you can absorb losses with, that, I assume, is why they are no 

longer treating it as capital. Is that— 

Mr. MCCARDELL. I believe that probably was one of the motivations behind Collins. 

Mr. LUETKEMEYER. Okay. 

Mr. Wald, I know the discussion has been to try and extend the 

phaseout from 3 years to 5 years. Would that help your situation 

significantly? 

Mr. WALD. I just want to comment, make one point on the question you just asked him, because the trust-preferred was issued at 

Emigrant’s parents’ holding company. And all of the proceeds of 

those trust-preferreds were then downstreamed to Emigrant Bank 

and the insured bank. 

So it actually, with regard to us, because we don’t hold those 

funds at the holding company, it is an additional capital buffer 

really for the benefit of the FDIC. 

Mr. LUETKEMEYER. Okay, so what you are saying is those dollars 

are actually equity that is in the bank— 

Mr. WALD. Exactly. 

Mr. LUETKEMEYER. —but they are securities—money has been 

put in them by their holding companies. 

Mr. WALD. Exactly. They are paid in capital at the bank—at our 

bank. 

Mr. LUETKEMEYER. Okay. So if something goes belly up with the 

bank, where does this put— 

Mr. WALD. The FDIC is better off that we had issued those trustpreferreds. 

Mr. LUETKEMEYER. Okay. As an examiner, a firm examiner, you 

can attest to that, I take it? 

Mr. WALD. It is held at the bank, not at the holding company. 

And, in fact, the regulators at any moment could go into any insured bank and tell them not to pay dividends to their holding 

companies to pay those trust-preferreds. So it is probably at the 

safest place it could be, if it is at the insured institution. 

Mr. LUETKEMEYER. Okay. 

That is basically all I have. I thank you, Mr. Chairman. I yield 

back. 

Mr. RENACCI. Thank you. 

I now recognize Mrs. McCarthy for 5 minutes. 

Mrs. MCCARTHY OF NEW YORK. Thank you, Mr. Chairman, and 

I thank you for holding this hearing. I think it is important. 

When we look at H.R. 3218, in doing some research over the last 

couple of weeks, we found that not only would it inadvertently disqualify institutions which have been grandfathered under the current date in the statue, and allowing for an additional quarter 

lookback period would only impact your institution, from what we 

have heard from the Feds. 

Is that your understanding also? 

Mr. WALD. I know it affects our institution. I am not sure whether it affects any other institutions. I haven’t looked at that. 

Mrs. MCCARTHY OF NEW YORK. We have learned that it would 

not affect any other institution. And for that, I think it is important that you go over the dates again. Because the dates, in my 

opinion, are what is important here. 

11 

When did the bank go above the $15 billion? You mentioned that threshold as a result of the $2.3 billion liquidity loan. And when 

you paid that loan back—and I think when you said the first quarter, for a lot of people—it was actually the first week in January, 

wasn’t it? 

Mr. WALD. The minute we had the opportunity to begin retiring 

the Federal Home Loan Bank borrowings without penalty, we 

started. 

Mrs. MCCARTHY OF NEW YORK. Correct. 

And just following up on a question that one of my colleagues asked you, what is your immediate plan to replace the $100 million 

of the Tier 1 capital you will lose in 2013? 

Mr. WALD. We are always looking at our assets, our liabilities, 

our capital position. We are currently overcapitalized. It really 

comes down to credit availability in the communities to whom we 

lend. And, how is this going to impact our ability to keep lending 

as vigorously and as safely as possible in those communities? I 

think that is the real question, and I think that is where it begins 

to impair our operations. 

Mrs. MCCARTHY OF NEW YORK. Just to go back again on the 

dates, and I know I am harping on the dates, but the dates are actually really important. Because in your testimony, you do have a 

good timeline on when you borrowed the money to cover during the 

difficult time that we were all going through and what the intent 

was in the beginning to have a March 31st date. And if you could 

go into that a little bit more, I think people would understand it. 

Mr. WALD. The borrowings from the Federal Home Loan Bank 

all occurred during the first quarter of 2008. We retired all of those 

borrowings during the first quarter of 2010. So that is the period 

of time, that $2.3 billion is what caused us to get over that $15 billion threshold. 

Mrs. MCCARTHY OF NEW YORK. Have you gone back to the $15 

billion, have you ever gone over that threshold since? 

Mr. WALD. No. No, we haven’t. In most of our history—and it is 

in my testimony—we have been well under $15 billion. We are currently at $10.5 billion now. 

Mrs. MCCARTHY OF NEW YORK. With that, I yield back. Thank 

you, Madam Chairwoman. 

Chairwoman CAPITO. The gentlelady yields back. 

Mr. Canseco is recognized for 5 minutes. 

Mr. CANSECO. Thank you, Madam Chairwoman. 

Mr. McCardell, in your testimony you say that the Collins 

Amendment, combined with higher capital levels under Basel, 

would push certain products and services to the so-called shadow 

banking system. And if I am reading your testimony correctly, are 

you saying that the overlap of Collins and Basel requirements 

could potentially increase risk in the financial system? 

Mr. MCCARDELL. We think there is an overarching risk across 

the regulatory spectrum that basically too much regulation in the 

financial sector, while we are highly supportive of higher capital 

standards, of the demands for higher quality capital, we are fully 

supportive of regulation which has strengthened the financial system and provided for greater stability, we think there is a risk in 

there that less-regulated financial institutions, the shadow banking 

12 

system, grows and becomes—is less regulated than the banking 

sector. And we think there are certain risks implicit in that. 

Mr. CANSECO. Let’s look at the trust-preferred for a second. I 

want to try to look at it from an investor’s point of view. And if 

I were an insurance company or a mutual fund and I needed to diversify my portfolio or separate accounts, what aspects of the trustpreferred issued by small or regional banks would be attractive for 

me from an investor standpoint? 

Mr. MCCARDELL. To be honest, Congressman, I can’t speak to 

that. Maybe my fellow panelist could. Again, our member banks 

are in the process of phasing these assets out and are on track for 

that currently. 

Mr. CANSECO. Let’s look at it from a perspective of a small or medium-sized bank. What aspects of it would be attractive to an investor to go in if we are doing away with the trust-preferred on 

Tier 1? 

Mr. MCCARDELL. I’m sorry? What aspect of trust-preferreds 

would be attractive to investors, is that what you are— 

Mr. CANSECO. Right. Would it be? 

Mr. MCCARDELL. I think the main appeal of trust-preferreds for 

banks was that they did have a tax advantage status and that they 

were constructive in that regard for use as Tier 1 capital. 

As to the demand for trust-preferreds by investors, I could get 

back to you on that. 

Mr. CANSECO. Okay. I would appreciate it. 

Is it prudent to harmonize capital standards for bank holding 

companies and depository institutions? And aren’t there significant 

differences between holding companies and depository institutions 

that would call for different capital standards? 

Mr. MCCARDELL. We believe that capital standards are harmonized across banks regardless of size today. We think that is 

positive, we think that is important. And today banks, regardless 

of size, are basically required to hold the same levels and the same 

quality of capital. So we do think that is a positive thing. 

Mr. CANSECO. But holding companies are very different from the 

banks that are held within the holding companies. 

Mr. MCCARDELL. Correct. And it is at the holding company that 

those standards are now harmonized. 

Mr. CANSECO. Okay. And do you think that is a good thing, that 

both the holding company and the bank be held to the same capital 

standards? 

Mr. MCCARDELL. Yes, that is the law, and I think it has provided 

for stronger capital standards and higher quality capital. And we 

think that has provided for a more stable system already. 

I think it is worth noting, by the way, that our member banks 

today hold approximately 100 percent more capital than they did 

pre-crisis. So, writ large, we think we are moving in a very positive 

direction with these higher capital standards. 

Mr. CANSECO. In your testimony, you note the importance of capital standards to balance the need between safety and soundness 

and economic growth. So, in your opinion, does the Collins Amendment meet the standard? 

Mr. MCCARDELL. I appreciate the acknowledgement of that. We 

do think it is an often underacknowledged risk or part of the sysVerDate Nov 24 2008 18:33 Sep 24, 2012 Jkt 075736 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 K:\DOCS\75736.TXT TERRIE
13 

tem that there is a balance between stability among the financial 

system, which we wholeheartedly support, and economic growth 

and job growth at the other end. And we think at some point, there 

is a tradeoff. 

Again, banks are holding far more capital today, the system is 

far more robust. Collins arguably has contributed to that. And, 

again, we think we are in a far better position in terms of capital 

today. 

Mr. CANSECO. So you like that Collins Amendment? 

Mr. MCCARDELL. We had some issues, as I mentioned, the transition issues. There were some issues we had under there in terms 

of applying a mandate to use both Basel I and Basel II methodologies to test capital. But it is the law of the land. Outside of the 

transition issue, we are supportive. 

Mr. CANSECO. Thank you, Mrs. Capito. I see my time has expired. 

Chairwoman CAPITO. Yes. 

Mr. Grimm is recognized for 5 minutes. 

Mr. GRIMM. I would like to thank you, Madam Chairwoman, for 

holding this hearing. 

Panelists, we appreciate you being here today. 

I would also like to thank my colleagues on the other side of the 

aisle, Carolyn Maloney, the gentlelady from New York, as well as 

the ranking member, Barney Frank, for helping organize and really 

working together in a bipartisan manner on this issue. So thank 

you very much to them, as well. 

Mr. Wald, a yes-no question, if I may. During the mortgage bubble, did Emigrant sell its loans into the securitization market or 

offer subprime loans or teaser rates, anything like that? 

Mr. WALD. Emigrant is a portfolio lender, and unlike all of the 

robo-signing issues and other servicing-related issues that you saw 

some of the larger institutions deal with, we have all of our loan 

documents in our vault— 

Mr. GRIMM. So that would be a very strong ‘‘no?’’ 

Mr. WALD. —on 42nd Street. Yes. 

Mr. GRIMM. Okay. 

Mr. WALD. Yes, it is a strong ‘‘no.’’ 

Mr. GRIMM. All right. And as you just started to say, I was going 

to ask you, how about—we hear a lot of problems about the robosigning, standing issues, loss of loan documents, incorrectly recorded deeds, all of those issues. You don’t have any of those problems at your bank? 

Mr. WALD. The bank has an unblemished record in that regard. 

Mr. GRIMM. Can you tell me a little bit about the local communities in New York City where Emigrant does its lending and how 

that lending will be impacted if we don’t take action today? 

Mr. WALD. Most of our branches are in the boroughs. And most 

of our borrowers are cops, teachers, firemen, or corrections officers. 

This is the traditional deposit and borrowing base that we—these 

are our customers. And so, to the extent that our capital has to 

shrink, obviously those are the types of individuals for whom credit 

will be less available. 

Mr. GRIMM. Obviously, this provision doesn’t take effect until 

January. Why is it important to fix it now? 

14 

Mr. WALD. We can’t wait until January to manage our balance 

sheet. We have to look at the future—we know this is coming down 

the pike, so we have already had to start. 

Mr. GRIMM. Have you already experienced any impact? 

Mr. WALD. Yes, we have already had to start thinking very carefully about the types of assets that we continue to put on our balance sheet. 

Mr. GRIMM. Let me ask you this, if you didn’t have this potential 

threat hanging over your head, would Emigrant be lending more 

today? 

Mr. WALD. Yes. 

Mr. GRIMM. With that, I yield back. 

Chairwoman CAPITO. The gentleman yields back. 

Since I was late—and I apologize for that; it has been kind of a 

crazy day—I am not going to ask any questions, because I have 

missed pretty much the substance of the questions. I would probably be repeating myself. 

But I want to thank both of the gentlemen for coming today. And 

I again apologize for starting late, but I think we have gotten a lot 

of good information. 

The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 30 days 

for Members to submit written questions to these witnesses and to 

place their responses in the record. 

This hearing is adjourned. 

[Whereupon, at 11:40 a.m., the hearing was adjourned.] 

(15) 

A P P E N D I X 

May 18, 2012 

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