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[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]

 
                   H.R. 3951--THE FINANCIAL SERVICES
                     REGULATORY RELIEF ACT OF 2002
=======================================================================

                                HEARINGS

                               BEFORE THE

                            SUBCOMMITTEE ON
               FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION
                               __________

                        MARCH 14; APRIL 25, 2002
                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 107-62

                     U.S. GOVERNMENT PRINTING OFFICE
78-401                       WASHINGTON : 2002
________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512-1800  
Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 JOHN J. LaFALCE, New York
MARGE ROUKEMA, New Jersey, Vice      BARNEY FRANK, Massachusetts
    Chair                            PAUL E. KANJORSKI, Pennsylvania
DOUG BEREUTER, Nebraska              MAXINE WATERS, California
RICHARD H. BAKER, Louisiana          CAROLYN B. MALONEY, New York
SPENCER BACHUS, Alabama              LUIS V. GUTIERREZ, Illinois
MICHAEL N. CASTLE, Delaware          NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York              MELVIN L. WATT, North Carolina
EDWARD R. ROYCE, California          GARY L. ACKERMAN, New York
FRANK D. LUCAS, Oklahoma             KEN BENTSEN, Texas
ROBERT W. NEY, Ohio                  JAMES H. MALONEY, Connecticut
BOB BARR, Georgia                    DARLENE HOOLEY, Oregon
SUE W. KELLY, New York               JULIA CARSON, Indiana
RON PAUL, Texas                      BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio                MAX SANDLIN, Texas
CHRISTOPHER COX, California          GREGORY W. MEEKS, New York
DAVE WELDON, Florida                 BARBARA LEE, California
JIM RYUN, Kansas                     FRANK MASCARA, Pennsylvania
BOB RILEY, Alabama                   JAY INSLEE, Washington
STEVEN C. LaTOURETTE, Ohio           JANICE D. SCHAKOWSKY, Illinois
DONALD A. MANZULLO, Illinois         DENNIS MOORE, Kansas
WALTER B. JONES, North Carolina      CHARLES A. GONZALEZ, Texas
DOUG OSE, California                 STEPHANIE TUBBS JONES, Ohio
JUDY BIGGERT, Illinois               MICHAEL E. CAPUANO, Massachusetts
MARK GREEN, Wisconsin                HAROLD E. FORD Jr., Tennessee
PATRICK J. TOOMEY, Pennsylvania      RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut       KEN LUCAS, Kentucky
JOHN B. SHADEGG, Arizona             RONNIE SHOWS, Mississippi
VITO FOSSELLA, New York              JOSEPH CROWLEY, New York
GARY G. MILLER, California           WILLIAM LACY CLAY, Missouri
ERIC CANTOR, Virginia                STEVE ISRAEL, New York
FELIX J. GRUCCI, Jr., New York       MIKE ROSS, Arizona
MELISSA A. HART, Pennsylvania         
SHELLEY MOORE CAPITO, West Virginia  BERNARD SANDERS, Vermont
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
PATRICK J. TIBERI, Ohio

             Terry Haines, Chief Counsel and Staff Director
       Subcommittee on Financial Institutions and Consumer Credit

                   SPENCER BACHUS, Alabama, Chairman

DAVE WELDON, Florida, Vice Chairman  MAXINE WATERS, California
MARGE ROUKEMA, New Jersey            CAROLYN B. MALONEY, New York
DOUG BEREUTER, Nebraska              MELVIN L. WATT, North Carolina
RICHARD H. BAKER, Louisiana          GARY L. ACKERMAN, New York
MICHAEL N. CASTLE, Delaware          KEN BENTSEN, Texas
EDWARD R. ROYCE, California          BRAD SHERMAN, California
FRANK D. LUCAS, Oklahoma             MAX SANDLIN, Texas
BOB BARR, Georgia                    GREGORY W. MEEKS, New York
SUE W. KELLY, New York               LUIS V. GUTIERREZ, Illinois
PAUL E. GILLMOR, Ohio                FRANK MASCARA, Pennsylvania
JIM RYUN, Kansas                     DENNIS MOORE, Kansas
BOB RILEY, Alabama                   CHARLES A. GONZALEZ, Texas
STEVEN C. LaTOURETTE, Ohio           PAUL E. KANJORSKI, Pennsylvania
DONALD A. MANZULLO, Illinois         JAMES H. MALONEY, Connecticut
WALTER B. JONES, North Carolina      DARLENE HOOLEY, Oregon
JUDY BIGGERT, Illinois               JULIA CARSON, Indiana
PATRICK J. TOOMEY, Pennsylvania      BARBARA LEE, California
ERIC CANTOR, Virginia                HAROLD E. FORD, Jr., Tennessee
FELIX J. GRUCCI, Jr, New York        RUBEN HINOJOSA, Texas
MELISSA A. HART, Pennsylvania        KEN LUCAS, Kentucky
SHELLEY MOORE CAPITO, West Virginia  RONNIE SHOWS, Mississippi
MIKE FERGUSON, New Jersey            JOSEPH CROWLEY, New York
MIKE ROGERS, Michigan
PATRICK J. TIBERI, Ohio

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearings held on:
    March 14, 2002...............................................     1
    April 25, 2002...............................................    35

Appendixes:
    March 14, 2002...............................................    57
    April 25, 2002...............................................   166

                               WITNESSES
                        Thursday, March 14, 2002

Buck, Carolyn, Chief Counsel, Office of Thrift Supervision.......     7
Dollar, Hon. Dennis, Chairman, National Credit Union 
  Administration.................................................    10
Kroener, William F. III, General Counsel, Federal Deposit 
  Insurance Corporation..........................................     6
Little, Roger W., Deputy Commissioner, Credit Unions Office of 
  Insurance and Financial Services, State of Michigan, on behalf 
  of the National Association of State Credit Union Supervisors..    28
McCaul, Elizabeth, Superintendent of Banks, New York State 
  Banking Department, on behalf of the Conference of State Bank 
  Supervisors....................................................    26
Olson, Hon. Mark W., Member, Board of Governors, Federal Reserve 
  System.........................................................     1
Williams, Julie L., First Senior Deputy Comptroller and Chief 
  Counsel, Office of the Comptroller of the Currency.............     4

                                APPENDIX

Prepared statements:
    Bachus, Hon. Spencer.........................................    58
    Capito, Hon. Shelley Moore...................................    59
    Gillmor, Hon. Paul E.........................................    60
    Royce, Hon. Ed...............................................    61
    Buck, Carolyn................................................   111
    Dollar, Hon. Dennis..........................................   130
    Kroener, William F. III......................................    91
    Little, Roger W..............................................   157
    McCaul, Elizabeth............................................   140
    Olson, Hon. Mark W...........................................    62
    Williams, Julie L. (with attachment).........................    72

              Additional Material Submitted for the Record

Williams, Julie L.:
    Information requested by Hon. Eric Cantor....................    90
                               WITNESSES
                        Thursday, April 25, 2002

                                                                   Page
Cheney, William, President/CEO, Xerox Federal Credit Union, on 
  behalf of the National Association of Federal Credit Unions....    42
Duke, Elizabeth A., Senior Vice President, Government Relations, 
  South Trust Corporation, Birmingham, AL, on behalf of the 
  American Bankers Association...................................    47
Gaither, Charlene R., Manager, Eastern Panhandle Community 
  Federal 
  Credit Union, Martinsburg, WV, on behalf of the Credit Union 
  National Association...........................................    40
Hage, Curtis L., Chairman and CEO, Home Federal Bank, Sioux 
  Falls, SD, Chairman, America's Community Bankers, Washington, 
  DC.............................................................    46
Stone, Pierce, Chairman, President & CEO, Virginia Community 
  Bank, 
  Louisa, VA, on behalf of the Independent Community Bankers of 
  America........................................................    44

                                APPENDIX

Prepared statements:
    Bachus, Hon. Spencer.........................................   168
    Oxley, Hon. Michael G........................................   167
    Gillmor, Hon. Paul E.........................................   169
    Cheney, William..............................................   184
    Duke, Elizabeth A............................................   271
    Gaither, Charlene R..........................................   170
    Hage, Curtis L...............................................   237
    Stone, Pierce................................................   229

              Additional Material Submitted for the Record

Gaither, Charlene R.:
    Written response to questions from Hon. Felix Grucci.........   183
Hage, Curtis L.:
    Written response to a question from Hon. Spencer Bachus......   268
    Written response to a question from Hon. Melissa Hart........   270
Financial Services Roundtable, prepared statement................   282

    H.R. 3951--THE FINANCIAL SERVICES REGULATORY RELIEF ACT OF 2002

                              ----------                              

                       THURSDAY, MARCH 14, 2002,

             U.S. House of Representatives,
            Subcommittee on Financial Institutions 
                               and Consumer Credit,
                           Committee on Financial Services,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 9:56 a.m., in 
room 2128, Rayburn House Office Building, Hon. Spencer Bachus, 
[chairman of the subcommittee], presiding.
    Present: Chairman Bachus; Representatives Weldon, Castle, 
Kelly, Ryun, Royce, Cantor, Grucci, Hart, Capito, Rogers, 
Tiberi, Bentsen, Meeks, Kanjorski, Hooley, Lucas, J. Maloney of 
Connecticut, and Sherman.
    Chairman Bachus. The subcommittee, after a brief 
postponement, meets today for a legislative hearing on H.R. 
3951, the Financial Services Regulatory Relief Act of 2002, a 
bill introduced earlier this week by my colleagues on the 
subcommittee, Ms. Capito of West Virginia, and Mr. Sandlin of 
Texas.
    We are going to go right to the witnesses. We'll start with 
the first panel. We are going to dispense with opening 
statements because of the delay, and hopefully, that will put 
us right back on time.
    Our first panel is the Honorable Mark Olson, member of the 
Board of Governors of the Federal Reserve System. We thank you 
for your attendance and congratulate you on your appointment.
    Ms. Julie L. Williams, First Senior Deputy Comptroller and 
Chief Counsel, Office of the Comptroller of the Currency; Mr. 
William Kroener, General Counsel for the Federal Deposit 
Insurance Corporation; Ms. Carolyn Buck, Chief Counsel, Office 
of Thrift Supervision, and Dennis Dollar, Chairman, National 
Credit Union Administration.
    We welcome our witnesses to the subcommittee. I think there 
is agreement we are going to go from left to right. We should 
have probably discussed that with you, but if it is all right 
with the panel, we will start with Governor Olson and then 
proceed with Ms. Williams on down the line. Thank you, Governor 
Olson.

 STATEMENT OF HON. MARK W. OLSON, MEMBER, BOARD OF GOVERNORS, 
                     FEDERAL RESERVE SYSTEM

    Mr. Olson. Thank you very much, Mr. Chairman, and Members 
of the subcommittee. We're delighted to have the opportunity to 
testify today on H.R. 3951. The Federal Reserve Board responded 
last summer to a request by Chairman Oxley to suggest ways to 
improve the banking laws and to relieve unnecessary burden.
    In the context of that request, we did submit a number of 
options, several of which have been included in your bill. And 
I would like to speak briefly to those this morning. We have a 
complete statement which I will submit for the record, but I 
will abide by the time constraint in the opening statement.
    Chairman Bachus. And I will say this. We are not going to, 
with this panel, we are not going to enforce the 5-minute rule.
    Mr. Olson. In the spirit of the moment, I will stick with 
brevity also.
    Chairman Bachus. Some of your fellow panel members may 
enforce a 10 or 12-minute rule.
    [Laughter.]
    Mr. Olson. OK. Our first suggestion involves de novo 
interstate branching. Members of the subcommittee may recall 
that interstate banking legislation was achieved largely, if 
not totally, by the various States during the 1980s and during 
the 1990s as they passed laws allowing for interstate bank 
ownership.
    The question of interstate branching was dealt with with 
the Riegle-Neal Act of 1994. There are two ways that branching 
was allowed. One was by a bank purchasing a bank across State 
lines and then converting it to a branch or branching from 
there, and the other option was for de novo branching, but that 
would only be allowed if the State in which the bank wanted to 
enter wold invite them in, essentially an opt in provision.
    There are two competitive issues involving that provision. 
The first one is that Federal thrifts are allowed to branch de 
novo across State lines now. So there is a current imbalance 
between the competitive environment for Federal thrifts and for 
commercial banks, and this supported amendment would address 
that issue.
    The second issue involves a significant difference between 
the impact on small banks and large banks. Now remember that 
there are 17 States that have the opt-in provision and 33 
States plus the District of Columbia that have not adopted the 
opt-in, so there is not the opportunity to enter those States 
by de novo branching.
    The distinction is that the smaller banks, whose natural 
markets would be across State lines, are at a slight 
disadvantage in that environment because the largest banks are 
able, with some ease, to purchase a bank and then accomplish 
the branching, but the smallest banks would be a significant 
burden to do so. We think it would level the playing field if 
the de novo option were to be eliminated from the statute.
    Having looked at that provision again, though, after we 
submitted it, there is one issue that we would like to call to 
the subcommittee's attention, and that concerns industrial loan 
companies. ILCs, as I think the subcommittee knows, are FDIC 
insured institutions whose parent ownership falls outside of 
the restrictions provided by the Gramm-Leach-Bliley Act. As 
we've looked at this amendment, one unintended consequence 
might be to allow ILCs to establish a nationwide presence 
completely outside of the parent being under the Federal 
restrictions of the Gramm-Leach-Bliley Act. That we don't see 
as a minor streamlining. We see that as a major policy issue.
    We, Mr. Chairman, have drafted language that if it would be 
helpful to the subcommittee we could submit as a further 
follow-up.
    The second issue that we would like to suggest involves 
cross-marketing restrictions between a bank and a company in 
which it has ownership in its merchant banking portfolio. When 
the Gramm-Leach-Bliley Act was passed, to assure that 
institutions were not avoiding the limitations of Gramm-Leach 
by putting an entity into its merchant banking portfolio and 
then operating it as if it were an affiliate, there were cross-
marketing restrictions. There was one exception to that, 
however, involving insurance companies in a financial holding 
company. There is a narrow limitation for cross-marketing that 
insurance companies can do with institutions that the insurance 
company has an equity interest in their merchant banking 
portfolio.
    We are suggesting that banks in financial holding companies 
ought to have the same opportunity.
    A third issue involves the removal of the post-approval 
wait period. Currently in the statute under mergers and 
acquisitions, once they have been approved by the regulatory 
authorities, there is a mandatory 30-day wait period for the 
attorney general to review the merger or acquisition for 
antitrust or anticompetitive implications, the 30 days now can 
be lowered to a 15-day period. We are suggesting that after the 
approval has been made, and with the explicit approval of the 
Attorney General, the 30-day period be eliminated entirely.
    The fourth item that we would like to talk about involves 
certain unnecessary reports regarding insider loan 
transactions. And before I talk about the three provisions, I 
would like to assure the subcommittee that the insider loan 
issue covered by Reg O is an important regulatory concern. And 
nothing that we are suggesting here would diminish either the 
bank's responsibility or the regulator's oversight 
responsibility in that area. However, there are three small 
reporting requirements that in our judgment don't contribute to 
safety and soundness, the recordkeeping responsibility of the 
institution or the oversight role of the Fed. So we would 
suggest that they be eliminated. Had the reports been 
regulatory, we would have dropped them. But, they are mandated 
by statute, and we are suggesting that the statutory 
requirement be eliminated.
    Two more exceptions. One involves director interlocks on 
small institutions. In 1978 when the Depository Institution 
Management Interlock Act was passed, there was a provision that 
allowed, in a large metropolitan area--an MSA--for a small bank 
or financial depository institution to be able to have a 
director on its board but have that same person be a director 
of another small bank in that same metropolitan area so long as 
they were not in the same immediate market. That was a good 
provision in 1978 when the dollar figure was $20 million. We 
are suggesting that that dollar figure today perhaps should be 
$100 million, and that's what we're suggesting.
    The final suggestion that we have involves exceptions to 
attribution rules. A bank holding company is not allowed to own 
more than 5 percent of the voting shares of any company, and 
that includes, under the current statute, shares held in trust 
for the company or its employees or shareholders. We are aware 
of instances that involved pension plans or 401K plans where 
the institutions are allowing their employees the ability to 
direct their portion of a 401K or profit sharing so that they 
could purchase shares and they could vote those shares, so the 
individual would make not only the investment decision but the 
voting decision.
    In order to monitor the 5 percent requirement, it would be 
a massive recordkeeping responsibility, and it doesn't in our 
judgment change the effectiveness of the rule. What we are 
asking for is on a case-by-case basis, the permission to 
provide exception.
    Mr. Chairman, that concludes my opening remarks, and I'd be 
happy to answer questions.
    [The prepared statement of Hon. Mark W. Olson can be found 
on page 62 in the appendix.]
    Chairman Bachus. Thank you.
    Ms. Williams.

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

    Ms. Williams. Chairman Bachus and Members of the 
subcommittee, I appreciate this opportunity to discuss with you 
ways in which unnecessary regulatory burden on America's 
banking system can be reduced, and to express the views of the 
Office of the Comptroller of the Currency on the Financial 
Services Regulatory Relief Act of 2002.
    Let me also begin by thanking Ms. Capito and Mr. Sandlin 
for sponsoring this bill, which includes sensible and 
appropriate regulatory burden relief for national banks and 
other financial institutions, as well as measures that will 
enhance bank regulators' ability to maintain a safe and sound 
banking system. We and the other agencies have worked with the 
subcommittee staff in developing some of the provisions in the 
bill, and we very much appreciate the opportunity to have done 
so and to continue to do so through the process. My testimony 
this morning will highlight a few provisions of the bill that 
we believe are especially important.
    As the subcommittee knows, effective bank supervision 
demands that we achieve a balance among several, sometimes 
competing, but equally important, objectives. One of these 
objectives is to foster banks' ability to conduct their 
business profitably and competitively, free from burdensome 
constraints that are not necessary to further the purposes of 
the banking laws.
    This bill contains several provisions that promote this 
objective by streamlining and modernizing aspects of the 
corporate governance and interstate operations of national 
banks. The OCC strongly supports these provisions.
    For example, the bill modifies the so-called ``qualifying 
shares'' requirement currently in the National Bank Act, which 
has made it difficult for some national banks to obtain 
favorable tax treatment as ``Subchapter S'' corporations. The 
``qualifying shares'' provision requires every national bank 
director to hold a specified minimum equity interest in his or 
her national bank. Because of this requirement, however, some 
national banks end up with more shareholders than the law 
permits for a corporation wishing to elect ``Sub S'' status. 
Community banks are most disadvantaged by this result.
    The bill solves this problem by authorizing the Comptroller 
to permit the directors of banks seeking ``Subchapter S'' 
status to hold subordinated debt instead of equity shares. 
Holding subordinated debt does not cause a director to be 
counted as a shareholder for purposes of ``Subchapter S.'' At 
the same time, the subordinated debt requirement achieves the 
same purpose as the requirement to hold equity shares because a 
director holding that sub debt can only be repaid in full if 
all other claims of depositors and non-deposit general 
creditors of the bank are first paid in full.
    A second sensible modernization in the bill that I'll 
mention eliminates a provision in current law that requires a 
national bank to have cumulative voting in the election of its 
directors. The bill permits a national bank to determine, at 
its option, reflected in its articles of association, whether 
or not to permit cumulative voting. This conforms the National 
Bank Act to modern corporate codes and provides national banks 
with the same corporate flexibility available to virtually all 
corporations and State banks.
    A third provision repeals the requirement in current law 
that a State must affirmatively enact legislation in order to 
permit national and State banks to conduct interstate expansion 
through de novo branching. Governor Olson has already 
articulated some very good reasons for this particular 
provision in the bill. The effect of current law is to require 
that, in many cases, banks must structure, if they can, 
artificial and unnecessarily expensive transactions in order to 
establish a new branch across a State border. Banks and their 
customers would benefit by this change, which would permit a 
bank to choose which form of interstate expansion makes the 
most sense for its business needs and its customer demands. 
Federal thrifts have enjoyed this type of flexibility for 
decades.
    The bill also contains provisions that address a second, 
and fundamentally important, objective of bank supervision, and 
that is to promote and maintain the safety and soundness of the 
banking system. For example, the bill expressly authorizes the 
Federal banking agencies to enforce an institution-affiliated 
party's or controlling shareholder's written commitment to 
provide capital to an insured depository institution. This 
provision would address some recent Federal court decisions 
which have conditioned the agencies' ability to enforce this 
type of written commitment on a showing that the party who made 
the commitment was somehow ``unjustly enriched.'' By removing 
this impediment to our ability to hold parties to their 
commitments to provide capital, the new provision will enhance 
safety and soundness of insured depository institutions, and it 
should help to reduce losses to the Federal Deposit Insurance 
funds.
    My written statement touches on several additional 
amendments to current law that we believe would enhance the 
banking agencies' safety and soundness authority, reduce risk 
to the deposit insurance funds, and facilitate our enforcement 
efforts when wrongdoing does occur. We are working with the 
other banking agencies to develop these recommendations, and we 
hope that they can be considered in the legislative process as 
it continues.
    Mr. Chairman, on behalf of the OCC, thank you, and Ms. 
Capito, for your support of this legislation. I'd be happy to 
answer any questions you have.
    [The prepared statement of Julie L. Williams can be found 
on page 72 in the appendix.]
    Chairman Bachus. Thank you.
    Counsel Kroener.

STATEMENT OF WILLIAM F. KROENER, III, GENERAL COUNSEL, FEDERAL 
                 DEPOSIT INSURANCE CORPORATION

    Mr. Kroener. Mr. Chairman and Members of the subcommittee, 
I appreciate the opportunity to present the views of the 
Federal Deposit Insurance Corporation on the proposed 
legislation to provide regulatory burden relief.
    The FDIC shares the subcommittee's continuing commitment to 
eliminate unnecessary burden and to streamline and modernize 
laws and regulations as the financial industry evolves. The 
FDIC itself is engaged in a number of initiatives to address 
the issue of regulatory burden. Chairman Powell recently formed 
a regulatory burden task force within the FDIC to study ways to 
reduce the regulatory burden. The task force will review the 
FDIC's operating principles, processes and practices, study 
ways to make the FDIC more sensitive to the burden issue, and 
make recommendations to the Chairman on burden reduction.
    The FDIC recently initiated a comprehensive review of 
internal processes and operating procedures related to the 
supervision of State-chartered non-member banks. We are 
identifying ways to better allocate resources in the areas that 
present the greatest risk to our insurance funds: problem 
banks, larger financial institutions, technological change, 
high risk subprime lending, internal control procedures, and 
fraud.
    We have already implemented several improvements such as 
making the report of examination format more user-friendly, 
designating Applications Subject Matter Experts as centralized 
resources for bankers, and contacting banks between 
examinations to discuss issues so that we can do a more focused 
and efficient examination.
    We are currently also reviewing the examination process to 
achieve maximum efficiencies in the examination of small, well 
rated banks, and hope to reduce total examination hours in 
these institutions by up to 20 percent.
    We also are revising our compliance examination approach to 
place a greater emphasis on an institution's administration of 
its compliance responsibilities. Examiners will evaluate--in 
depth--an institution's compliance program. Based on this 
review, examiners will then determine where there may be a 
significant risk of regulatory violations and appropriately 
tailor their transactional testing.
    The FDIC continues to work with the other banking 
regulators in implementing more efficient regulations and 
processes such as the new ``Interagency Charter and Federal 
Deposit Insurance Application'' and the new standardized 
requests for electronic loan information.
    The FDIC also supports statutory changes to reduce 
regulatory burden in a number of areas, including those in the 
bill that, first, clarify that an agency may suspend or 
prohibit individuals convicted of certain crimes from 
participation in the affairs of any depository institution. 
Second, those that modify the requirement for retention of old 
records of a failed insured depository institution at the time 
a receiver is appointed, and third, those that permit the FDIC 
to rely on records preserved electronically, such as optically 
imaged or computer scanned documents.
    The FDIC also supports a number of provisions which were 
requested by our fellow regulators and included in the 
proposal, such as those that streamline merger application 
requirements and that grant Federal banking agencies the 
authority to enforce conditions imposed in certain written 
agreements relating to additional capital contributions.
    We are working with staff at the OCC to perfect language in 
Section 604 of the bill expanding the prohibition of persons 
convicted of certain crimes from participating in the affairs 
of uninsured financial depository institutions.
    Finally, the FDIC recommends that the subcommittee include 
four additional regulatory relief items in the bill. These 
additions relate to:
    First, authority for supervisory agencies to enforce 
conditions on the approval of deposit insurance;
    Second, clarification that conversions which result in more 
than one bank would continue to require deposit insurance 
applications from the resulting institutions, as well as review 
and approval by the appropriate Federal banking agency;
    Third, amendments to the Bank Merger Act and Bank Holding 
Company Act that would require consideration of the potentially 
adverse effects on the insurance funds of any proposed bank 
merger transaction or holding company formation acquisition; 
and
    Fourth, language that would make clear that pre-
receivership liens for failure to pay property taxes are 
extinguished when the property is acquired by the Federal 
receiver.
    I have included relevant language as an appendix to my 
written statement on these four items.
    Thank you for the opportunity to present the FDIC's views 
on these issues. The FDIC supports the subcommittee's continued 
efforts to reduce unnecessary burden on insured depository 
institutions without compromising safety and soundness or 
consumer protection.
    We are pleased to work with the subcommittee in 
accomplishing this goal. Thank you.
    [The prepared statement of William F. Kroener III can be 
found on page 91 in the appendix.]
    Chairman Bachus. Thank you.
    Chief Counsel Buck.

  STATEMENT OF CAROLYN BUCK, CHIEF COUNSEL, OFFICE OF THRIFT 
                          SUPERVISION

    Ms. Buck. Mr. Chairman and Members of the subcommittee, 
thank you for the opportunity to present OTS's views on your 
initiatives to reduce regulatory burden on our depository 
institutions.
    During periods of economic challenge, it is particularly 
important that we make every effort to remove unnecessary 
regulatory obstacles that hinder profitability, innovation and 
competition in our financial services industry.
    In my written testimony I discuss a number of important 
proposals that we believe would significantly reduce existing 
burdens on the thrift industry, and I ask that the full text of 
that statement be included in the record.
    In my oral statement, I'll highlight three areas where 
reforms would provide significant relief to the thrift 
industry. These are deposit insurance reform, parity with the 
banks under the securities laws, and mortgage simplification.
    Perhaps the most straightforward and effective means to 
provide regulatory relief to our insured depository 
institutions is to reform the deposit insurance system under 
which they now operate. It is long past time to merge the bank 
insurance fund and the savings association insurance fund. 
There is no disagreement on this. Merger will promote 
efficiency in administering the funds and result in a more 
stable insurance system. Therefore, we strongly support fund 
merger.
    We also believe that the free rider problem should be 
addressed in fairness to those who have paid into the funds 
over many years.
    And finally, the FDIC board should have sufficient 
flexibility in setting the designated reserve ratio and 
deciding when to increase the assessment rate to assure the 
continued stability of the insurance fund. Providing certainty 
about the process for determining the amount of deposit 
insurance assessments is a very important regulatory burden 
initiative.
    Another area woefully in need of reform is the mortgage 
process. OTS applauds HUD Secretary Martinez's initiatives in 
this area. Last fall, Secretary Martinez spoke about making the 
home buyer's experience less complicated, the paperwork 
requirements less demanding, and the mortgage process itself 
less expensive. This is no simple task, but everyone involved 
in making the American homeownership dream a reality shares his 
goals, and we pledge to do our part to help achieve this 
objective. Simplifying the mortgage process will reduce 
regulatory burden on thrifts and on all housing lenders and 
assist consumers. The importance of this cannot be overstated.
    Turning to the bill before this subcommittee, the most 
important feature to thrifts and the communities they serve 
concerns parity with banks under the Federal securities laws. 
OTS strongly supports the amendments to extend the thrifts the 
same exemptions as banks from investment advisor and broker-
dealer registration requirements. Thrifts fill an important 
niche in the financial services arena by focusing their 
activities primarily on residential, community, small business 
and consumer lending. The Homeowners Loan Act allows thrifts to 
provide trust and custody services on the same basis as 
national banks, and investment advisor and third-party 
brokerage in the same manner as banks.
    Not only are the authorized activities the same, but OTS 
examines those activities in the same manner as the banking 
agencies. Some may suggest that this is a charter issue; that 
this SEC registration disparity is an intended advantage of the 
bank operating structure. However, as I have noted, thrifts 
have had the ability for some time to conduct these activities, 
these investment advisor and broker-dealer activities, under 
their existing charter authority. This is not a powers issue, 
then, but a cost issue. The consequence of the disparity is the 
extra costs the thrifts must incur to exercise the same powers 
as banks. This is regulatory burden in its purest form.
    We firmly believe that charter choice should be based on 
which charter is the best fit for an institution's business, 
not which carries the least regulatory burdens associated with 
the authorized business activities. The proposed parity 
amendments to the Federal securities laws remove distinctions 
that have caused thrifts to engage in regulatory arbitrage by 
changing charters to reduce costs even though the thrift 
charter is the best fit for them.
    Although the details of the current situation are complex, 
the key points are that banks, but not thrifts, are exempt from 
investment advisory registration requirements under the 
Investment Advisors Act of 1940. In addition banks, but not 
thrifts, enjoy an exemption from broker-dealer registration 
requirements under the 1934 Act for certain activities 
specified under the Gramm-Leach-Bliley Act.
    For purposes of broker-dealer requirements, the SEC has 
exercised its exemptive authority to treat thrifts the same as 
banks, at least for now. But it has been reluctant to extend 
the same parity to the investment advisor requirements. 
Treating thrifts and banks the same under the Federal 
securities laws makes sense for a number of reasons, but I 
think it's best stated in the SEC's own words from the preamble 
to their May 2001 interim final rule that did extend broker-
dealer parity to thrifts. They stated, and I quote: ``Insured 
savings associations are subject to a similar regulatory 
structure and examination standards as banks. Extending the 
exemption for banks to savings associations and savings banks 
is necessary or appropriate in the public interest and is 
consistent with the protection of investors.''
    Congress has already spoken on the banks' exemption. 
Perhaps the best way to put this matter to rest for thrifts is 
for Congress to affirm the SEC's extending the broker-dealer 
exemption to thrifts, plus have Congress extend the investment 
advisor exemption. This would also have the beneficial effect 
of avoiding the need for a series of SEC administrative 
exemptions, another potential regulatory burden, if additional 
differences come to light later.
    OTS is committed to reducing burden whenever it has the 
ability to do so, consistent with safety and soundness and 
compliance with law. The proposed legislation advances this 
objective, and we appreciate that many of the reforms we've 
long desired are included in the bill. I especially thank you, 
Mr. Chairman, Congresswoman Capito, and all those who have 
shown leadership on this issue and look forward to working with 
the subcommittee on this legislation. Thank you.
    [The prepared statement of Carolyn Buck can be found on 
page 111 in the appendix.]
    Chairman Bachus. Chairman Dollar.

  STATEMENT OF HON. DENNIS DOLLAR, CHAIRMAN, NATIONAL CREDIT 
                      UNION ADMINISTRATION

    Mr. Dollar. I am pleased to present the subcommittee with 
the following suggestions. I am going to highlight, for the 
sake of time, the key points of my written testimony that I 
have presented to the Members of the subcommittee that attempt 
to address the issues of regulatory relief and productivity 
improvements for Federal credit unions.
    We feel that these proposals are consistent with the 
mission of credit unions and the principles foremost of safety 
and soundness. They address statutory restrictions that now act 
to frustrate the delivery of financial services because of 
either technological advances, current public policy priorities 
or practical market considerations.
    First of all, the Federal Credit Union Act authorizes 
Federal credit unions to provide check cashing and money 
transfer services to members. To reach out to the unbanked, 
Congress should consider authorizing Federal credit unions to 
provide these services to anyone eligible to become a member. 
This is particularly important to the overwhelming majority of 
Federal credit unions whose field of membership includes 
individuals of limited income or means. These individuals often 
do not have mainstream financial services available to them and 
often pay excessive fees for check cashing, wire transfer and 
other services.
    Allowing Federal credit unions to provide these limited 
services to anyone in their field of membership would provide a 
lower fee alternative for these individuals while at the same 
time encouraging them to trust conventional financial 
organizations. If credit unions are to be, as we feel that they 
are and must remain, a part of the solution to the predatory 
lending problem in this country, their potential members need 
to know the types and value of services that they can receive 
from a credit union they are eligible to join. I am pleased to 
note that a provision as it relates to this is included in the 
Capito-Sandlin bill, and we appreciate that consideration.
    Also, Federal credit unions are authorized to make loans to 
members of other credit unions and to credit union 
organizations. The Federal Credit Union Act imposes various 
restrictions on these authorities, including a 12-year maturity 
limit that is subject to only very limited exceptions. This 
one-size-fits-all maturity limit should, we feel, be eliminated 
or at least increased. It is outdated and unnecessarily 
restricts Federal credit union lending authority. As in the 
case with other federally-chartered financial institutions, we 
believe appropriate rulemaking authority should be granted by 
statute for NCUA to establish competitive maturity limits 
within the bounds of safety and soundness. And again, we 
appreciate the inclusion of a provision related to this in the 
bill.
    The Federal Credit Union Act authorizes Federal credit 
unions to invest in organizations providing services to credit 
unions and credit union members. An individual Federal credit 
union, however, may invest in aggregate no more than 1 percent 
of its shares and undivided earnings in these organizations 
which are commonly known as credit union service organizations 
or CUSOs. CUSOs provide important services such as data 
processing, check clearing for credit unions, financial 
retirement planning among others. When these services are 
provided through a CUSO, financial risks are isolated from the 
credit union. So we find that the relatively low statutory 1 
percent aggregate limit often forces credit unions to either 
bring services in house, thus potentially increasing risk to 
the credit union and the insurance fund, or to turn those over 
to outside providers and lose institutional control. We feel 
that the statutory 1 percent limit should be increased or 
eliminated and the NCUA board be allowed to set by regulation a 
limit that is appropriate for safety and soundness purposes. 
And we appreciate again the fact that the proposed legislation 
does include a provision to address this in some manner.
    The Credit Union Membership Access Act enacted in 1998 
expressly authorized multiple common bond credit unions. The 
Access Act, however, provided that a Federal credit union may 
add a new group to its field of membership only within very 
strict proximity guidelines. This in effect often requires a 
credit union to establish a costly physical presence that could 
potentially if unchecked present long-term safety and soundness 
concerns. This brick-and-mortar limitation on Federal credit 
union services is not we feel sound policy in today's clicks 
and Windows financial marketplace where most services can be 
provided electronically and should, we feel, be reviewed by 
Congress for possible regulatory relief.
    The Federal Credit Union Act also limits the investment 
authority of Federal credit unions to loans, Government 
securities and deposits in other financial institutions and 
certain other very limited investments. This limited investment 
authority restricts the ability of Federal credit unions to 
remain competitive in the rapidly changing Federal financial 
marketplace. In our view, the Act should be considered for 
amendment to provide such additional conservative investment 
authority as is approved for other federally regulated 
financial institutions and in accordance with the regulation of 
the NCUA board. Again, we appreciate the fact that this 
provision has been addressed by the legislation.
    Last, the Federal Credit Union Act, as amended by the 
Credit Union Membership Act in 1998, allows voluntary mergers 
of healthy Federal credit unions but requires that NCUA 
consider a spinoff of any group of over 3,000 members in the 
merging credit union, or, if they convert to a community-based 
charter, to spinoff any groups they presently serve outside the 
community. When two healthy multiple common bond Federal credit 
unions wish to merge and thus combine their financial strength 
and improve their safety and soundness position, as well as 
service to their members, or a credit union chooses to convert 
to a community charter to serve an entire community, we feel 
that it is good public policy and they should be allowed to do 
so without unnecessary regulatory impediments.
    Again, we appreciate the fact that the proposed legislation 
does attempt to address this concern in some way. Again, I know 
that there are other issues that are in the legislation that we 
have mentioned in my written statement, but I wanted to touch 
on these highlights, Mr. Chairman, and to thank you today again 
for the opportunity to provide this input on this important 
bill before your subcommittee.
    We want to continue to work with you and offer our staff as 
a resource in any way as you continue to move toward what I 
know is your goal as is ours, which is removing unnecessary 
regulatory burden while maintaining our first and foremost 
commitment to safety and soundness and the necessary regulation 
that is required to protect the American public. Thank you very 
much, Mr. Chairman. I'd be glad to answer any questions.
    [The prepared statement of Hon. Dennis Dollar can be found 
on page 130 in the appendix.]
    Chairman Bachus. Thank you.
    I thank the panel. Our primary purpose here is to free up 
resources of the institutions so they can actually use more of 
their resources to lend to consumers. So we've looked at any 
regulation that we think unduly costs them resources that are 
unnecessary--that are not necessary for safety and soundness, 
are outdated, or, as Counsel Buck said, where you have one 
requirement for thrifts and one for banks, equal protection, or 
equal treatment argument.
    Governor Olson, you mentioned the cross-marketing 
restrictions. One reason that we've moved on that--I think we 
had a hearing last year about whether financial holding 
companies could cross-market products with companies they had 
made investments in. And there are restrictions now and I think 
the Federal Reserve in their regulations had recommended then 
relaxing those restrictions. And there was general consensus at 
that hearing that that could be done without, you now, that 
there was not a privacy concern. Some people confused at first 
blush that there was a privacy concern there. But what we're 
talking about is cross-marketing products and services, which 
would not violate their customers' privacy.
    And there is already a provision that you can do that with 
insurance companies. So I think what you said today I heartily 
agree with is an equal treatment. And also the fact that it 
doesn't diminish a customer's protections. And it certainly I 
think was meant by Gramm-Leach-Bliley. That is in the bill. In 
fact, several of the things that you have discussed in your 
testimony are in the bill.
    And Deputy Williams, you mentioned the fact that we've been 
working closely before we dropped this bill. This was not 
something that we just decided on some things. We have been in 
close discussion with all your agencies looking for things 
where there was consensus, where there was an agreement between 
the parties that it could be done. Now sometimes there may not 
be agreement between two of the regulators to do something for 
the thrifts or to do something for the banks. But other than 
those minor differences of opinion, we tried to go with non-
controversial things.
    The only thing in the testimony that I would, Chairman 
Dollar, those close proximity restrictions on credit unions, 
there was quite a lot of focus on that, quite a lot of 
discussion on that. And it is still a very controversial thing, 
and if for no other reason, it wasn't included in this 
legislation, and that there's so much opposition to that from 
the banks. I do sympathize as with technology and what you're 
saying, that it does become a problem. But having it in the 
bill would be a problem for us.
    We have and will continue to work with all the agencies to 
refine this bill. I'm sure you will continue maybe to find 
things as we move forward. Anything in the bill you object to, 
we want to hear about it. Anything that you think ought to be 
in the bill that isn't in the bill, we want to hear about it. 
We will continue to work closely with you, because you are the 
ultimate experts and authority on what regulations need to be 
in place for safety and soundness, as opposed to regulations 
that don't add anything, simply take resources from what could 
be available to consumers.
    Mr. Grucci is not here, so Mr. Cantor, we are going in 
order of--actually, Ms. Capito. Well, actually, I'm sorry, Mr. 
Lucas. Counsel Carter pointed out to me that I had not looked 
to my right. Which I always look to my right first. I didn't 
know I didn't.
    [Laughter.]
    Chairman Bachus. Mr. Lucas from Kentucky.
    Mr. Lucas. I find this testimony very interesting, sir, but 
I have no questions. Thank you.
    Chairman Bachus. Thank you. Always efficient.
    [Laughter.]
    Chairman Bachus. Thank you. Ms. Capito? And if you would 
like to make an opening statement, a comment, I think the 
Members, as you are the sponsor of this bill, you will 
certainly not be held to the 5-minute limit.
    Ms. Capito. Thank you, Mr. Chairman.
    Chairman Bachus. And I commend you for the work you've done 
on this.
    Ms. Capito. Thank you. I appreciate your holding this 
hearing today, and I appreciate the testimony of our 
distinguished witnesses. I particularly want to congratulate 
Mr. Dollar on his last name. What a great name for your 
business.
    Mr. Dollar. I can't say I don't have a dollar to my name.
    [Laughter.]
    Ms. Capito. I think it's interesting to point out that we 
spend a lot of time in this subcommittee room creating new 
laws, and I think that periodically it serves us well to look 
at provisions in our present laws to see which ones are 
dilapidated and old and unused and overlapping and repetitive. 
And so I am pleased to be a part of this effort today with this 
bill to relieve certain regulatory burdens certainly on the 
regulatory agencies, but also on the banking and financial 
institutions that have to go forward with these.
    I think this type of review will make substantial changes 
and it will bring us in greater compliance with the Gramm-
Leach-Bliley Act and also the recently enacted Patriot Act. I 
know as the result of some of the Patriot Act regulations that 
were put in place, we caused more regulation burden our 
institutions, our financial institutions, and certainly on you 
all in terms of oversight, and I think it is very timely that 
we are updating these provisions as we move through the day 
today.
    I think you pointed out quite appropriately, Mr. Chairman, 
this is certainly not the final bill, and I fully expect after 
this hearing we will have many changes, adjustments that we 
will be making as we move through this process. And I look 
forward to working with you all to see where those changes 
might occur.
    I would like to ask a couple of questions right now if that 
is appropriate to begin asking questions? Yes. Governor, Olson 
you addressed the situation of interstate banking. In Section 
401, it would preempt State law and allow banks to offer branch 
banks, branch offices in other States without first having to 
have an existing presence. I represent the State of West 
Virginia, which I believe currently allows this type of 
branching. And you mentioned 33 States do not offer that as an 
option.
    I was wondering--I'm a former member of a State legislature 
who was very sensitive to Federal preemption, so I was 
wondering if there is any opposition from any of these States 
to this provision.
    Mr. Olson. Congresswoman, we are not aware of opposition. 
There might be, but it has not come to our attention at this 
point.
    Ms. Capito. Thank you. The other question for you, sir, 
is--and you brought it up in your opening statement. I'm glad 
that you did. Because when we had the press conference 
yesterday sort of as a preview of this bill with Chairman 
Oxley, this was the first question out of the box, and it dealt 
with the insider trading provisions and insider lending. And 
people have expressed concerns with respect to the reporting 
requirements. And I think you covered in your opening statement 
that this would in no way diminish any requirements or 
regulations for oversight. But if you could just sort of 
restate what that insider lending provision does and how the 
protections are still in place.
    Mr. Olson. That's a very important point. Insider lending 
is covered under Reg O, and there are very specific reporting 
requirements and very specific limitations on lending money to 
their officers and directors and insiders, and also with 
respect to loans from their upstream correspondents. None of 
those regulations is altered at all with this amendment.
    There are three specific reports, however, that we suggest 
could be eliminated, two of them having to do with loans from 
outside banks and one having to do with loans that occur 
between call report periods that report incrementally the new 
loans that had been made. In our judgment, those three reports 
don't contribute to our oversight responsibility or to the 
record maintenance responsibility of the institutions and 
therefore marginally add burden without contributing to the 
oversight. But nothing we're saying here diminishes the 
importance of monitoring insider lending.
    Ms. Capito. Thank you. I have a couple of more questions, 
and this one is just sort of a toss-up, so anybody can take it. 
In Section 605, it deals with destruction of records. And in 
this day and age, destroying records is not something that we 
want to go about frivolously or without a great deal of 
thought. I realize that a judge under this provision can 
require that records be kept for longer than 10 years. Does 
anyone feel that this section allows, in the destruction of 
records, raise any concerns in anybody's mind on our panel?
    Mr. Kroener. Let me take that question, if I may. It's a 
provision of great interest to the FDIC. And we are sensitive 
to the records problem. And indeed, as Chairman Powell 
indicated in a recent speech, we are looking at accountants' 
records and whether the FDIC should require preservation in 
certain circumstances where we have the authority to do so and 
we haven't done so in the past.
    But that having been said, this provision is simply 
designed as a cost and burden reduction. When an institution 
fails, the FDIC will come in as receiver or conservator and 
will inherit all the records that institution happens to have. 
In some instances, the records can go back more than 100 years. 
And we are currently required to preserve those records, and 
there is a cost involved--there is a storage cost. And so this 
will actually save us money, save our receiverships money and 
enable us to pay higher dividends--to more quickly recover for 
our insured claims and hopefully pay higher dividends to any 
uninsured creditors in the receivership. And so we think it's a 
positive, cost saving thing, and we do not see risks in the 
provision as drafted. We've worked with the subcommittee to get 
the provision as refined as we can on that.
    Ms. Capito. OK. Thank you. Can I keep going? Although not 
included in the reg relief bill, we have been asked to consider 
a provision that would give the Federal Reserve more 
flexibility to allow State member banks to engage in investment 
activities authorized by their chartering State and approved by 
the FDIC as posing no significant risk to the deposit insurance 
fund. Currently, State member banks are limited to the 
activities granted to national banks, and yet State non-member 
banks are allowed to exercise expanded powers within the 
confines of safety and soundness. What are your views on that? 
Governor Olson? Yes?
    Ms. Williams. May I take a crack at that? I think it's 
important to understand what the provision that would be 
repealed by what you described does. It's not an arcane 
provision; it is a safety and soundness-driven provision. And, 
it was very recently addressed in the Gramm-Leach-Bliley Act 
after painstaking negotiations.
    The primary effect of the change that you've described 
would be to undo prudential standards and safeguards that were 
enacted just over 2 years ago as part of the Gramm-Leach-Bliley 
Act. The essence of the statutory change that you've been asked 
to consider would be to eliminate a standard currently in 
Federal law that applies parallel prudential and safety and 
soundness standards to financial subsidiaries of national banks 
and financial subsidiaries of State member banks. It would 
reopen a set of issues concerning what types of safeguards and 
prudential standards need to be in place in connection with 
allowing expanded activities to be conducted in subsidiaries of 
those types of banks.
    You, of course, can decide that those prudential standards 
and safeguards are no longer appropriate, but there is no basis 
to distinguish whether they are appropriate solely for national 
banks or State member banks. If you think that eliminating 
those safeguards for State member banks is the way to go, then 
you should eliminate them for national banks as well. There's 
no basis for a distinction.
    Chairman Bachus. I thank the Member.
    Mr. Kanjorski. And what we had done is we'd given--Ms. 
Capito is sponsor of the bill. We waived her opening statement 
and she took 10 minutes.
    Mr. Kanjorski. That is certainly agreeable.
    Chairman Bachus. But we welcome your membership.
    Mr. Kanjorski. Thank you, Mr. Chairman. My questions are 
really directed to Chairman Dollar. As you know, I have, for 
some time, raised concerns about the value of the Federal 
charter. We want to ensure that our Nation's system of dual 
chartering remains vibrant and effective.
    One provision in this legislation, however, would allow 
privately insured, State-chartered credit unions to gain access 
to the Federal Home Loan Bank System. Because this section of 
the bill raises serious concerns about safety and soundness, I 
think that we should consider removing it unless we can 
adequately address these concerns.
    Additionally, at a time when many in the credit union 
movement have raised concerns about the continued value of the 
Federal charter, I wonder why we are working in Congress to 
increase the value of the State charters. To help the 
subcommittee better understand this issue, would you please 
outline for us some of the recent trends in charter conversions 
from Federal charters to State credit union charters or mutual 
savings bank charters?
    Mr. Dollar. Congressman Kanjorski, there has been some 
trend in recent years of conversion to the State charter from 
the Federal charter. Quite frankly, most of it has been driven 
by field of membership issues as some of the States under State 
law have been able to provide a more liberal field of 
membership than is allowed under Federal law.
    We have not attempted to in any way preempt the States, for 
we like you believe in a dual chartering system that enables a 
credit union to have a viable choice of a productive business 
opportunity within either the Federal charter or the State 
charter. How we have tried to address that has been through 
implementing the Credit Union Membership Access Act as 
effectively as possible. We think that we have done so. We have 
given opportunities for Federal credit unions to be able to 
grow within the Federal Credit Union Act. There are some areas, 
as we mentioned a moment ago on the proximity issue, where we 
would like to see some relief that would enable us to be even 
more flexible, I think, in that regard. But I think we've done 
a good job. I think we've done a good job in enabling them to 
have the powers that are necessary to be able to meet the needs 
of their members.
    However, each State has the right to pass their own laws as 
well. We recognize that and we respect that. One of the reasons 
we are here today, and we appreciate the opportunity by the 
subcommittee to be a part of regulatory relief legislation, is 
because we do believe there are perhaps some regulatory 
impediments that are imposed at the Federal level through 
Federal statute that are not imposed at the State level that 
would enable us to have an even more viable Federal charter. 
That's what we want to see, and we appreciate the opportunity 
to have a seat at the table here to do that.
    Mr. Kanjorski. Thank you. You perhaps were not there, but 
in June of 2000, I asked former Chairman D'Amours for an update 
from NCUA regarding the relationship of the Federal and the 
State charter. I will send you a formal request to get a 
further update on this issue.
    Mr. Dollar. And we will give you the most recent figures on 
that. It has continued. And one of the concerns that we have, 
of course, is that as the charter conversions continue that we 
ever get to a point where we're out of balance between a viable 
Federal charter and a viable State charter. And we think that 
one of the ways to respond to that is to try to make the 
Federal charter as viable as possible for credit unions who 
want to grow and prosper as federally-chartered credit unions, 
but still staying within the confines of the Federal Credit 
Union Act.
    Mr. Kanjorski. Additionally, many of the provisions in the 
bill would help Federal credit unions to grow and expand. One 
provision, for example, would allow credit unions to cash 
checks for anyone eligible to join a credit union. In 
Northeastern Pennsylvania, entities like Choice One Federal 
Credit Union are working to expand access to our Nation's 
financial system in underserved communities. This provision 
would certainly help credit unions to offer the unbanked public 
affordable services. What are your thoughts on this issue? And 
should we expand the provision in the bill to include wire 
transfer services, too?
    Mr. Dollar. Congressman Kanjorski, in my statement a moment 
ago I did state that it is the position of the NCUA board that 
in order to facilitate what we are trying to do in our Access 
Across America initiative, which is to enable credit unions to 
adopt underserved areas and extend credit union services into 
many unbanked communities that it's important that the 
residents of those communities know the value and the types of 
services that they can receive by joining a credit union.
    Among those is the ability to get a check cashed at less 
than what many times are predatory rates. Credit unions can 
provide that service, but today they can only provide it to a 
member. And we have long believed that some of those basic 
services perhaps could be provided by a credit union not just 
to their members but to anyone who is eligible to join the 
credit union, not anyone who would not be eligible, but those 
who are eligible to join the credit union in order to help them 
to understand the value of joining the credit union, the type 
of services that they can receive, and we think it could be a 
part of providing a much more viable low-cost alternative to 
some of the check cashing outlets, the payday loan outlets and 
the like that are prevalent in many of these communities. We 
think credit unions can be a part of the answer to the 
predatory lending issue in this country, and we want to 
facilitate that.
    Yes, in answer to the second part of your question, we 
believe that it should also be extended to wire transfers. 
Because particularly as it relates to international 
remittances, many American citizens with ties to a homeland are 
having to pay 28 and 30 and 32 percent of the amount of an 
international remittance to be able to send it back, whereas 
most credit unions would be willing to do it for a flat low 
cost rate.
    Chairman Bachus. Thank you.
    Mr. Kanjorski, you have one more question.
    Mr. Kanjorski. One more question. Mr. Dollar, would you 
comment on how we might change the field of membership 
statutory guidelines to ensure that we do not place Federal 
credit unions at a competitive disadvantage? Should we, for 
example, consider amending the legislation to allow State-
chartered credit unions that convert to a Federal charter to 
keep their entire membership base after conversion?
    Mr. Dollar. As I said a moment ago, the reason for many of 
the conversions to Federal to State charter has been because of 
field of membership restrictions. We do not think that the 
answer to that, again, as I stated earlier, is to preempt State 
law. But we do feel like that we need some greater flexibility 
should a credit union decide that they wanted to convert from 
State to Federal for us to be able to accommodate a field of 
membership that they may have.
    In my earlier remarks, I talked about not having to spin 
off groups when a credit union converts its charter to a 
community charter. What we want is a credit union that is 
already serving a community, making a difference in the lives 
of that community on a daily basis, or in the lives of the 
members of employer groups within its field of membership, to 
be able to choose which credit union charter would best benefit 
their long-term viability and safety and soundness and make 
that choice without being driven by whether or not they're 
going to lose some of those groups or some of those members.
    Safety and soundness is what drives a great deal of our 
concern, but yet field of membership restrictions sometimes 
make credit unions make decisions that we would like to see 
them to have greater options to make otherwise.
    Chairman Bachus. Thank you.
    Mr. Kanjorski. Thank you very much, Mr. Dollar. Thank you, 
Mr. Chairman.
    Chairman Bachus. Congressman Cantor.
    Mr. Cantor. Thank you, Mr. Chairman.
    Ms. Williams, if I could just ask you, you pointed out in 
your testimony that you strongly support relieving the 
restrictions in current law of institutions operating as 
Subchapter S organizations, which I think everyone is in 
agreement or should be in agreement with. But do you know what 
the percentage of institutions that operate with that status 
is?
    Ms. Williams. I don't know the figure off the top of my 
head, but I'd be very happy to get back to you with that 
information.
    Mr. Cantor. Thank you very much.
    [The information referred to can be found on page 90 in the 
appendix.]
    Ms. Buck, if I could direct the next question to you. You 
said the OTS supports parity for thrifts under the Investment 
Advisors Act of 1940. You pointed out in your testimony that 
some individuals have objected to this change because it would 
give thrifts a competitive advantage over registered investment 
advisors. You further stated that this change will have a 
relatively minor impact on the investment advisor industry 
because banks are already exempt. Could you just explain that a 
little further?
    Ms. Buck. Yes. What we've experienced is as our 
institutions have increasingly been using trust powers, when 
they find that they are subject to registration themselves 
under the Investment Advisor Act, and sometimes, depending on 
which State they're located in, the individuals who do that 
work within the institution may have to register, that they 
sometimes are choosing to move to a bank charter where they 
don't have to engage in those registration requirements. And so 
if the effect here from the investment advisor community is to 
believe that somehow preventing thrifts from getting this 
parity with banks would give them an advantage over investment 
advisors, we've got probably at least a dozen thrifts that we 
know of that have converted to banks to be able to escape the 
SEC registration requirements.
    When you're talking about parity here, we should be talking 
about parity as among financial institutions. OTS has the same 
regulatory structure as banks. We exercise the same trust 
powers as banks have. We have the same structure for 
examination. In fact, we just changed our handbook procedures 
last year to make them more comprehensive and more in line in 
terms of examination procedures with the banks, and we are 
about to issue a revised regulation dealing with trust powers, 
again to make it more consistent with those that apply to the 
banking industry.
    So we think that the comparison here should be thrifts with 
banks, and not with the investment advisor community.
    Mr. Cantor. Thank you very much.
    Mr. Chairman, I just have one additional question for 
Chairman Dollar. You state that the Administration should be 
authorized to establish any maturity limits on loans made by 
Federal credit unions in accordance with conventional 
marketplace maturities. Could you just describe what the 
current limits are on the ability for a credit union to make a 
loan and the lending terms, and then the higher maturity limits 
that you recommend?
    Mr. Dollar. Basically, a credit union, Congressman, cannot 
make a loan for a longer term than 12 years with the exception 
of a mortgage loan. There are certain other types of lending, 
such as recreational vehicles, sometimes certain types of loans 
as relates to second homes and the like that the marketplace 
carries beyond the 12 year, but do not classify strictly as a 
mortgage loan. We don't see this as being an area where there 
is a tremendous amount of market that credit unions cannot 
meet, but there is some. And the bill as it is proposed extends 
that from 12 to 15 years. And frankly, that would very likely 
cover any situation that would arise. If the subcommittee and 
the Congress were to elect to go from 12 to 15, it would help 
the situation tremendously.
    We always try to recommend away from those one-size-fits-
all types of caps, because we could set through regulation a 15 
year cap and be able to go beyond that if the market changes in 
the future. We would prefer that approach. But as the bill 
provides, to go from 12 to 15 would cover almost any situation 
that we would foresee at this time.
    Mr. Cantor. Thank you, Mr. Chairman. Mr. Chairman, I yield 
back.
    Chairman Bachus. Thank you.
    Mr. Meeks.
    Mr. Meeks. Thank you, Mr. Chairman. I just have three quick 
questions in three different areas. And I guess the first 
question I'll address to Mr. Olson. Just in considering the 
elimination of the State opt-in program of a de novo branching, 
has there been any concern--what have you heard from the 
States? Have the States made any comments in regards to that? 
What are their opinions or has there been any comment at all 
from the States in regards to the elimination of the opt-out?
    Mr. Olson. Congressman, that question was asked earlier. I 
believe you had just stepped out for a minute. To the best of 
our knowledge, we have not had any concerns expressed by the 
State, at least to this point.
    Mr. Meeks. Thank you.
    Chairman Bachus. And, Mr. Meeks, we'll hear from the New 
York regulators in the second panel too and you may want to 
also address those questions to them in addition.
    Mr. Meeks. Thank you, Mr. Chairman. I hope there's not 
other questions that I've missed. What about in regards to, and 
again, Mr. Olson, to the post-approval waiting period for bank 
acquisitions and mergers? Have there been any adverse effects 
to the 15-day waiting period? And do you see any adverse 
effects in eliminating the waiting period?
    Mr. Olson. Congressman, there have not been. The 
presumption here is that the regulators have already approved 
and that the Attorney General has already reviewed the 
circumstances and the facts and have found that there are no 
anticompetitive effects of the merger. At that point, right now 
the wait period can go from 30 days to 15 days. It would seem 
logical that it could go from 30 days to waiving it entirely. 
But the underlying presumption is that the regulators have 
already approved and the Department of Justice, the Attorney 
General, has looked at it as well.
    Mr. Meeks. Thank you. My last question, maybe I'll address 
this to Ms. Williams, that we live in the post-Enron scandal 
days. And just in looking and talking about the elimination of 
certain reports and things of that nature, are you concerned or 
do you see any concern about the elimination of these reports 
that bank officers may be receiving from other banks? And if 
possible, are there any conflicts of interest that they may 
have as a result thereof?
    Ms. Williams. Congressman, I'll defer to Governor Olson on 
that. We do support the provisions that are in this bill on 
that subject.
    Mr. Olson. I think it's important to note that none of the 
requirements are being eliminated regarding the reporting of 
loans to the bank and the bank's requirements for monitoring 
any loans that are covered under Reg O. So all of those 
provisions remain. There are three reports, reports that they 
are required to file, with respect to those loans that we are 
saying are not necessary for either our enforcement or our 
regulatory process or for the bank's own responsibility for 
those loans. On the margin we're looking to streamline the 
process, and we think that those reports are not central to the 
process either the bank's or the Fed's responsibilities.
    But the underlying issue of insider lending is a very 
important one and one that all of the regulators at the table 
take very seriously.
    Mr. Meeks. Thank you. And I would yield back, Mr. Chairman.
    Chairman Bachus. Yes. And Mr. Meeks, I want to say to you 
just for the record, at the earlier hearing on FDIC, you had 
expressed some concerns about the restrictions on New York 
thrifts in accepting municipal deposits. And I wanted to say 
for the record that we are working together on that issue to 
address your concerns. And I know that New York is actually the 
only State that makes that distinction between banks and 
thrifts. So we are aware of that. We are aware of your 
concerns. And I did want to put that in the record at this 
hearing.
    Mr. Meeks. We appreciate it, Mr. Chairman, and we are 
working together on that. Thank you very much.
    Chairman Bachus. Mr. Royce. And I want to commend you. You 
have a provision in this bill or two.
    Mr. Royce. Thank you, Mr. Chairman. Yes. And on that same 
vein, I wanted to ask Mr. Dollar, because as the Chairman said, 
Mr. Dollar, a portion of this bill deals with a piece of 
legislation I introduced, which was the Faith Based Lending 
Protection Act, and specifically deals with member business 
loans made by credit unions to non-profit religious 
organizations. And the reason this is important to us is 
because these are the types of loans that go for the 
construction of hospices or that go for soup kitchens or 
shelters or churches. And there is a problem with availability 
of credit.
    Under the current law, credit unions are prevented from 
loaning, as you know, more than twelve and a quarter percent of 
their total assets to business, and credit unions engaged 
primarily in faith-based lending, they're the ones that are 
exempted from the cap. But there aren't many engaged in that 
line of work, and these faith-based institutions obtain their 
liquidity, then, by selling these loans to other credit unions 
who are not exempt from the cap. And as a result, the lending 
needs of small non-profit organizations are frankly being 
crimped, and I think part of the problem is that these 
institutions are often ignored by larger banks and thrifts for 
a rational reason. I mean, they have very slim profitability 
margins.
    But the result has been over time that as a number of 
credit unions approach their overall business loan caps, these 
local enterprises, especially hospices, are seeing their access 
to capital steadily decline. And we can fix this problem. And 
in this particular bill for regulatory relief, we have included 
provisions from H.R. 760, which was the Faith Based Lending 
Protection Act, exempting loans made by credit unions to non-
profit religious organizations from the member business loan 
cap. And my question to you was going to be what is the 
position of the National Credit Union Association's stand on 
H.R. 760 and on incorporating that into this regulatory relief 
bill?
    Mr. Dollar. Congressman Royce, as I said in my original 
statement and in answer to one of the questions a moment ago, 
anytime that a statutorily one-size-fits-all approach is 
applied, you're going to miss something. And when Congress in 
1998 applied that 12.25 percent, one-size-fits-all member 
business loan cap, it did miss something. And among the very 
serious areas that was missed was those credit unions who do 
make loans to faith-based organizations.
    I want to commend you for introducing the legislation that 
you did last year to try to correct that. The National Credit 
Union Administration at that time stated its support for that 
legislation and has analyzed it and finds no safety and 
soundness concerns whatsoever to be able to either pass your 
legislation or as is a part of this legislation, to have it 
included as a part of a regulatory relief initiative. We 
certainly would support that.
    Mr. Royce. Well, let me ask you another question then, and 
that goes to the performance of these loans for the record in 
the past, for the Members. How have these loans to religious 
organizations, these loans that go for either churches or 
shelters or soup kitchens or hospices, how have they performed 
over time? And how would you expect them to perform during 
these rather more difficult economic times? Have you got data 
going back and can you share that with us?
    Mr. Dollar. For the record, very little of credit union 
lending is member business lending to begin with. It's less 
than a percent and a half of credit union lending. So it is a 
very small part of what credit unions do, because it is not 
traditional commercial lending as the banks do. It is member 
business lending. However, we do monitor this very closely, 
because it is an area, of course, that we feel is worthy of our 
very close supervision.
    We have found that the delinquency rates on all member 
business lending in credit unions is lower than the delinquency 
rates on personal loans. And among faith-based institutions in 
particular is the best delinquency rate in virtually any area 
of member business lending. There are, as you stated correctly 
earlier, credit unions allowed to do faith-based lending today. 
Those that are chartered primarily for that purpose or exempted 
from the Act, and those that are below the 12.25 percent cap 
are able to make some. We are able to track those loans. We are 
tracking the loans. The payment history and the performance of 
those loans, are very, very solid.
    Mr. Royce. It's in the lowest category of delinquency?
    Mr. Dollar. Yes.
    Mr. Royce. As you look at your portfolio?
    Mr. Dollar. Yes.
    Mr. Royce. Thank you very much, Mr. Chairman.
    Chairman Bachus. Thank you.
    The gentlelady from Oregon.
    Ms. Hooley. Thank you, Mr. Chair. I'm sorry I missed your 
testimony. I was in another Committee meeting. I just have one 
question. Any one of you can answer it. When we talk about 
streamlining bank mergers, are you concerned--do you think 
we'll see a lot more mergers if this passes? Is that what the 
expectation is, that we'll see additional mergers or more than 
what's currently happening? Anyone want to take a shot at that?
    Mr. Olson. Congresswoman, I think this bill will be neutral 
on that issue, because I think what we've done here is 
consistent with the whole idea of reg reduction. We have looked 
at the reg burden and identified the issues that appear not to 
contribute to supervisory oversight and their elimination would 
help achieve an appropriate regulatory environment for the 
banking industry and the thrifts industry.
    And so it would be my judgment off the top of my head that 
this bill would be neutral in that regard.
    Ms. Hooley. OK. Thank you.
    Ms. Buck, when it talks about Federal thrifts investing in 
small business investment companies, do you see that as a 
conflict of interest? Do you see--tell me what you think about 
that whole area.
    Ms. Buck. This particular provision was really just moving 
authority from the Small Business Act over into the Homeowners 
Loan Act. It really does not change our authority at all. It 
was really a technical change.
    Ms. Hooley. OK. Thank you.
    Mr. Dollar, when you look at credit unions and you have a 
change here that goes from, it says an individual Federal 
credit union may invest right now 1 percent of its shares in 
organizations. This amendment raises the limit to 3 percent. 
Talk to me about that.
    Mr. Dollar. Credit unions are authorized under the statute 
to invest up to 1 percent in credit union service 
organizations. These are organizations that are formed by 
credit unions, either an individual credit union or a group of 
credit unions, to offer services to credit unions and credit 
union members. It is usually an economy of scale type of 
organization that is formed by, particularly, small credit 
unions who may need to come together to offer a particular type 
of service.
    Ms. Hooley. Give me a couple of examples.
    Mr. Dollar. There are some that have been formed by 
individual credit unions that do such things as check clearing 
for smaller credit unions, groups of credit unions who come 
together who may not do that on their own. Perhaps even to come 
together to have a financial planning initiative, a retirement 
planning initiative that a single credit union might have a 
difficult time providing but by combining together and 
investing in a credit union service organization, which is a 
separate entity, separate from the credit union itself, they 
are able to provide these services.
    The 1 percent limit, particularly for smaller credit 
unions, somewhat limits their ability to achieve these 
economies of scale. And so instead of being able to form a 
credit union service organization and keeping it within the 
credit union community, if you will, they end up having to 
outsource that to some other third party, thus losing 
institutional control.
    We feel like that an increase such as the one proposed in 
the legislation at least from 1 to 3 percent, if not higher, 
would at least enable those credit unions to have more 
opportunities to be able to invest in credit union service 
organizations where appropriate.
    Ms. Hooley. Does that knock out the small person that maybe 
has a niche market that you currently use? Does that knock them 
out of business?
    Mr. Dollar. Usually what it does is provide an alternative 
to what would probably be a larger nationwide organization that 
is providing that service and enables them to have that local 
niche.
    Ms. Hooley. Thank you. Thank you, Mr. Chair.
    Chairman Bachus. Thank you.
    The gentlelady from Pennsylvania, Ms. Hart.
    Ms. Hart. Thank you, Mr. Chairman. I'm sorry I did miss the 
testimony. But thanks to the Chairman and a lot of his 
information, I do have one question and it actually has to do 
with credit unions' parity sort of with thrifts and banks. I 
guess, unfortunately, I'm going back to Mr. Dollar as well. 
You're working hard this morning. What are the reasons to 
support parity for credit unions with banks and thrifts under 
the SEC Act and the Investment Act of 1940? This has been a 
really controversial issue for quite a long time, and I've 
never really had a chance to get it sort of direct from 
somebody who might be able to give me an answer that isn't as 
bent as some of the ones I've gotten.
    Mr. Dollar. We'll see if we can give you a straight up 
answer. Federal credit unions are authorized to engage in 
certain broker-dealer activities such as third party brokerage 
arrangements, sweep accounts, and to purchase and sell 
municipal securities for their own accounts. That is an 
allowable investment. And to the extent--and it is a very 
limited extent, admittedly, but to the extent that credit 
unions engage in these activities or some other authorized 
activity in the future, we feel that they should be afforded 
the same treatment as banks and thrifts, and the thrifts are 
included in this legislation, with respect to the registration 
under the broker-dealer statute. It is very limited, 
admittedly, as many of the things that credit unions provide 
that the other institutions provide on a much broader scale. 
But even in the small areas where they are provided, we think 
that the credit unions should have that parity.
    Ms. Hart. And once again, the question always arises is if 
they have that parity, then obviously under this bill, they're 
not given more responsibility as far as disclosure?
    Mr. Dollar. Absolutely not. There is nothing in this bill 
that would enable a credit union to engage in any type of 
broker-dealer authority that it does not already have. It just 
says that if a credit union were to, for example, want to buy 
municipal securities for its own investment account, that there 
would be no question but that they would not have to register 
as a broker-dealer to be able to do that. A credit union is not 
a broker-dealer, but they do have certain limited authority in 
this regard. This does not expand that authority.
    Ms. Hart. OK. Is there a concern by any other member of the 
panel about the situation as it exists today regarding the 
opportunity for credit unions to participate as well as other 
institutions? General question. Mr. Olson?
    Mr. Olson. We don't have an opinion on that this morning.
    Ms. Hart. OK. Ms. Williams.
    Ms. Williams. We don't have a position either.
    Ms. Hart. Wow. OK.
    Mr. Kroener. Nor does the FDIC, Congresswoman.
    Ms. Hart. Ms. Buck.
    Ms. Buck. I haven't discussed it with our new director yet.
    Ms. Hart. OK.
    Ms. Buck. So we don't have one as yet.
    Ms. Hart. Thank you. Thanks, Mr. Dollar. Thank you, Mr. 
Chairman.
    Chairman Bachus. You ought to go back to law school.
    [Laughter.]
    Chairman Bachus. You're like those lawyers in Alabama that 
just have one short question.
    [Laughter.]
    Chairman Bachus. Mr. Bentsen.
    Mr. Bentsen. Thank you, Mr. Chairman. I just have one 
question.
    Ms. Williams, Section 401 of the bill easing restrictions 
on interstate branching and mergers, am I right in 
understanding this would overturn Riegle-Neal and preempt 
existing State law for de novo interstate mergers?
    Ms. Williams. It would modify provisions in Riegle-Neal 
dealing with de novo branching, not mergers.
    Mr. Bentsen. So if a State had not opted in under Riegle-
Neal, and I'm trying to think of a couple of States that that 
might apply to, then if this were to become enacted, then that 
would be meaningless and any, you know, Acme Bank national 
association based in Wisconsin would be able to branch, say, in 
Texas de novo or whatever?
    Ms. Williams. This is a change that would apply to both 
State-chartered and national banks to permit de novo branching.
    Mr. Bentsen. And how many States have not opted in?
    Ms. Williams. Governor Olson had that number.
    Mr. Olson. Congressman, 33 States have not. Seventeen 
States have and 33 States, plus the District of Columbia, have 
not opted in.
    Mr. Bentsen. Is there--and I know you have a second panel 
coming up. This would strike me as a somewhat substantial item 
in this bill, given the fact that since Riegle-Neal passed in 
what, 1993 or 1994, that the States have had some time. I'm 
thinking. I don't think my State has opted in, if I recall 
correctly, the State of Texas. And I know there have been a 
number of cases between the Comptroller of the Currency and the 
Texas Department of Banking over questions of whether or not 
some banks have violated that. Do you have any indication, or 
anybody on the panel, that the States are more complacent to 
this idea at this point in time? Or do you think this is 
something that they would have a problem with?
    Mr. Olson. We have not heard, but I guess as you said 
earlier, that's a great question for the next panel. And they 
probably have more input on that issue. In our judgement, this 
is in every sense the epilogue on this issue. Because the issue 
of interstate ownership was long since determined by the State 
legislatures. The issue, as you correctly pointed out, the 
issue of interstate branching was dealt with in Riegle-Neal. 
And what we have now is a certain competitive imbalance caused 
by the opt-in option with respect to the competition between 
banks and Federal thrifts and large banks versus small banks.
    And in our judgment, it's a level playing field, 
particularly with respect to smaller banks whose natural 
markets are right along the State line.
    The issue that you talked about of a Wisconsin bank 
branching into Texas is not a major issue for a large 
organization. And the fact that they could purchase an 
organization and then branch from there isn't a problem. A 
smaller bank in an environment where the State line impedes 
their natural market would have a more significant issue. And 
that's what we're saying.
    Mr. Bentsen. So the argument in favor of this would not be 
that there's a competitive imbalance for a money center bank? 
They'll get some benefit out of this because they won't have to 
set up individual charters in each State in order to conduct 
their branching where that State has not opted in. You're 
saying this is a measure for smaller, non-money center banks, 
you know, $10 billion or less?
    Mr. Olson. Well, I have to change your premise just 
slightly. A larger bank could purchase a bank in the State in 
which it wanted to enter, and a $50 billion bank could purchase 
a $20 million bank or a charter of that size with relative 
ease, where a community bank that would try to branch into that 
State and would first have to make a purchase, which is the 
other option, as opposed to de novo, would find the purchase to 
be a major obligation. And yet, the competitive issue probably 
would be more important for the smaller institution.
    Mr. Bentsen. So this is for the smaller banks, not for the 
larger banks, is the intent?
    Mr. Olson. That's correct.
    Mr. Bentsen. Let me ask one other question. Would this have 
the effect of preempting State banking laws in those States 
that have not opted in for purposes of regulation? If I 
understand correctly, for a State that has not opted in right 
now and someone wants to come in with a new bank, they can 
acquire, they can set up a separate charter, there can be 
symmetry between the outside bank and the current bank, but the 
bank inside the non-opt-in State still is under State law as it 
relates to consumer protection and whatever else. To what 
extent would repeal of Riegle-Neal's opt-in provision preempt 
State law in any respect in addition to just the branching 
itself?
    Ms. Williams. Congressman, I don't think it would at all to 
the extent that the State laws were applicable. There are 
various provisions in Riegle-Neal and in some amendments that 
were made to Riegle-Neal a couple of years later that deal with 
the applicability of State laws to interstate branches. This 
doesn't affect that.
    Mr. Bentsen. So the parity issues and all that are all the 
same?
    Ms. Williams. I think that's correct.
    Mr. Bentsen. Thank you. Thank you, Mr. Chairman.
    Chairman Bachus. I thank the gentleman from Texas for those 
thoughtful questions. At this time, unless the sponsor of the 
bill has a follow-up question, we will discharge the first 
panel. And actually you'll note that you are being discharged 
early.
    [Laughter.]
    Chairman Bachus. We certainly appreciate your testimony. We 
also appreciate your willingness prior to this hearing to work 
with the subcommittee and to suggest changes even to us before 
we started preparing these bills for some reform of the 
regulations. So we appreciate your testimony and your 
professionalism here this morning.
    Mr. Cantor. [Acting Chairman.] Thank you.

  STATEMENT OF ELIZABETH McCAUL, SUPERINTENDENT OF BANKS, NEW 
 YORK STATE BANKING DEPARTMENT, ON BEHALF OF THE CONFERENCE OF 
                     STATE BANK SUPERVISORS

    Ms. McCaul. Good morning Chairman Bachus and Members of the 
subcommittee. I am Elizabeth McCaul, Superintendent of Banks 
for the State of New York, and Chairman of the Conference of 
State Bank Supervisors. Thank you for asking us to be here 
today to share the views of CSBS on regulatory burden reduction 
and the Financial Services Regulatory Relief Act of 2002.
    CSBS is the professional association of State officials who 
charter, regulate and supervise the Nation's over 6,000 State-
chartered commercial and savings banks, and more than 400 
State-licensed foreign banking offices nationwide.
    We applaud your commitment and efforts to reduce the 
burdens imposed by unnecessary or duplicative regulations that 
do not advance the safety and soundness of our Nation's 
financial institutions. This subcommittee deserves special 
recognition for its efforts to remove these Federal regulatory 
burdens, allowing our banks to compete with other financial 
entities at home and around the word. This competition 
encourages efficiency and innovation, benefiting the economy 
and consumers alike.
    However, the most important contribution toward reducing 
regulatory burden may be empowering the State banking system. 
State banks and the State chartering system have created the 
vast majority of innovations in banking products, services and 
business structures. For this reason, we are very disappointed 
that a provision to allow State-chartered member banks to 
utilize the powers of their charter was withdrawn from the bill 
just prior to its introduction.
    Through innovation, coordination and the dynamic use of 
technology, States have made great strides in reducing 
regulatory burden for the institutions we supervise. My 
submitted testimony describes these efforts in more detail.
    The Financial Services Regulatory Relief Act of 2002 can be 
a valuable Federal complement to these efforts. With respect to 
interstate branching requirements, as you may know, current 
Federal law has taken an inconsistent view toward how banks may 
branch across State lines. While Riegle-Neal gave the 
appearance that States could control how banks could enter and 
branch within their borders, this has not always been the 
reality.
    Perhaps because it was believed that the Federal thrift 
charter would be eliminated at the time Riegle-Neal was 
adopted, the law was not applied to federally-chartered 
thrifts. The result is that a Federal thrift can branch without 
regard to State law and rules of entry.
    Since the passage of Riegle-Neal, the OCC has promulgated 
creative interpretations of the National Bank Act that 
effectively circumvent the application of Riegle-Neal to 
branch-like operations. The result is that State-chartered 
institutions, particularly community banks who wish to branch 
interstate, are at a competitive disadvantage to those 
institutions that can use Federal options to branch without 
restrictions.
    While 17 States now allow de novo branching, please 
recognize in your review of Federal law that the majority of 
States have not passed de novo branching laws. Whatever the 
outcome, we urge Congress to eliminate the disadvantage it has 
created for State banks because of inconsistent application of 
Federal law.
    CSBS also hopes that the subcommittee will rethink 
including the State member bank powers amendment. The provision 
would simply give the Federal Reserve more flexibility to allow 
State member banks to engage in investment activities where 
authorized by their chartering State and approved by the FDIC 
as posing no significant risk to the deposit insurance fund.
    State-chartered non-member banks have always been allowed 
to exercise expanded powers within the confines of safety and 
soundness. Therefore, eliminating this prejudicial and 
unnecessary distinction between State-chartered member banks 
and non-member banks is appropriate regulatory relief.
    We also ask the subcommittee and the Congress to address 
the implementation and implications of regulatory preemption by 
the OCC and the OTS. CSBS believes this request for review of 
preemption and applicable law is appropriately a regulatory 
burden reduction matter as well.
    Our banking system is a complex and evolving web of State 
and Federal law, particularly for the State-chartered 
institutions. Greater sunshine on OCC and OTS interpretations 
of applicable law for the institutions they charter would also 
help to clarify applicable law for our Nation's more than 6,000 
State-chartered banks, representing nearly 70 percent of all 
insured depositories.
    The quest to streamline the regulatory process while 
preserving the safety and soundness of our Nation's financial 
system is critical to our economic well being and to the health 
of our Nation's financial institutions. We commend this 
subcommittee for its efforts in this area and thank you, 
Congresswoman Capito, for sponsoring this legislation.
    Thank you for the opportunity to testify on this very 
important subject. We look forward to any questions you and any 
of the Members may have.
    [The prepared statement of Elizabeth McCaul can be found on 
page 140 in the appendix.]
    Mr. Cantor. Thank you, again, Ms. McCaul.
    Now I would like to again recognize Mr. Roger Little. He is 
Deputy Commissioner, Credit Union Division, Financial 
Institutions Bureau, State of Michigan, on behalf of the 
National Association of State Credit Union Supervisors. Again, 
welcome.

   STATEMENT OF ROGER W. LITTLE, DEPUTY COMMISSIONER, CREDIT 
 UNIONS, OFFICE OF INSURANCE AND FINANCIAL SERVICES, ON BEHALF 
 OF THE NATIONAL ASSOCIATION OF STATE CREDIT UNION SUPERVISORS

    Mr. Little. Thank you very much, Mr. Chairman. By way of 
introduction, NASCUS represents credit union supervisors across 
the country who collectively regulate more than 4,300 State-
chartered credit unions. Like our counterparts in State 
government across the country, the Michigan Office of Financial 
and Insurance Services is committed to carrying out its mission 
through effective, efficient chartering, regulation and 
supervision of our State-chartered financial institutions.
    NASCUS supports your efforts to reduce the regulatory 
burden on all depository institutions and appreciates this 
opportunity to present the State regulators' perspective and 
views on those aspects of the regulatory relief bill that most 
directly impact State-chartered credit unions.
    We would also like to address the broader issue of the 
overall safety and soundness of the State-chartered credit 
union system. NASCUS strongly supports the provisions contained 
in the regulatory relief legislation that would authorize 
State-chartered, privately insured credit unions to be eligible 
for membership in the Federal Home Loan Bank System.
    All State-chartered credit unions, regardless of their 
insurer, are regulated and examined by agencies of State 
governments to ensure that they are operating in a safe manner. 
To properly manage and price insurance risk, deposit insurers 
rely significantly on the examination reports of the 
institution's primary regulator. Most State credit union 
agencies use the same examination product, policy and 
procedures as the NCUA, who regulates Federal credit unions and 
insures all federally insured credit unions.
    State agency examiners get the same training NCUA examiners 
do, plus any additional training the State agency may require. 
NASCUS agencies participate in the development and testing of 
NCUA's examination program and procedures. In short, there is 
excellent cooperation between NCUA and the State regulators and 
substantially similar examination standards for both federally 
and State-chartered credit unions.
    Regarding privately insured credit unions, it's important 
to note that the Federal Deposit Insurance Corporation 
Improvement Act of 1991 specifically addressed the issue of 
private insurance for credit unions, establishing a series of 
safety and soundness requirements both for entities that would 
offer private deposit insurance to credit unions and for credit 
union that choose to have private deposit insurance.
    It's also important to note that permitting non-federally-
insured institutions to join the Home Loan Bank System would 
not establish a new membership principle for the system. More 
than 50 insurance companies chartered and regulated by State 
governments are now members of the Federal Home Loan Bank 
System. Opening membership to all credit unions as well would 
not inflict any new or unusual exposure on the Federal Home 
Loan Bank System.
    We also need to recognize that allowing membership only 
provides access to the system. Each Federal Home Loan Bank has 
a very sophisticated credit screening system to assure that any 
borrower, federally insured or otherwise, is creditworthy. 
Arguably, access to the Federal Home Loan Bank System provides 
an additional level of scrutiny for credit unions and 
introduces additional market discipline into the system.
    We would appreciate your support for including this 
proposal in the regulatory relief legislation and urge the 
subcommittee to approve this provision which will help achieve 
our Nation's housing and homeownership goals.
    I'd also like to touch briefly on the SEC exemption issue 
which was discussed earlier and note that NASCUS supports 
extending parity to all credit unions from the exemption that 
would give State institutions an exemption from SEC 
registration requirements, the same exemption that banks were 
provided by the Gramm-Leach-Bliley Act. NASCUS requests that 
State-chartered credit unions be accorded parity of treatment 
in this area and therefore relief from those same requirements 
for basically the same reasons as articulated by Chairman 
Dollar earlier.
    NASCUS also wants to address concerns about a perceived 
lack of parity in the credit union dual chartering system. We 
are aware of some complaints that State-chartered credit unions 
have grown faster than their Federal counterparts in some 
States in recent years. As a result, it has been suggested that 
the powers of State-chartered credit unions might be rolled 
back by the U.S. Congress to restore parity of growth in the 
dual chartering system.
    In recent years, a number of federally-chartered credit 
unions have switched to State charters, because that charter 
offers a better fit with the business plan of those 
institutions. Perhaps there were specific consumer financial 
services that a particular State law or regulation permitted, 
or there was a better field of membership provision enabling 
that credit union to better meet its members' needs. In other 
cases, there have been conversions from State to Federal 
charters. That simply demonstrates yet again the benefits of 
having a strong dual chartering system to provide that freedom 
of choice.
    But it's important also to consider some facts to put this 
issue in perspective. Today there are still fewer State-
chartered credit unions than federally-chartered credit 
unions--4,400 versus 6,200. Statistics on the data for these 
various institutions are included with our written testimony.
    Also the total assets of State-chartered credit unions are 
significantly lower than those of Federal credit unions, $231 
billion versus $271 billion. Some have even suggested that the 
rapid recent growth of the State system is the result of 
regulatory laxity by State regulatory agencies. We vigorously 
challenge that contention and would like to take this 
opportunity to refute it.
    We have attached to our testimony a brief comparison of key 
financial performance characteristics of both federally and 
State-chartered credit unions. Current data indicates that in 
every essential safety and soundness category, the financial 
performance of State-chartered credit unions is every bit as 
sound as that of federally-chartered institutions.
    The recent expansion of fields of membership opportunities 
for both Federal and State-chartered credit unions has 
diversified geographical risks for these institutions, 
enhancing their safety and soundness. In fact, the State-
chartered credit union system which began in the early 1900s, 
was in the forefront of diversing credit union fields of 
membership. Encouraging diverse employee groups and making a 
broader range of community groups eligible for membership helps 
ensure the economic viability of credit unions.
    There have also been major improvements in both the State 
and Federal systems of regulation and supervision for 
depository institutions since the savings and loan crisis of 
the 1980s and early 1990s. In fact, since 1998, all credit 
unions have been subject to prompt corrective action 
requirements that actually exceed those of commercial banks and 
savings institutions.
    We would submit that any public policy prescription to roll 
back by Federal law the statues and regulations of the States 
to punish State-chartered credit unions for their financial 
success in this new era of intensified State supervision would 
be a disastrous public policy approach. Ebbs and flows in 
Federal and State charter activity are one of the benefits of 
the dual chartering system. It happens in the commercial 
banking industry and likewise occurs in the credit union 
industry. That ebb and flow is a desirable public policy 
objective, not a cause for Congressional concern.
    Attempting to roll back the powers of State credit unions 
would be extremely damaging to the dual chartering system, to 
millions of credit union members across the country, and to the 
health and viability of the credit union system and the 
financial system in general. We urge this subcommittee to 
protect and enhance the viability of the dual chartering system 
for both credit unions and for banks and to approve the 
provisions we have discussed in our testimony.
    Thank you very much for the opportunity to present our 
position on these issues, and I'll be happy to address any 
questions that you may have.
    [The prepared statement of Roger W. Little can be found on 
page 157 in the appendix.]
    Mr. Cantor. Thank you, Mr. Little.
    I'd like to direct a question to you, Ms. McCaul. You've 
asked us to reconsider a provision that would give the Federal 
Reserve more flexibility to allow State member banks to engage 
in investment activities authorized by their chartering States 
and approved by the FDIC. Behind that request, your position 
that there is no significant risk to the deposit insurance 
fund. Currently, State member banks are limited to activities 
granted to national banks, and yet State non-member banks are 
allowed to exercise expanded powers within the confines of 
safety and soundness. One, why do you support this provision? 
Two, how do you respond to the OCC's view that this would undo 
the prudential standards in the Gramm-Leach-Bliley Act?
    Ms. McCaul. First I would point out that this section, this 
ability of State-chartered banks in general has been a bedrock 
of the dual banking system. Our country's successful financial 
system has had at its very core the concept of innovation that 
has begun at the State level. The States in effect have been 
the laboratories for change and new possibilities, new 
products, new services tested at the State level have become 
nationwide products and services that have benefited our 
country.
    And so this innovation has been part of our law, part of 
system since really the inception of the dual banking system. 
In fact, in 1991, in FDICIA the Congress reiterated that this 
innovation would remain even at the height of the banking 
crisis. It preserved the rights of State non-member banks to 
continue to innovate.
    If I could, I would like to point out that there has been a 
very strong record of that innovation within safe and sound 
standards that has been operable with regard to the non-member 
banks for a very long time. And in the FDIC's submitted 
testimony, they are pointing out, if you would allow me to read 
the following: ``Indeed, Section 24 of the FDI Act states that 
an insured State bank may not engage as principal in any type 
of activity that is not permissible for a national bank unless 
the FDIC has determined that the activity poses no significant 
risk to the funds and the State bank is and continues to be in 
compliance with applicable capital standards prescribed by the 
appropriate Federal banking agency.''
    That statute makes no distinction between State member 
banks and State non-member banks. So the concept of being able 
to craft innovation within a State-chartered bank is an 
activity that currently exists for non-member banks and is 
subject to oversight not only by the State regulator but also 
by the FDIC. Including this provision would merely allow 
another regulator to have the same authority with regard to 
State member banks. And the concept of innovation that has been 
at the heart of our country's dual banking system would be 
preserved.
    Mr. Cantor. Thank you, Ms. McCaul.
    I would now like to call upon the bill's sponsor, Ms. 
Capito, for comments and questions.
    Ms. Capito. Thank you, Mr. Chair.
    I'd like to ask a question of Ms. McCaul. We talked about 
this in the last panel, and I'd like just a clarification. You 
touched on it in your statement, and I appreciate that, the 
fact that 33 States do not have the de novo statutes in place 
and I mentioned that I was a former State legislator who is 
leery of preemption by the Federal laws. We were wondering if 
there was any opposition that you would foresee in terms of 
States across the Nation.
    Ms. McCaul. The CSBS has adopted a policy that encourages 
the States to consider adopting de novo branching laws. And at 
the same time, CSBS also has a policy that Federal law or 
regulation should not put a State-chartered institution at a 
disadvantage. And so we have had 17 States that have adopted de 
novo branching laws, and a number of States have not moved in 
that direction at this time.
    The result is that the provisions in law that exist have 
created a competitive disadvantage for the State-chartered 
where they are not able to branch as easily as thrifts or 
nationally-chartered banks.
    Ms. Capito. OK. Thank you. I have no further questions. I 
yield back.
    Mr. Cantor. Thank you.
    The Chair now recognizes Mr. Ney for comments or questions.
    Mr. Ney. Thank you, Mr. Chairman. I want to thank 
Representative Capito and also you for the inclusion of the 
Federal Home Loan Bank Membership Act, which I introduced 
earlier in this session as Section 301 of the regulatory relief 
legislation. I think it's going to be good news to firefighters 
and police, postal workers, teachers, State employees, credit 
unions have written to me and other Members of the subcommittee 
asking for the relief so they can provide home financing to 
their members.
    Also, as you know, Mr. Chairman, State-chartered privately 
insured credit unions cannot apply to become members of a 
Federal Home Loan Bank even though nearly 11,000 federally 
insured credit unions already are permitted to do so. The 
legislation I have corrects this problem. It would give State-
chartered, privately insured credit unions the same permission 
available to all other credit unions to apply to a Federal Home 
Loan Bank for membership.
    After they apply, they would of course still have to meet 
all the Federal Home Loan Bank safety and soundness 
requirements on top of their existing State regulations as well 
as the Federal requirements, which are part of FDICIA, the bill 
supported by the Credit Union National Association, National 
Association of Credit Union Supervisors as well as a number of 
State credit union leagues.
    I understand some Members of the subcommittee obviously may 
have concerns about the regulation of privately insured credit 
unions, so I'm working with my good friend Congressman 
Kanjorski, and I want to address those concerns.
    I do have a couple of questions for Mr. Little. Mr. Little, 
I know some Members of the subcommittee are perhaps not aware 
of the private deposit insurance option for credit unions 
because it is only available in certain States, but that option 
was specifically sanctioned by the Congress in Federal law. 
Isn't that correct?
    Mr. Little. That's correct, sir, in the FDICIA Act of 1991.
    Mr. Ney. And also, could you tell us why a credit union 
would want to apply for membership with a Federal Home Loan 
Bank and how many federally insured credit unions are already 
members of a Federal Home Loan Bank?
    Mr. Little. As I understand it, about 650 credit unions 
nationwide are currently members. The principal advantage of 
membership is an additional source of longer term credit for 
those institutions to use for the purpose of financing mortgage 
loans for their members in much the same way that banks and 
other businesses use the Federal Home Loan Bank now.
    It's to the benefit of those credit union members to be 
able to receive that financing. It's to the benefit of the 
credit union's safety and soundness to be able to have an 
additional financing vehicle to use for interest rate risk 
management purposes. And as I stated earlier, in our view, it's 
beneficial to have yet another set of eyes, if you will, 
looking at those credit unions as they borrow from the Federal 
Home Loan Bank.
    Mr. Ney. So another layer of Federal safety and soundness 
is what you're saying?
    Mr. Little. Yes, sir.
    Mr. Ney. And I appreciate it. And I'm sorry I didn't make 
all your testimony, but I'll especially look at the part where 
you talk about the additional layer.
    Mr. Little. Thank you.
    Mr. Ney. Thank you, Mr. Chairman.
    Mr. Cantor. Thank you. And if there are no further 
questions, I have none. I'd just like to thank the panel again 
and the audience's patience with the subcommittee, and the 
hearing is now adjourned.
    [Whereupon, at 11:58 a.m. the hearing was adjourned.]

    H.R. 3951--THE FINANCIAL SERVICES REGULATORY RELIEF ACT OF 2002

                              ----------                              

                        THURSDAY, APRIL 25, 2002

             U.S. House of Representatives,
            Subcommittee on Financial Institutions 
                               and Consumer Credit,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to call, at 10:10 a.m., in 
room 2128, Rayburn House Office Building, Hon. Spencer Bachus, 
[chairman of the subcommittee], presiding.
    Present: Chairman Bachus; Representatives Weldon, Roukema, 
Baker, Cantor, Grucci, Hart, Capito, Tiberi, Waters, Bentsen, 
and Hinojosa.
    Chairman Bachus. The hearing will come to order. The Chair 
recognizes himself for the purpose of making an opening 
statement. And what we do, for witnesses who have not been here 
before, we have brief opening statements; they will be brief. 
And then some of the Members wanted to introduce the witnesses 
who are from their home States. We will do that. The Ranking 
Member will speak after I speak. And then we will go right into 
your testimony.
    We have--I don't know if any of you were told--we have a 5-
minute rule. But we will waive that as long as you don't go 10 
or 15 or 20 minutes. But don't--we are not going to be--some of 
the audience is shaking their head don't waive the 5-minute 
rule. But we will not be very strict on that.
    The subcommittee meets today for its second hearing on H.R. 
3951, the Financial Services Regulatory Relief Act of 2002. We 
just call that ``reg relief.'' This bipartisan legislation was 
introduced last month by two of my colleagues on the 
subcommittee, Mrs. Capito and Mr. Sandlin.
    I am an original co-sponsor, as is the Chairman of the Full 
Committee, Mr. Oxley of Ohio.
    So I commend you, Mrs. Capito, for your hard work on this.
    And at our first meeting on H.R. 3951 last month, the 
subcommittee heard testimony from a wide range of Federal and 
State banking regulatory agencies whose technical assistance 
and expertise has been invaluable to the subcommittee in the 
development of this legislation.
    Having heard from the regulators, today we hear from the 
regulated, those institutions that must contend with the reams 
of bureaucratic red tape that issues forth from this city every 
year.
    Testifying will be five of the leading financial services 
trade associations, representing large banks, small community 
banks, savings institutions and credit unions, in no particular 
order. I could read that the other way around.
    As Chairman Oxley and other Members pointed out at our 
first hearing, the regulatory burden shouldered by depository 
institutions increased significantly last year with the 
enactment of the anti-money laundering provisions of the U.S.A. 
PATRIOT Act.
    Just this week, the Treasury Department issued new 
regulations implementing a key provision of that act requiring 
financial institutions to have in place programs designed to 
detect money laundering and terrorist financing.
    In testimony before this subcommittee, and I think this is 
very good news for you all as representatives of you all's 
organizations, the FBI and other Government agencies have 
praised--and lavishly praised--the financial services industry 
for its cooperation with law enforcement in the post-September 
11 investigations of al Qaeda and other terrorist organizations 
operating in the country. The cooperation of the institutions 
you represent couldn't have been better, and they have led to 
successful seizures.
    It has often been said that banks and other financial 
institutions are our Nation's first line of defense in the 
financial war on terrorism that the Bush Administration is 
waging so effectively.
    Last week's governmental warning that terrorists might be 
planning attacks against U.S. financial institutions in the 
Northeast brought home the banking industry's front line role 
in the fight against terrorism in stark terms.
    So as we consider this important legislation to give 
financial institutions and their customers much needed 
regulatory relief, we should also take a moment to recognize 
the very real contributions to homeland security made by 
vigilant bank tellers and other financial services 
professionals across the country.
    I now recognize the Ranking Minority Member, Ms. Waters, 
for an opening statement.
    Ms. Waters. Thank you very much, Mr. Chairman.
    I would like to thank you for holding this hearing today. I 
would like to say that this hearing is certainly necessary. 
But, we have to remember that the name of the subcommittee is 
Financial Institutions and Consumer Credit. I worry that we 
tend to focus too much of our time on the financial institution 
part of the subcommittee's jurisdiction, and not enough time on 
issues that are very, very vital to consumers.
    I am certainly not opposed to the principle of reasonable 
regulatory burden relief, and I will even concede that 
consumers could possibly experience some minor cost savings as 
a result of regulatory relief, but I think some of the 
provisions may go too far.
    In particular, I am concerned about Section 301 of the 
bill, which would permit privately insured credit unions to 
become members of the Federal Home Loan Bank system. Membership 
in the Federal Home Loan Banks is desirable to credit unions, 
but is currently only open to those with Federal insurance. 
Unfortunately, in the past, there have been failures of private 
and State insurance funds.
    In addition, this change could cause a number of credit 
unions to abandon their Federal charters and create a potential 
race to the bottom by State regulators to attract credit unions 
to their State.
    We recently completed Federal deposit insurance reform 
legislation in this subcommittee, and while we may have had our 
differences on some issues, we all shared the goal of 
maintaining a strong and safe deposit insurance system. I can't 
imagine that we want to turn around and create incentives for 
credit unions to switch from safer Federal insurance to riskier 
private insurance.
    H.R. 3951 needs to be a bit more balanced. There is nothing 
here for customers, and there are some very critical matters 
that need attention in that arena. For example, the numerical 
provisions in the Truth in Lending Act are so hopelessly 
outdated that many automobile loans fall outside of the act's 
capped amounts, which must be raised to have any meaning.
    In addition, basic protections for credit card consumers 
are solely needed, and it is virtually an unregulated industry 
except for a few basic disclosures. These cards are used to 
entice people to take on debt that they can ill afford without 
giving them the tools they need to make an educated decision.
    In order to meet relief from regulatory burden, there 
should be some regulations in place to begin with. Over the 
last quarter century, entire industries sprung into being 
largely outside of the boundaries of Federal regulation. I am 
talking about the check cashiers, the payday lenders, the 
mortgage services, and the subprime lenders who fly below radar 
in many of their activities.
    So, Mr. Chairman, I hope that this bill develops a little 
bit more balance as it moves forward, because at this point, 
again, I am not so sure that I could point to very much for our 
consumers. However, I do look forward to hearing the witnesses 
today, and I must reiterate that I am supportive of getting rid 
of unnecessary burdens for our regulatory agencies. But, I 
would hope to have some initiation of discussion on some of 
those areas that I have pointed to, at some point in the work 
of this subcommittee.
    Thank you very much.
    Chairman Bachus. I thank the Ranking Member.
    Mrs. Capito, sponsor of the bill, we want to recognize you.
    Mrs. Capito. Yes, thank you, Mr. Chairman. I appreciate you 
holding another day of hearings on this regulatory relief bill, 
and I want to thank our panel for taking the time to travel to 
Washington to appear before us today. I want to extend an 
especially warm welcome to Charlene Gaither, who comes to us 
today from my beautiful home State of West Virginia, and I look 
forward to providing the subcommittee with a more formal 
introduction in a few moments.
    Mr. Chairman, as my colleagues will recall from our last 
hearing on this issue, Chairman Oxley, Mr. Sandlin and I 
introduced this bill in an effort to help reduce the 
substantial regulatory burdens imposed on the financial 
services industry.
    While the Federal regulations play an important role in 
protecting consumers, instilling confidence and ensuring a 
level playing field, overregulation can depress innovation, 
stifle competition, and actually retard our economy's ability 
to grow.
    Periodically reviewing and questioning the regulations put 
in place over time will ensure that as industries and 
technologies change, so too will the rules that govern them.
    As I mentioned in our last hearing, I believe we have put 
together a good and balanced bill that will benefit both 
consumers and business. But this legislation is by no means a 
final draft.
    These hearings are designed to flush out any potential 
problems that may exist, be they mistakes of omission, simple 
drafting errors or unintended consequences of what at first 
glance appear to be merely technical changes. I hope that 
today's witnesses will feel free to provide us with their 
expert opinions. I look forward to working with the Chairman as 
we move closer to the markup, and I thank the Chair again. 
Thank you.
    Chairman Bachus. Thank you.
    At this time, Mrs. Roukema, do you have an opening 
statement?
    Mrs. Roukema. No.
    Chairman Bachus. We welcome you to the subcommittee.
    Are there any other opening statements? Well, at this time 
we are going to allow Members to introduce the witnesses that 
are from their home States. And at this time I recognize the 
Ranking Member, Ms. Waters.
    Ms. Waters. Thank you very much. Mr. Chairman and Members, 
I would like you to join with me in welcoming Mr. Bill Cheney, 
who is the president and CEO of the Xerox Federal Credit Union 
in El Segundo, one of the small cities adjacent to my district.
    Mr. Bill Cheney, who is the President and CEO of Xerox 
Federal Credit Union has a broad background in financial 
services, including more than 15 years working in the credit 
union industry.
    Bill joined Xerox Federal Credit Union, which by the way 
had more than $590 million in assets in 1997, after more than 
10 years with Security Service Federal Credit Union in Texas. 
This credit union serves employees from Xerox Corporation and 
related companies nationwide through 18 credit union offices in 
nine States, including California, New York, Illinois and 
Texas. In addition, the credit union owns 39 percent of Xerox 
Credit Union Corporation, a brokerage and insurance company 
serving multiple credit unions and their members throughout 
offices in 15 States.
    Welcome, Mr. Cheney.
    Chairman Bachus. Thank you. Mr. Cantor.
    Mr. Cantor. Thank you, Mr. Chairman.
    I have the distinct pleasure to welcome two fellow 
Virginians today. Always, hopefully inspiring to be the 
Virginia gentleman that Mr. Stone is, I will go to the lady 
first.
    It is my pleasure to introduce Ms. Elizabeth, or Betsy, 
Duke. She is a lifelong resident of the Commonwealth and began 
her career in banking in 1975. She started as a drive-in teller 
and worked her way to President and CEO of the Bank of 
Tidewater by 1991.
    She has also served as an instructor on the banking 
industry in numerous locations and is a past member of the 
Board of the Richmond Federal Reserve. She currently serves on 
the board of the American Bankers Association and is Chairman 
of the ABA's Government Relations Council. She is also 
President of SouthTrust Bank, Virginia Beach. I consider Betsy 
a friend, a valuable resource on banking industry resources and 
look forward to her testimony. Again welcome.
    I would also like now to welcome, Mr. Chairman, a 
constituent of mine, always an honor, and he is a true Virginia 
gentleman, Mr. Pierce Stone. Pierce is the Chairman, President, 
CEO of the Virginia Community Bank in Louisa, Virginia. He is 
also the Chairman of the Independent Community Bankers of 
America.
    He earned his Bachelor of Science Degree in Business 
Administration from the University of South Carolina and is a 
graduate of the School of Banking of the South. He also served 
as a Director of the Federal Reserve Bank of Richmond from 1990 
to 1992. He was appointed by the Governor of Virginia to serve 
as a Director on the Virginia Real Estate Appraisers Board.
    Long active in the ICBA, Mr. Stone has served as Chairman 
of the Long-Term Planning and Marketing Committee and is an 
ICBA State Director. He serves on the board of the ICBA Credit 
Life Company. He is a member of the Virginia Association of 
Community Banks, and is past President of this organization.
    He helped organize and was Chairman of Community Bankers 
Bank of Virginia. Other businesses and activities include many, 
Mr. Chairman. He is Director of a weekly newspaper company, a 
radio station, as well as Rockingham Group, which is a property 
and casualty mutual company. He is the former treasurer and 
board member of the Lions Club in Louisa, and most importantly, 
he is married and has two children.
    I would say, Mr. Chairman, it is a real honor for me to 
welcome Pierce. He is a leader in our community, and I am proud 
that he is here today and look forward to his testimony. I 
yield back.
    Chairman Bachus. I will say this, Mr. Stone. You have been 
before the subcommittee before. And, Mr. Hage, you are no 
stranger to the subcommittee. So normally we only introduce 
folks that are coming before the subcommittee for the first 
time. But this time, in this case Mr. Cantor, since he was 
introducing Ms. Duke, he was afraid not to reintroduce you. 
And, Mr. Stone, so that you know, that is probably very 
diplomatic to do.
    Mr. Hage, I want to commend you on your recent appointment 
to the President's Task Force on Retirement Savings. And, as he 
knows, he was appointed by Speaker of the House Denny Hastert. 
I think that is quite a recognition of your accomplishments and 
professionalism. So I commend you on that. You have important 
work ahead of you.
    Are there further opening statements? I am sorry. Mrs. 
Capito. You have not introduced the gentlelady from West 
Virginia, have you?
    Mrs. Capito. No, not in full.
    Chairman Bachus. All right. Thank you.
    Mrs. Capito. Thank you. Mr. Chairman, I want to welcome 
Charlene Gaither to Washington and to thank her for taking her 
time to provide the subcommittee with her expertise on the 
regulatory burden facing our Nation's credit unions. I had the 
opportunity yesterday to spend some time with Charlene, and I 
was very impressed with her dedication, not only to her members 
but with her extensive knowledge of the industry.
    As one of seven full-time employees, Charlene currently 
serves as the manager of Eastern Panhandle Community Federal 
Credit Union in Martinsburg, West Virginia. The Community 
Federal Credit Union is a $14 million credit union that serves 
more than 2,000 members. Charlene has handled the duties of 
Chief Financial Officer and Chief Marketing Officer during her 
tenure, and is a volunteer board member of the West Virginia 
Credit Union League.
    Charlene's 17 years of experience gives her, I think, a 
unique perspective on how the regulatory relief bill will help 
both consumers and business. I am pleased to have her here, my 
fellow West Virginian, and I look forward to her testimony.
    Chairman Bachus. Thank you. And we will start, Ms. Gaither 
with your testimony. And you can maybe explain to us starting 
out how Martinsburg has a 5-story FAA building. But if you 
don't want to you don't have to.

 STATEMENT OF CHARLENE R. GAITHER, MANAGER, EASTERN PANHANDLE 
 COMMUNITY FEDERAL CREDIT UNION, MARTINSBURG, WV, ON BEHALF OF 
               CREDIT UNION NATIONAL ASSOCIATION

    Ms. Gaither. Chairman Bachus, Ranking Member Waters and 
Members of the subcommittee, especially my own Member, 
Representative Capito, thank you for the opportunity to provide 
comments on H.R. 3951 and your efforts to design legislation to 
lessen the regulatory burden on insured depository 
institutions.
    I am Charlene Gaither, Manager of the Eastern Panhandle 
Community Federal Credit Union, a $14 million credit Union in 
Martinsburg, West Virginia. I appear before you today on behalf 
of the Credit Union National Association.
    We congratulate Representative Capito for introducing this 
bill and including the legitimate needs of credit unions for 
regulatory relief. I would like to emphasize that my testimony 
today will focus on the provisions in the bill which pertain to 
credit unions as well as those we would like the subcommittee 
to include in any final bill.
    We understand that the ABA and other bank trade 
associations oppose all or parts of this bill because of the 
credit union provisions. We will not lower ourselves to their 
level and attack provisions pertaining to them.
    While my written statement includes a thorough analysis of 
each of the credit union provisions, I will only touch on a few 
of them in my oral statement this morning.
    CUNA strongly supports Section 301 of the bill, which 
permits State-chartered, privately insured credit unions to 
become members of the Federal Home Loan Bank. This provision 
was originally introduced as H.R. 2796, the Federal Home Loan 
Bank Membership Act of 2001, by Representative Bob Ney.
    As incorporated into H.R. 3951, it would provide a needed 
funding source for home ownership for many credit union members 
as well as strengthen the dual chartering system of credit 
unions. These 216 institutions with 1.3 million members are 
regulated by the States in which they were chartered. They are 
subject to safety and soundness requirements from the State 
regulator as well as the private insurer.
    We also want to commend Representative Capito for including 
Section 306 in the bill, which incorporates legislation 
previously introduced by Representative Ed Royce, H.R. 760, the 
Faith Based Lending Protection Act. This amendment, which we 
strongly support, is designed to exclude loans made by Federal 
credit unions to non-profit religious organizations from the 
statutory member business loan limit of 12.25 percent of the 
credit union's total assets. According to the recent testimony 
of NCUA Chairman Dennis Dollar, these are the safest of all 
loans made by credit unions.
    Another very important part of the bill is Section 307, 
which allows Federal credit unions to cash and sell certain 
checks to non-members of the credit union as long as they are 
eligible to join or are within the field of membership of the 
credit union. Many of these individuals live from paycheck to 
paycheck and do not have established accounts for a variety of 
reasons, including the fact that they do not have extra money 
to keep on deposit.
    Finally, Section 308 would clarify the Federal Credit Union 
Act by allowing voluntary mergers of healthy credit unions and 
conversions involving multiple common bond credit unions 
without numerical limitations. The amendment is a big step 
forward in facilitating voluntary mergers as other financial 
institutions are permitted to do.
    At this point, I will turn to the additional provisions we 
would like to see included in a final bill. Again, my written 
statement fully covers what we believe are some of the worst 
examples of statutory micromanagement that have placed 
unreasonable constraints on the ability of credit unions and 
their boards to function efficiently and in the best interests 
of their members. Given time constraints, however, I will focus 
only on two of these items.
    First, recall that H.R. 3951, as drafted, permits credit 
unions to cash checks for individuals within their field of 
membership, even if they are not members. Our original request 
also asked for the ability to provide wire transfer services to 
non-members within the field of membership.
    Such an amendment would help credit unions reach the 
unbanked and underserved and provide an affordable and 
financially sound alternative to high cost payday lenders. 
Those who do not have access to a credit union or other 
financial institution must use wire services that charge 
outrageously high fees, up to 28 percent of the amount 
transferred in some cases, to execute the transaction.
    Perhaps one of the most important provisions we are asking 
to be included in a final version of H.R. 3951 is one that 
would permit credit unions to issue some form of additional or 
alternative capital.
    As the Chairman of the subcommittee notes, this issue was 
first raised in this subcommittee during the markup of the 
Deposit Insurance Reform bill. An amendment was introduced, 
discussed, then withdrawn. While some consideration was given 
to reintroducing the amendment at the full committee markup, 
out of deference to the Chairman it was not.
    The purpose of allowing some form of alternative capital 
would permit credit unions to augment the only current source 
of capital that they have, retained earnings. Alternative 
capital would allow a credit union that needs to do so to 
quickly build its capital.
    Advantages of alternative capital are that it would provide 
additional stability, allow growth, permit product and service 
enhancements and could meet a portion of statutory and 
regulatory capital requirements, And, frankly, although CUNA 
has a strong position regarding the concept of allowing some 
form of alternative capital for credit unions, our position 
regarding how to achieve that is evolving.
    We are currently in discussion with various Members and 
staff of the subcommittee and are seeking a consensus on how to 
best achieve this goal while maintaining certain guiding 
principles. Foremost of these guiding principles is that any 
form of alternative capital must not compromise the cooperative 
nature of credit unions.
    This capital must not give its holder any voting or control 
rights. Additionally, this capital must not be insured and it 
must therefore be at risk to the investor. We continue to work 
on an appropriate approach that will accomplish these purposes 
and seek advice and guidance from Members of the subcommittee.
    In conclusion, CUNA is grateful and pleased that H.R. 3951 
includes several provisions that will significantly increase 
the effectiveness of credit unions in serving their members. 
And while we strongly support this bill, we urge the 
subcommittee to support our efforts to include the additional 
provisions we described in this testimony.
    Thank you again for the opportunity to present CUNA's views 
on this very important legislation, Mr. Chairman, and I would 
be glad to answer any questions of the subcommittee. Thank you.
    [The prepared statement of Charlene R. Gaither can be found 
on page 170 in the appendix.]
    Chairman Bachus. Thank you, Ms. Gaither.
    Mr. Cheney.

 STATEMENT OF WILLIAM CHENEY, PRESIDENT AND CEO, XEROX FCU, EL 
   SEGUNDO, CA, ON BEHALF OF NATIONAL ASSOCIATION OF FEDERAL 
                         CREDIT UNIONS

    Mr. Cheney. Thank you, Mr. Chairman.
    Good morning, Mr. Chairman, Ranking Member Waters and 
Members of the subcommittee. My name is Bill Cheney. I am the 
President and CEO of Xerox Federal Credit Union, located in El 
Segundo, California. I am here today on behalf of the National 
Association of Federal Credit Unions to express our views on 
the Financial Services Regulatory Relief Act of 2002.
    Xerox Federal Credit Union was chartered in 1964 and 
currently serves over 72,000 members through 18 offices in nine 
States, and is the only credit union chartered to serve Xerox 
employees in the United States.
    Credit Unions represent a significant cross-section of all 
of America's consumers. The Nation's 10,000-plus credit unions 
serve a different purpose than other financial institutions and 
have a fundamentally different structure, existing solely for 
the purpose of providing financial services to our members.
    All members of a credit union have an equal say in the 
operation of the credit union. One member, one vote, regardless 
of the dollars in their accounts. Credit unions are second to 
none in providing their members with quality personal service 
at the lowest possible cost. According to the 2001 American 
Banker/Gallup Consumer Survey, credit unions had the highest 
rated service quality of surveyed financial institutions.
    Despite their very limited market share, credit unions have 
been under assault by the banking industry for nearly 2 
decades. The 1998 Supreme Court decision in the field of 
membership case brought these issues to a head. Congress' 
prompt passage of the Credit Union Membership Access Act, or 
CUMAA, in 1998 was seen as a significant victory for credit 
unions.
    Recognizing a growing trend of credit union conversions 
from Federal to State charter, totaling $33 billion over the 
past 5 years, and accounting for over 10 percent of all assets 
in the Federal credit union system, NAFCU has singled out the 
erosion and the perceived value of the Federal charter as an 
important issue.
    Starting with a task force convened to work on ways to 
enhance the Federal charter, we have identified a number of 
provisions in both law and regulations which, if changed, would 
improve the way Federal credit unions serve their members.
    NAFCU believes that H.R. 3951 is a positive step in 
addressing many of the regulatory burdens and restrictions on 
Federal credit unions that have caused a number of Federal 
credit unions to either consider or to convert to State 
charter.
    NAFCU applauds Representatives Capito and Sandlin for their 
leadership in introducing this bill and strongly supports many 
of the provisions in the legislation, including the sections 
dealing with expanded investment authority, clarification of 
the ability for credit unions to merge voluntarily, easing the 
limitation on loan terms, credit union service organization 
investments, check cashing services, member business lending to 
religious non-profit organizations, and land leasing.
    We believe H.R. 3951 takes a balanced approach to 
regulatory relief. Nevertheless, I would like to call the 
subcommittee's attention to some additional issues.
    First, credit unions should be exempted from the pre-merger 
notification requirements of the Hart-Scott-Rodino Act to the 
same extent as other regulated financial institutions.
    Second, the usury ceiling for credit unions should be 
adjusted. As the Members of the subcommittee realize, Federal 
credit unions are the only type of insured depository 
institution subject to Federal usury limits on consumer loans.
    Third, Congress should remove the word ``local'' from the 
definition of community charters. Today's dynamic financial 
marketplace characterized by cyber-banking technology rather 
than bricks and mortar makes the word ``local'' an extraneous 
limitation.
    Fourth, eliminate the preference imposed by CUMAA for the 
formation of new credit unions over the addition of groups to 
an existing credit union. Oftentimes an existing credit union 
is better suited to meet the needs of a group and offer them 
better services than a new credit union.
    Fifth, relax the reasonable proximity requirement on credit 
unions seeking to add additional groups to its field 
membership. This requirement is an undue burden requiring them 
to have a physical presence within a reasonable proximity of 
the group that the credit union wants to add to its field of 
membership. With the increase in internet and remote banking, 
this requirement is unnecessary.
    Sixth, relax the current member business loan restriction 
imposed by CUMAA and restore the member business lending rules 
that were in effect prior to the passage of CUMAA.
    Seventh, NAFCU supports allowing all insured credit unions, 
not just corporate credit unions and those designated as low 
income, to include secondary capital accounts when calculating 
net worth under regulations promulgated by NCUA.
    Finally, the Federal Credit Union Act contains many 
antiquated credit union governance provisions that may have 
been appropriate in 1934, but today are outdated. NAFCU 
supports including language in H.R. 3951 that would give the 
NCUA board greater authority in establishing appropriate 
governance procedures.
    I would like to conclude by noting that the state of the 
credit union community today is strong and the safety and 
soundness of credit unions is unquestionable. NAFCU would, 
however, urge the subcommittee to carefully assess the trend of 
conversions from Federal to State charter. We believe that H.R. 
3951 is an excellent first step.
    Mr. Chairman, I appreciate the opportunity to appear before 
you today, and I will be happy to answer any questions.
    [The prepared statement of William Cheney can be found on 
page 184 in the appendix.]
    Chairman Bachus. Appreciate that.
    Mr. Stone.

    STATEMENT OF PIERCE STONE, CHAIRMAN, PRESIDENT AND CEO, 
 VIRGINIA COMMUNITY BANK, LOUISA, VA, ON BEHALF OF INDEPENDENT 
                  COMMUNITY BANKERS OF AMERICA

    Mr. Stone. Good morning, Chairman Bachus, Ranking Member 
Waters and Members of the subcommittee. My name is Pierce 
Stone. I am a community banker from Louisa, Virginia. I also 
serve as Chairman of the Independent Community Bankers of 
America.
    Chairman Bachus, I want to thank you and congratulate you 
for the ongoing efforts on behalf of community banking, 
especially your leadership in advancing the important deposit 
insurance reform bill. Community bankers across the Nation are 
truly indebted to you. I also want to thank the subcommittee 
staff for the outstanding work that they did on this bill.
    I have been asked to testify on H.R. 3951, the Financial 
Services Regulatory Relief Act of 2002. ICBA supports a bank 
regulatory structure that fosters the safety and soundness of 
our Nation's banking system and recognizes the fact that 
community banks pose a very different risk to the banking 
system than larger banks.
    We urge Congress and the agencies to continue to adopt 
policies that recognize this important distinction.
    In the interest of time, I will limit my remarks to just a 
few sections of the bill. Let me first address the provision in 
the bill that is very important for community banks, Section 
101, dealing with Subchapter S corporations.
    This section removes a restriction in current law that 
makes it difficult for community banks to qualify for 
Subchapter S status. Subchapter S is very important to 
community bankers, because it allows them to escape double 
taxation by paying income tax only at the shareholder level.
    Unfortunately, many small banks are having trouble 
qualifying for Subchapter S under the current law and cannot 
benefit from Congress' intended tax relief. Section 101 
addresses the director/shareholder restriction in the law by 
making it easier for banks to comply with the requirement that 
directors be shareholders.
    ICBA supports reducing the frequency of safety and 
soundness exams for small, healthy banks and supports minimally 
intrusive examinations. Section 601 gives the Federal banking 
agencies the discretion to adjust the exam cycle of insured 
depository institutions to ensure that examiner resources are 
utilized in the most efficient manner. ICBA strongly supports 
this position.
    ICBA recommends the subcommittee include a provision in the 
bill to amend the Securities Investor Protection Corporation 
statute to provide community banks with the same protection 
afforded other investors and other depository institutions for 
their brokerage account assets when a broker dealer fails.
    SIPC does not protect against market risk or fraud. It 
allows investors to get back their stock, bonds and cash held 
by a broker dealer in the event of a brokerage firm collapse. 
Unfortunately, banks are specifically excluded from SIPC 
coverage when acting on their own behalf. Thrifts and credit 
unions are not excluded from SIPC coverage. The change we seek 
in the statute simply affords banks the same SIPC protections 
as credit unions and thrifts.
    Mr. Chairman, I would now like to address a few provisions 
in the bill that cause ICBA some concerns. One issue is the 
provision that repeals the prohibition on national and State 
banks to expand into another State through de novo branching. 
We believe that the individual States should decide whether an 
out-of-State national or State bank should de novo branch into 
their State. We believe States should be free to make this 
decision, because they know best what the banking structure in 
their State should be. Congress should not preempt this basic 
State right.
    Chairman Bachus, there are also several credit union 
provisions in this bill which ICBA opposes. Our specific 
concerns are outlined in our written statement. Let me just say 
generally that Congress should tread carefully in granting 
credit unions new powers in areas where they do not have the 
experience or expertise to assure safe and sound operations.
    Credit unions and community banks both serve the community 
and offer many of the same products and services. However, 
there is one major difference. Credit unions generally do not 
pay taxes and are not subject to CRA, giving them an enormous 
advantage over taxpaying and highly regulated banks and 
thrifts. We believe the expanded powers granted to credit 
unions in this bill goes against the spirit of the Credit Union 
Membership Act of 1998, as well as their basic charter.
    Chairman Bachus, thank you for the opportunity to testify 
before you today on H.R. 3951, and thank you again for your 
stellar work on deposit insurance reform. I will be happy to 
answer any questions from the subcommittee.
    [The prepared statement of Pierce Stone can be found on 
page 229 in the appendix.]
    Chairman Bachus. Thank you.
    Mr. Hage.

  STATEMENT OF CURTIS L. HAGE, CHAIRMAN AND CEO, HOME FEDERAL 
  BANK, SIOUX FALLS, SD; CHAIRMAN, AMERICA'S COMMUNITY BANKERS

    Mr. Hage. Mr. Chairman, Ranking Member Waters and Members 
of the subcommittee. I am Curt Hage, Chairman and CEO of Home 
Federal Bank in Sioux Falls, South Dakota. I am testifying 
today as Chairman of America's Community Bankers.
    Thank you for this opportunity to testify on H.R. 3951. I 
would like to commend the bill's primary sponsor, 
Representative Shelly Moore Capito, as well as Representative 
Max Sandlin. In addition, I would like to thank Chairman Oxley 
and the committee staff for working with ACB in developing this 
legislation.
    ACB strongly supports many of the provisions contained in 
H.R. 3951. By eliminating unnecessary and costly regulations, 
these provisions will make it easier for financial institutions 
to better serve our customers and communities.
    I would like to touch on some key provisions. A more 
detailed analysis of the bill can be found in my written 
testimony.
    ACB vigorously supports Section 201, which would correct 
the existing statutory disparity in the way trust and fiduciary 
activities of savings associations are treated vis-a-vis those 
of banks.
    Currently, savings associations do not enjoy the same 
exemption that banks do from the Investment Advisors Act and 
the Securities Exchange Act for trust and fiduciary activities. 
As a result, only savings associations face dual supervision 
and regulation when serving the trust and fiduciary needs of 
their customers. We are pleased that Section 201 provides a 
much needed fix for this problem.
    ACB also supports Sections 401 and 105 of the bill. Section 
401 would remove unnecessary restrictions on branching by 
national and State banks. Section 105 would eliminate the 
unnecessary requirement that a national bank meet the same 
capital requirements imposed by States on their banks. We 
commend the bill's sponsors for including those provisions in 
H.R. 3951.
    ACB also recommends that the subcommittee include 
additional provisions in H.R. 3951. First, we strongly urge the 
subcommittee to consider adding a provision that would modestly 
increase the business lending limit for savings associations. 
Currently Federal savings associations are subject to a 10 
percent limit on commercial lending authority and a 10 percent 
bucket for small business loans.
    With more and more small businesses depending on smaller 
associations as community credit providers, those limits pose 
an ever increasing constraint on credit availability for small 
businesses. This is particularly true in smaller communities 
where there are fewer credit providers.
    Congress should repeal the lending limit restrictions on 
small business loans and increase the aggregate lending limit 
on other commercial loans to 25 percent. By doing so, Congress 
can accommodate the credit needs of small business without 
altering the basic asset requirements of the statutory 
qualified thrift lender test.
    Let me emphasize this last point. We are not asking for a 
change in the QTL test. We are only asking that redundant caps 
on business lending be lifted, particularly for small business 
loans.
    In addition, ACB urges the subcommittee to consider 
including in H.R. 3951 the following proposals detailed in my 
written testimony: Repealing the $500,000 per unit limit in the 
residential housing development exception in the Homeowners 
Loan Act; increasing the limit on commercial real estate loans 
from 400 percent to 500 percent of capital; and permitting 
reimbursement for the production of corporate and 
organizational records under the Right to Financial Privacy 
Act.
    Finally, Mr. Chairman, we would like to raise our strong 
concerns about Section 301, which would permit privately 
insured credit unions to join the Federal Home Loan Bank 
System. Unlike these institutions, every depository institution 
that is currently a member of the Federal Home Loan Bank must 
be, and is, federally-insured and regulated.
    This provides a substantial layer of security for the 
Federal Home Loan Bank System. Permitting privately insured 
credit unions that undergo no Federal regulatory scrutiny to 
borrow from the system would undermine the careful balance 
Congress achieved in the Gramm-Leach-Bliley Act.
    ACB also opposes the lending limit increase in Section 304, 
check cashing for non-members in Section 307, and the 
undermining of the common bond in Section 308. These sections 
would allow tax-exempt credit unions to assume new bank-like 
authorities without having to pay taxes or meet community 
reinvestment requirements. ACB strongly urges the subcommittee 
to strike those provisions.
    Again, Mr. Chairman, thank you for holding today's hearing. 
I look forward to addressing any questions that Members of the 
subcommittee might have.
    [The prepared statement of Curtis L. Hage can be found on 
page 237 in the appendix.]
    Chairman Bachus. Thank you.
    Ms. Duke.

STATEMENT OF ELIZABETH DUKE, SENIOR VICE PRESIDENT, GOVERNMENT 
   RELATIONS, SOUTHTRUST CORPORATION, VIRGINIA BEACH, VA, ON 
           BEHALF OF THE AMERICAN BANKERS ASSOCIATION

    Ms. Duke. Mr. Chairman, Ranking Member Waters and Members 
of the subcommittee, I too want to thank you for holding this 
hearing. I would also personally like to thank Mr. Cantor for 
the introduction, therefore I don't have to use my 5 minutes 
explaining who I am.
    Regulatory relief is critically important for banks. We 
appreciate the bipartisan effort in this and previous 
Congresses to preserve safety and soundness while reducing 
unnecessary regulations. I would especially like to recognize 
the contributions made over the years by Mrs. Roukema.
    Regulation costs banks and our communities billions of 
dollars every year. It also puts a huge strain on manpower.
    SouthTrust is a large banking firm with $48 billion in 
assets. We have 65 full-time employees devoted to compliance.
    Small banks simply do not have this luxury. There are 3,800 
banks with fewer than 25 employees and a thousand banks with 
less than 10 employees. As a former CEO of a community bank, I 
know that these banks don't have the manpower to both run the 
bank and to read, understand and implement thousands of pages 
of regulations, directives and reporting modifications that 
they receive each year.
    Simply put, too much time and too many resources are 
consumed by compliance paperwork, leaving too little time to 
provide actual banking services. H.R. 3951 contains many 
important improvements that genuinely reduce unnecessary 
regulatory burdens.
    Unfortunately, the bill also contains provisions that are 
not directed at reducing regulatory red tape, but to enhance 
the competitive position of credit unions over taxpaying banks.
    Let me mention a few of the key provisions that we support. 
The ABA strongly endorses Section 201, which provides thrift 
parity for trust activities and would eliminate an additional 
and unnecessary layer of examination.
    We also support Section 501, which would allow all 
financial holding companies engaged in merchant banking to 
cross-market products and services. These provisions have the 
strong support of our industry and the Federal Reserve.
    Section 502 would help banks preserve benefit plans for our 
employees, such as 401(k)s, without worrying about triggering 
aggregation rules for ownership of any one company.
    We also support provisions, including Section 601, which 
allow discretion for regulators to adjust the exam cycle to 
more effectively allocate examination staff; Section 101, which 
enables banks to choose Subchapter S status to retain qualified 
directors; and Section 202, which makes the community 
development authority of savings institutions parallel to that 
of banks.
    The ABA has major concerns with provisions that expand 
credit union powers and promotes further consolidation of the 
credit union industry. These provisions enhance the competitive 
position of credit unions over taxed financial competitors and 
expand the credit union tax subsidy.
    Section 305 expands the authority of credit unions to 
invest in credit union service organizations. These CUSOs can 
engage in activities beyond those authorized for the credit 
unions themselves.
    Furthermore, since most CUSOs are formed as limited 
liability corporations, they are taxed at the credit union's 
marginal tax rate of zero. Thus, any expansion of CUSOs is an 
expansion of the credit union tax subsidy.
    Section 308 also would permit mergers at any time among 
credit unions. This would further the trend of large credit 
unions buying up small credit unions and is in direct conflict 
with legislation enacted just a few years ago. Specifically, 
Congress directed NCUA to promote the creation of independent 
credit unions and to limit the merger of credit unions with 
over 3,000 members to situations involving a troubled credit 
union.
    We also oppose Section 306, which would exempt from the 
legal lending limits loans to non-profit religious 
organizations. We do appreciate the intent of the provision's 
author. However, we are first concerned with eliminating any 
categories of business loans from the business cap. There are 
already exceptions to the business lending cap. We oppose the 
addition of yet another.
    Second, the provision is so broad that businesses with only 
a remote connection to a religious organization could qualify. 
Moreover, many religious organizations operate significant 
business enterprises, therefore allowing for a substantial 
increase in business lending.
    There are two provisions related to credit unions that 
could reasonably be considered to eliminate burdens without 
expanding powers or enhancing competitive position. The first 
authorizes a 15-year maturity limit for loans, and the second 
provides additional investment authority for credit unions.
    In conclusion, Mr. Chairman, reducing unnecessary paperwork 
is a serious long-term goal. The ABA is committed to working 
with you and the Members of this subcommittee to achieve this 
objective.
    Thank you, Mr. Chairman.
    [The prepared statement of Elizabeth Duke can be found on 
page 271 in the appendix.]
    Mr. Bachus. Thank you. That was interesting testimony. That 
was actually more exciting and entertaining than I thought it 
would be.
    Were any of you all home-schooled? None of you? You all 
went to public school, right? Have you ever been in a food 
fight? You know, food fights get you in trouble when you are in 
school. They usually are not that constructive.
    Our aim here is to have win-win situations. It is to take 
regulations, things the regulators are doing, things that cost 
you money that you don't have available to loan out, and try to 
eliminate those regulations that make no sense, or barriers 
that make no sense.
    Now, one of the ones that has been discussed here is this 
Section 301 of the bill, privately insured credit unions 
authorized to become members of the Federal Home Loan Bank 
Board. I know the banks are all opposed to this. One of the 
things is they are not banks. Or insurance companies 
participate in the Federal Home Loan Bank Board. Insurance 
companies can go to them, and really something that I am not 
sure that every banker knows, but those that are federally 
insured go to the Federal Home Loan Bank Board. So there are 
already credit unions participating in the Federal Home Loan 
Bank Board system.
    The statement was made that credit unions should not 
participate. They already participate. So it is just a 
distinction on whether they are privately insured or federally 
insured.
    We have every provision and belief that those that are 
privately insured through the right regulatory scheme will, the 
taxpayers will be fully protected. That is one thing.
    Another thing that I really know the bankers are sensitive 
to, and I would be sensitive to it, too, if credit unions were 
taking over large amounts of bank business, just a tremendous 
amount of market share, and there is actually a belief out 
there that that is in fact happening. One of my best friends 
who is a banker told me that the credit unions have basically 
tripled their business while we have lost business. That is 
anecdotal evidence.
    First of all, his bank has tripled in size in the past 10 
years. I found no credit union in his home county that has 
grown anywhere near that amount. But then I came back to 
Washington, this was probably 4 years ago, and I asked are 
credit unions eating into bank share? I don't know whether you 
all can answer that. Are you aware of what the answer to that 
is? The answer is no. The credit unions are not. As a total 
share of assets under deposit, it has gone from, financial 
assets, I think it has gone from 1.4 to 1.7 in 23 or 24 years.
    We do not want to do anything in this bill that will give a 
credit union an unfair advantage over a bank, an unfair 
advantage. What we want to concentrate on is, as I said, win-
win. Here are provisions that will help us.
    Section 301 was not something that this Chairman actually 
put in the bill. It was put in there by the Full Committee 
Chairman, which is even more significant, if you have been 
around this place. When he did that, my red flag went up, 
because I am sensitive to bankers in my area that tell me that 
the credit unions have an unfair advantage. But, a lot of what 
has been said about it, I would have to agree with the credit 
unions. The arguments simply, when you look at them, they do 
not have as much substance as they should.
    I am not sure we will get a bill. If we continue to argue 
about whether credit unions get something--and the last two 
bills did not have anything for credit unions--but, we want 
everybody treated fairly, and there are some of the proposals 
that, for instance, we do not want anything added anymore for 
the credit unions. They have proposals to let them sell money 
orders to their membership, or to be able to kick off a board 
member. That is their ability to manage their own organization. 
I cannot understand how that is unacceptable.
    Let me tell you, I am not motivated about helping one group 
or the other. I believe we can get a bill that helps all the 
organizations.
    But, I want to encourage all sides, if you could 
demonstrate that it is unfair and it ought not happen, that is 
one thing. But if you already have credit unions participating 
in the Federal Home Loan Bank Board, and some already do, I am 
not sure that the argument is going to fly.
    I would use your dynamite and your political might in 
looking at things that will benefit your institutions and the 
consumers you serve in eliminating barriers.
    A good example which the credit unions have come with is 
doing a money order, I think it is a wire transfer. Why should 
they not be able to offer that to their members? I can't see 
any reason why they should not. I was one of 7 people that 
voted against the credit unions on the floor of the House in 
that famous bill, so I do not think I can be accused of 
carrying a lot of water for the credit unions. Four of the 
people that voted with the banks on that bill were not running 
for reelection. So I am not afraid to stand up for the side I 
think is best.
    If we are to get a bill out, then there is going to have to 
be some of this. You are going to have to pay more attention to 
what would benefit your institutions and your association and 
their members than say seeing that somebody else gets something 
that they do not have now.
    Ms. Waters.
    Ms. Waters. Thank you very much, Mr. Chairman. I think you 
did a good job of basically representing how many of us are 
feeling about this legislation. It appears that there is going 
to be some relief that you will all benefit from. There is a 
little competition going on here. We understand that.
    At the same time, we are often made to believe that all of 
you laissez-faire capitalists believe in competition, and that 
we should support that, and Government should get its hands out 
of the business of protecting one industry over the other. So, 
I think that I am going to lean to the right a little bit and 
join with my colleague in just saying to you that it is in the 
best interests of our citizens and all of us to have you 
operating in ways that will service the citizens of this 
country to the best of your ability.
    Now, I want to tell you, I like the idea that credit unions 
will be able to provide products that they have not been able 
to provide to the credit union members. I do not like 
freestanding check cashers who do not provide any other 
services but to cash checks and take a percentage of those 
earnings from hard-working people. I don't like freestanding 
payday loan folks who simply tie people up for the rest of 
their lives lending over and over again with checks that are 
kind of signed in advance. I like institutions that provide 
multiple services, and all of you do that. You provide multiple 
services. And, to the degree that you do that, I think that we 
provide better products for our taxpayers out there.
    As our Chairman has said, this bill is attempting to do the 
right thing for everybody and not really take sides. I think 
there are some legitimate questions on Section 301, but I think 
that you guys can work that out. The Chairman makes a good 
point: If you already have credit unions that are in the 
Federal Home Loan Bank system, it is hard to make an argument 
to say that somehow there are some that should be kept out.
    We do want to just remind you that the numerical provisions 
in the Truth in Lending Act are kind of outdated, and I hope 
that we have an opportunity to look at that, particularly as it 
relates to automobile loans. The limits have failed to keep 
pace with inflation, and many of those loans are not covered by 
the limits of the act. So, we may be looking at an amendment to 
bring TILA up to date and index the numerical provisions for 
inflation so we do not have that problem.
    For those of you who represent credit unions who want to 
lend more money to the churches, I think you need to talk to 
some of us. I am told that there are all these ministers who 
want this. I have not heard from any of them, and I do not know 
what that means. I do not know if that means that a 
disproportionate share of your resources are going to end up 
proliferating more and more churches, or take away from some of 
your business loans. I do not know what it means. So, I think I 
would like to hear from the advocates of eliminating that from 
the caps in the credit unions.
    With that, let me just say we have an opportunity to 
tighten up this legislation a bit and have everybody in support 
of it, and I would hope that we would all use those 
opportunities prior to our votes on markup to do that. I yield 
back my time.
    Mr. Weldon. [Presiding.] The Chair will announce it is his 
intention to recognize Mrs. Capito for 5 minutes of 
questioning, and then recess for 20 minutes so that Members 
will have an opportunity to go to the floor and vote and then 
come back for further questions.
    The gentlewoman from West Virginia, I believe the co-author 
of the legislation under consideration, is recognized for 5 
minutes.
    Mrs. Capito. Thank you, Mr. Chairman. Thank you all for 
your testimony. I think I mentioned in my opening statement 
that it is a work in progress, and I think all of your 
testimony shows that there is some work that you all would like 
to see from every angle, and I think that is a good thing. That 
is why hearings such as this are of great benefit to us as 
Members.
    I would like to ask Ms. Gaither about a conversation we had 
in my office yesterday when we talked about the fact that 
credit unions cannot expel members or remove members from their 
membership roles. I would just like for you to maybe tell a 
little bit about that story and a personal situation that you 
had in your office.
    Ms. Gaither. Thank you. Yes, yesterday we were talking, I 
had explained to Representative Capito that we had actually had 
a member come into our office who was dissatisfied for one 
reason or another and actually told one of my tellers that if 
he ever saw her outside the credit union, he was going to punch 
her. We had no means at that point to be able to expel this 
member other than calling a full membership meeting.
    Mrs. Capito. Does this bill in the present form give you 
that power? It will give you that power?
    Ms. Gaither. Yes, we would be able to expel for just cause.
    Mrs. Capito. I would like, and anybody can answer this 
question from your different perspectives, to ask, in terms of 
more access for consumers to all of your institutions, it would 
seem to me--you mentioned, Ms. Duke, that you have what, 75 
regulators that--compliance officers in your bank. I would 
imagine that having to deal with fewer regulations, less 
duplicative regulations, would not only maybe give you some 
relief in terms of staffing issues, but also would provide 
greater access along with insurance protection to the consumer 
that we would like to see.
    Do you envision this bill in any way, because of the fewer 
time and the fewer details in some instances that you are going 
to have to work on, that it will go to the benefit of an 
individual consumer using one of your institutions?
    Ms. Duke. Yes. As I stated, any time that you can spend 
less of your resources actually working on regulations and the 
implementation of regulations gives you more time to serve the 
customer and it also--frankly, many of these regulations that 
are designed to protect the consumer are often more confusing 
to the consumer than the original issue.
    The other thing, when I talk about manpower, and this goes 
to my experience as a community banker, is as these regulations 
come out, you do not have the people who are trained to 
actually read them, so the CEO and the upper level management 
of the organization are the ones that end up having to spend 
time with those.
    When FDICIA was passed, I believe it spawned 64 separate 
regulations. At that time I had 65 employees. So if I had 
assigned one regulation to each employee and given the courier 
the time off, that is what it would have taken for us to 
actually go through and look at each one of those regulations.
    Mr. Cheney. Thank you, Congresswoman. Given the member-
owned nature of credit unions' expenses, I think it is safe to 
say if we could reduce our expenses associated with regulation 
and compliance, that those funds within the credit union would 
either go toward expanded services for our members, or to 
capital to make the credit union stronger and support our 
growth.
    Mr. Stone. I have 62 employees in my bank, and what is 
really expensive is when we have to seek outside counsel to 
interpret regulations, from CPAs to attorneys. That really is 
very, very expensive when some of them can bill $200 and $300 
an hour. You get regulation, and we must comply and want to 
comply, and we get help from the regulators we have, but we 
still have to get outside help so many times from an outside 
organization.
    Mrs. Capito. Mr. Chairman, I yield back. I would like to 
say that the Financial Services Roundtable has testimony they 
would like to submit for the record.
    Mr. Weldon. Without objection.
    [The information can be found on page 282 in the appendix.]
    Mr. Weldon. The Chair announces a recess for 20 minutes.
    [Recess.]
    Mr. Weldon. You are a great group. I did not have to bang 
the gavel and you came to order.
    The Chair recognizes the gentleman from Texas for 5 
minutes.
    Mr. Bentsen. Thank you, Mr. Chairman. I thank our panel for 
being here.
    I want to say, Mr. Chairman, at the outset, I know that the 
Chairman of the subcommittee talked about the food fight 
aspect, but I do want to say it is somewhat of an historic 
moment to see that the testimony of the American Bankers 
Association praising the community bankers, the savings & loan 
industry, in such great detail, and wanting to give them more 
rights. It is something I may get framed just to hold on to, 
and actually expanding their charter to some extent as opposed 
to eviscerating or eliminating their charter.
    I have a couple of questions. I will say on that point, 
with respect to the broker-dealer, I have some history in that, 
and I do hope that, assuming that we pass this bill and we give 
equal treatment for broker-dealer trust operations with 
thrifts, that as I hope the SEC is doing working with the 
Comptroller and the Fed, that the rules are equivalent to those 
required of broker-dealers which are under the auspices of the 
Securities and Exchange Commission. I am one that felt that it 
ought to just be the same regulation. I know the banks have 
felt differently about that. But at least, if nothing else, you 
ought to do the series 6 and 7 and all of the others and have 
similar requirements.
    I have two issues I am interested in in this bill. One has 
to do with cross-marketing restrictions from Gramm-Leach-
Bliley, and the other has to do with Riegle-Neal. I think I 
will talk about Riegle-Neal very quickly to the independent 
bankers.
    We had the regulators before the committee a month or so 
ago, and I asked about the provision that would preempt Riegle-
Neal's interstate banking preemption. That is an issue that 
obviously has been very important in my State and other States. 
The argument was made by the Fed that in fact this was a small 
bank issue, that the intention here was to help smaller banks, 
particularly those who want to branch across the border to 
another bank. But since you represent the smaller banks, 
obviously that is not the way you all see it?
    Mr. Stone. We think it is a States' Rights issue. The 
States know better what their market situation is. In 
Virginia--we were just discussing that at the break--that I 
think in Virginia we have reciprocal agreements with all of 
our, off the top of my head, all of our States, and we do 
branch back and forth across those lines. But, you know, if you 
have a State that has a neighbor that is not so gracious to do 
that, it seems like to me that would be their choice.
    Mr. Bentsen. Let me go to the cross-marketing restrictions. 
Perhaps you all can refresh my memory. When we did the Gramm-
Leach-Bliley, we allowed certain types of cross-marketing to 
occur within a financial services holding company. We put 
restrictions on third parties and the like because of concerns 
about privacy and others.
    I guess at the end of the day when we allowed for the 
merchant capital subsidiary or affiliate under the holding 
company, we decided, for some reason, to impose cross-marketing 
restrictions, at least as it applied to securities firms as 
opposed to insurance firms. I am not sure exactly why we did 
that at the time and, I do not know, maybe the ABA, since you 
are a proponent of this provision of the bill, you may want to 
refresh my memory as to why we did that and why we should not.
    I see again that the ICBA is opposed to that and would like 
to keep the current law as it is. I would like to have some 
discussion from you all on that.
    Ms. Duke. I am afraid I cannot tell you why you did it for 
the insurance affiliates rather than the securities affiliates, 
because that is exactly our point. We do not see the difference 
between an investment bank by an insurance underwriting 
affiliate versus a securities writing affiliate, and we think 
they ought to have the same cross-marketing provisions.
    The cross-marketing provisions, as I understand them, 
include statement stuffers and internet websites, and the 
restrictions on merchant banking in those investments are 
fairly narrow in order to avoid the merger of banking and 
commerce. There are anti-tying restrictions. The Board must 
determine that the affiliation is within the public interest 
and does not undermine separation of banking and commerce and 
is consistent with safety and soundness. We feel within those 
regulations there is certainly no reason that the securities 
affiliates should not have the same powers as the insurance 
affiliates.
    Mr. Bentsen. Mr. Chairman, with your indulgence, if I could 
get Mr. Stone's comment, because I do not understand if what is 
good for the goose is not good for the gander, why wouldn't we 
do that?
    Mr. Stone. Well, here again, we strongly believe in the 
separation of the financial services industry and commerce. 
Wal-Mart would be a good example of someone that we do not 
think should be in the banking business. I believe the Japanese 
and the Germans as well have had some unfortunate experiences, 
and I do not know all the details on that, other just what I 
read, that the mixing of commerce and the financial institution 
business has not worked that well, and some of the banks have 
suffered in Japan, particularly for that.
    Mr. Bentsen. If I can have your indulgence, Mr. Chairman, 
on this. State Farm owns a bank. It may be operated as a 
holding company, I am not quite sure, but at the same time, why 
should they have a broader use if they establish a merchant 
capital subsidiary than Bank of Virginia or Chase or your bank 
if you choose to go down that route?
    Mr. Stone. I would answer by saying I do not think they 
should have that right. I do not think they should be allowed 
in commerce. But the law is there and we would not have 
supported that at that time, either, when it was passed.
    Mr. Bentsen. Thank you. Thank you, Mr. Chairman.
    Mr. Weldon. The Chair recognizes himself for a question.
    Mr. Hage, you recommended exempting savings associations 
from the Securities and Exchange Act and the Investment 
Advisors Act. Would this affect consumer or investor 
protections?
    Mr. Hage. Our request is to be put on the same parity that 
bank trust departments already are. It would be my opinion that 
consumers' protection would not be weakened or put in jeopardy 
by including savings associations in that law.
    Mr. Weldon. You have also asked for an increase in business 
lending authority for Federal savings institutions. How will 
this increase the authority and affect your ability to serve 
your communities? Can you comment on that, please?
    Mr. Hage. Yes, I can. The increase in this authority would 
enhance the thrift charter as a continuing charter that can 
serve communities better. I can tell you in my own bank 
institutional case, we are in Sioux Falls, South Dakota. We are 
a bank that is $700 million in size. In the last 10 years we 
have consciously established a strategy to offer small business 
loans as well as our core housing lending. Today our balance 
sheet is pushing the limit of the statutory limit on commercial 
lending. We are serving more customers. We are being asked to 
serve even more customers and are going to have to face a 
choice about how we either turn off that lending or change our 
charter.
    There are many advantages to the thrift charter that we 
think we would like to preserve. So to have relief on this 
limitation, which seems artificial and certainly seems to 
restrain and constrain the credit available to communities, 
does not seem to make sense.
    I would add that changing the formula as we proposed would 
not threaten the QTL test which is a core test to establish the 
thrift charter definition. So we think it makes sense to do 
this. It would allow us to offer more loans to more small 
businesses to more consumers.
    Mr. Weldon. I assume you maintain your support for home and 
consumer loans if that moves forward?
    Mr. Hage. I would tell you that our portfolio has grown 
many times over in the last 10 years as we have continued to 
add services. What we found is that many of the small business 
people will then bring all of their business to us, including 
their home lending business, and we also get access to new 
employees that they are bringing into the community so we can 
provide home lending and consumer lending to these folks as 
well.
    Mr. Weldon. Thank you very much. I want to thank all of the 
witnesses for their testimony.
    Mr. Bentsen. Could I ask a follow-up question to this?
    Mr. Weldon. Sure. Go ahead.
    Mr. Bentsen. I understand what you are saying is that at 
some point you are going to get the ABA back going against you, 
because at some point they are going to say why don't you 
convert to a bank charter? You are going to go to 25 percent 
commercial lending and then more.
    But let me ask you, because you raised the thrift 
provisions, in your testimony you raised concern about the 
ability to branch, interstate branch thrifts. I thought 
federally chartered thrifts had national interstate branching 
authority already. Unless I misread your testimony, why would 
that need to be corrected in some way?
    Mr. Hage. We are not asking for a correction on the thrift 
branching. We are supporting the ABA request to have comparable 
branching for commercial banks.
    Mr. Bentsen. So it is a mutual appreciation issue. OK.
    Thank you, Mr. Chairman.
    Mr. Weldon. Again, I thank all of the witnesses for their 
testimony. The subcommittee will keep the record open for 5 
additional days for further questions for the witnesses and 
further statements.
    The hearing is now adjourned.
    [Whereupon, the hearing was adjourned.]
                            A P P E N D I X

                             March 14, 2002
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