U.S. GOVERNMENT PUBLISHING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Publishing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

95–065 PDF 2015

THE DODD–FRANK ACT AND 

REGULATORY OVERREACH 

HEARING 

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT 

AND INVESTIGATIONS 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

MAY 13, 2015 

Printed for the use of the Committee on Financial Services 

Serial No. 114–21 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

ROBERT HURT, Virginia 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

DAVID SCHWEIKERT, Arizona 

FRANK GUINTA, New Hampshire 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

SEAN P. DUFFY, Wisconsin, Chairman 

MICHAEL G. FITZPATRICK, Pennsylvania, 

Vice Chairman 

PETER T. KING, New York 

PATRICK T. MCHENRY, North Carolina 

ROBERT HURT, Virginia 

STEPHEN LEE FINCHER, Tennessee 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

ANN WAGNER, Missouri 

SCOTT TIPTON, Colorado 

BRUCE POLIQUIN, Maine 

FRENCH HILL, Arkansas 

AL GREEN, Texas, Ranking Member 

MICHAEL E. CAPUANO, Massachusetts 

EMANUEL CLEAVER, Missouri 

KEITH ELLISON, Minnesota 

JOHN K. DELANEY, Maryland 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

KYRSTEN SINEMA, Arizona 

JUAN VARGAS, California 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

May 13, 2015 ..................................................................................................... 1 

Appendix: 

May 13, 2015 ..................................................................................................... 29 

WITNESSES 

WEDNESDAY, MAY 13, 2015 

Mahoney, Paul G., Dean and Professor of Law, University of Virginia School 

of Law .................................................................................................................... 5 

Peirce, Hester, Director, Financial Markets Working Group, and Senior Research Fellow, Mercatus Center, George Mason University ............................ 7 

Stanley, Marcus M., Policy Director, Americans for Financial Reform (AFR) ... 8 

APPENDIX 

Prepared statements: 

Mahoney, Paul G. ............................................................................................. 30 

Peirce, Hester .................................................................................................... 39 

Stanley, Marcus M. .......................................................................................... 65 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Ellison, Hon. Keith: 

New York Times editorial entitled, ‘‘Saddling Homeowners With Risky 

Loans,’’ dated April 29, 2015 ........................................................................ 75 

Wall Street Journal article by John Carney entitled, ‘‘Harboring Doubts 

on Bank Home Loan Rules,’’ dated May 15, 2015 ...................................... 77 

New York Times article by Paul Krugman entitled, ‘‘Wall Street Vampires,’’ dated May 11, 2015 ........................................................................... 79 

(1) 

THE DODD–FRANK ACT AND 

REGULATORY OVERREACH 

Wednesday, May 13, 2015 

U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON OVERSIGHT

AND INVESTIGATIONS, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The subcommittee met, pursuant to notice, at 9:30 a.m., in room 

HVC–210, Capitol Visitor Center, Hon. Sean P. Duffy [chairman of 

the subcommittee] presiding. 

Members present: Representatives Duffy, Hurt, Fincher, Wagner, 

Tipton, Poliquin, Hill; Green, Cleaver, Ellison, Delaney, Beatty, 

Heck, Sinema, and Vargas. 

Ex officio present: Representatives Hensarling and Waters. 

Chairman DUFFY. Good morning. The Oversight and Investigations Subcommittee will come to order. The title of today’s subcommittee hearing is, ‘‘The Dodd-Frank Act and Regulatory Overreach.’’ 

Without objection, the Chair is authorized to declare a recess of 

the subcommittee at any time. 

Also, without objection, members of the full Financial Services 

Committee who are not members of this subcommittee may participate in today’s hearing for the purpose of making an opening statement and asking questions of the witnesses. 

The Chair now recognizes himself for 3 minutes for an opening 

statement. 

Good morning, and thank you for being here. This morning’s 

hearing will critically examine a major assumption underlying the 

Dodd-Frank Act, that the primary cause of the financial meltdown 

was misbehavior by market participants exacerbated by lax regulatory oversight. This hearing will also explore the inadvisability 

and/or inefficiency of overhauling financial regulations, as was done 

in the Dodd-Frank Act, in the immediate aftermath of a financial 

crisis. 

The Obama recovery has been the slowest recovery in modern 

times, and the question is, why? Well, it is simple. This Administration is more focused on growing government than growing the 

economy. Those who supported Dodd-Frank have been more concerned with helping special interests in Washington than their constituents back home, and the proof is in the numbers. Numbers 

don’t lie. Fewer people have returned to the workforce than in any 

other modern recovery. Banks are closing every week, and the 

number one cause that I hear from people back in Wisconsin is the 

2 

excessive, crushing regulatory burden imposed by this Administration, and Dodd-Frank is a major cause of that burden. 

The crushing regulatory regime created by Dodd-Frank continues 

to keep people out of work, to keep businesses from hiring, and 

makes it harder for my constituents to get the loans they need to 

finance the expansion of their business or to buy their first home. 

Dodd-Frank makes it worse. It doesn’t end too-big-to-fail. And, as 

Jamie Dimon put it, ‘‘Dodd-Frank is the moat that keeps new 

banks from entering the market. It stifles innovation, access to capital, and economic growth.’’ 

A 2014 survey by the American Bankers Association found that 

80 percent of respondents expected Dodd-Frank regulations to 

measurably reduce their credit availability. The people hurt by this 

oppressive regulatory regime are the poorest among us: a student 

who graduates with a mountain of debt and no job prospects; a 

mother working two part-time jobs and still struggling to make 

ends meet. Dodd-Frank costs the average American $334 a year in 

lost wages. Unfortunately, the affected people can’t see the cause 

of the distress, which was written right here in this building by the 

very people who sit in this panel and refuse to make changes to 

that law that are hurting the poorest among us who are struggling 

to make ends meet. 

I hope we have a thoughtful conversation today about what kind 

of reform can be offered to make Dodd-Frank work better, make 

our markets work better, and make our banks work better to serve 

growing businesses and American families. 

With that, I yield 2 minutes to the ranking member of the full 

Financial Services Committee, Ms. Waters from California. 

Ms. WATERS. Thank you very much. 

Before I begin, I would like to remind my Republican colleagues 

that after today, there will be just 23 legislative days left until the 

Export-Import Bank closes its doors, and this committee has yet to 

hold a hearing on reauthorization. I think it is important that we 

remind everybody that we are approaching that date. 

When the market crashed in 1929, it sent shockwaves through 

the world economy. Stock prices plummeted. About a third of all 

U.S. banks failed. A quarter of Americans were out of work. Shantytowns filled with desperate roving workers sprung up, often next 

to soup kitchens. 

Knowing that something had to be done to restore confidence, the 

Congress and President Roosevelt ushered in bold and smart financial reform. We created the SEC. We had to reassure depositors 

with FDIC insurance, and we separated speculative activity from 

retail banking. 

In the post-war period that followed, things weren’t always great, 

especially for African-Americans and others who were unconstitutionally denied access to the fruits of American productivity. But 

we didn’t experience any more devastating financial crises. 

In the 1980s, the deregulation of our financial system started to 

gain steam. Congress deregulated thrifts. Banking regulators slowly allowed retail banks to encroach into more investment banking. 

And Congress sealed the deal by passing legislation, tearing down 

that wall completely, legislation I voted against. Eventually, these 

3 

many small actions, combined with regulators’ failure to act, culminated in the largest financial crisis since the 1929 crash. 

I won’t be able to finish my statement here today. But, of course, 

Dodd-Frank was all about reform. It was about protecting consumers, and so we created the Consumer Financial Protection Bureau (CFPB). We dealt with making derivatives more transparent, 

and on and on and on. And this is what we have people railing 

against: the fact that we created reform in the financial system. 

I yield back the balance of my time. 

Chairman DUFFY. The gentlelady yields back. 

The Chair now recognizes the gentleman from Virginia, Mr. 

Hurt, for 2 minutes. 

Mr. HURT. Thank you, Mr. Chairman. 

Mr. Chairman, I want to thank you for holding today’s hearing. 

I am pleased that this subcommittee has taken the time to analyze 

regulatory overreach in the Dodd-Frank Act. 

I am also pleased that this subcommittee has extended an invitation to a constituent of mine, Paul Mahoney, dean of the University 

of Virginia School of Law, to testify before us today on this critical 

issue. And I am pleased to have the privilege to introduce him. 

I am certain that his expertise in the field of securities regulation will provide insight into the financial crisis of 2008 and the ongoing effects of the regulatory response implemented with DoddFrank. 

Mr. Mahoney received his bachelor’s degree in electrical engineering from the Massachusetts Institute of Technology in 1981, 

and his law degree from Yale in 1984. Before his career in academia, Mr. Mahoney worked in private practice and clerked for the 

United States Supreme Court. He has been published in several 

law reviews, as well as finance and economics journals, and recently had his book, ‘‘Wasting a Crisis: Why Securities Regulation 

Fails,’’ published this year by the University of Chicago Press. He 

joined the University of Virginia law school faculty in 1990 and became its dean in July 2008. 

I hope that today’s hearing bears testimony that provides guidance on potentially harmful regulatory overreach and ideas on how 

to best promote safe and efficient financial markets. I look forward 

to Mr. Mahoney’s testimony and the testimony of our other two distinguished witnesses today. I thank them for their appearance. 

Mr. Chairman, I thank you for the time, and I yield back the balance of my time. 

Chairman DUFFY. The gentlemen yields back. 

The Chair now recognizes the ranking member of the subcommittee, the gentleman from Texas, Mr. Green, for 3 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. 

The title of the hearing is, ‘‘The Dodd-Frank Act and Regulatory 

Overreach,’’ which begs the question—because indicated in the title 

is the conclusion. So the hearing is really not about acquiring empirical evidence. It is really about substantiating a proposition that 

has already been assumed. 

‘‘How Soon We Forget’’ is probably a more appropriate title for 

this hearing. How soon we forget, because there are some lessons 

that we should have learned from the 2008 Great Recession/Depression that we seem to be forgetting. How soon we forget. 

4 

Let’s talk for just a moment about some of the lessons that we 

should have learned. One, capital markets don’t regulate themselves. The Great Depression/Recession would not have occurred if 

capital markets regulated themselves. If we had had self-regulation, we wouldn’t have had 327s, 228s, liars loans, no-doc loans. If 

they regulated themselves, we wouldn’t have had teaser rates that 

coincide with prepayment penalties. Capital markets don’t regulate 

themselves. 

Two, too-big-to-fail is the right size for constant observation to 

spot potential crises. That is why we have FSOC, so that we can 

watch, so that we can do what we did not do that allowed the 2008 

Great Recession/Depression to occur without our catching it and 

preventing it. Prudential regulation to protect the consumer and 

the economy is necessary. You have to have prudential regulation 

because, if you don’t, you will end up with another Great Recession/ 

Depression. This is why we have the CFPB. This is why we have 

FSOC. We have to find ways to not only catch but also to regulate. 

Three, judicious elimination to prevent economic chaos is important. We have to make sure that we are constantly, constantly 

looking for a means by which we can prevent this economic chaos 

that occurred before. 

And finally, I would say this, that success of legislation does not 

prevent the elimination of legislation because if it did, we wouldn’t 

be about the business of trying to eliminate the Ex-Im Bank. The 

Ex-Im Bank is a great American success story. Jobs have been created, money sent to the Treasury, a great American success story. 

Yet, we are on the eve of the elimination of the Ex-Im Bank. So 

there are some lessons learned that we ought not repeat. 

My hope is that the title of the hearing will not cause us to focus 

solely on what we already believe to be the case, but rather let us 

look for empirical evidence so that we can have logical reasoned arguments about the status of Dodd-Frank. 

I yield back. 

Chairman DUFFY. The gentleman yields back. 

Thank you, Ranking Member Green. 

We will now turn to the witnesses. 

Our first witness is Mr. Paul Mahoney. I would give you a great 

introduction, but you have already had one from your Member of 

Congress, Mr. Hurt. 

But just to reiterate, Mr. Mahoney is the dean of the University 

of Virginia law school, with a very long and accomplished record. 

Thank you for being here today. 

Our second witness, Ms. Hester Peirce, is the director of the Financial Markets Working Group and a senior research fellow at the 

Mercatus Center at George Mason University. Before joining 

Mercatus, Ms. Peirce served on Senator Richard Shelby’s staff on 

the Senate Committee on Banking, Housing, and Urban Affairs. In 

that position, she worked on financial regulatory reform following 

the financial crisis of 2008, as well as oversight of the regulatory 

implementation of the Dodd-Frank Act. 

Ms. Peirce also served at the U.S. Securities and Exchange Commission as a Staff Attorney and a Counsel to Commissioner Atkins. 

Before that, she clerked for Judge Roger Andewelt on the Court of 

Federal Claims and was an associate at a Washington, D.C., law 

5 

firm. She earned her B.A. in economics from Case Western Reserve 

University, and her J.D. from Yale Law School. 

Thank you for being here, Ms. Peirce. 

Our third witness, Dr. Marcus Stanley, is the policy director of 

Americans for Financial Reform. Dr. Stanley has a Ph.D. in public 

policy from Harvard University and previously worked as an economics and policy advisor to Senator Barbara Boxer; as a senior 

economist at the U.S. Joint Economic Committee; and as an assistant professor of economics at Case Western Reserve University. 

Thank you, too, for being here. 

The witnesses will now be recognized for 5 minutes to give an 

oral presentation of their testimony. 

And without objection, the witnesses’ written testimony will be 

made a part of the record. 

Once the witnesses have finished presenting their testimony, 

each member of the subcommittee will have 5 minutes within 

which to ask the witnesses questions. 

On your table, there are three lights: green means go; yellow 

means you are running out of time; and red means stop. The microphones are very sensitive, so please make sure you are speaking 

directly into your microphone. 

And with that, Dean Mahoney, you are recognized for 5 minutes. 

STATEMENT OF PAUL G. MAHONEY, DEAN AND PROFESSOR 

OF LAW, UNIVERSITY OF VIRGINIA SCHOOL OF LAW 

Mr. MAHONEY. Chairman Duffy, Ranking Member Green, and 

members of the subcommittee, I appreciate the opportunity to 

speak with you about regulation and financial crises. 

Effective and cost-efficient regulation is essential to the health of 

financial markets. Unfortunately, the way in which major financial 

reforms are created almost guarantees ineffective and inefficient 

regulation that curtails competition and thereby harms investors. 

Major reforms always follow a stock market crash. Elected officials and regulators hoping to avoid blame for the crash claim that 

misbehavior by market participants created the problem and that 

more regulation will solve it. They ignore the unintended consequences of prior regulations and policies. 

The Dodd-Frank Act fits this description. Bad policy likely contributed to the subprime crisis. From 2002 to 2006, the Federal 

funds rate was lower than recommended by the Taylor Rule. Federal housing policies encouraged mortgage lending to homeowners 

with poor credit. And the government’s history of stepping in to 

protect certain creditors of insolvent financial institutions from loss 

to avoid systemic risks, a phenomenon called ‘‘too-big-to-fail’’ created moral hazard. 

Dodd-Frank’s proponents, however, argued that the crisis was a 

consequence of too little regulation. They did so by selectively focusing on over-the-counter derivatives, which were less regulated 

than exchange-traded derivatives, and on the so-called shadow 

banking system, consisting of non-bank financial intermediaries. 

But the crisis, in my opinion, was largely the consequence of 

large and highly leveraged investments in mortgage-related assets 

by heavily regulated commercial and investment banks. Many commentators have noted that the implicit government guarantee of 

6 

the too-big-to-fail banks created moral hazard, but the way in 

which that guarantee interacted with securitization and derivatives 

has not gotten the attention it deserves. 

Financial innovation reduces the cost of transferring risk from 

one party to another. In a normally functioning system, this would 

disperse risks, but our system was not functioning normally. The 

implicit government guarantee enabled large banks to take on 

risks that their creditors would otherwise not have stood for. After 

all, the creditors believed they would be protected in the event the 

bank became insolvent. 

Thus, risks in the form of mortgage-related assets became concentrated in the too-big-to-fail banks in the run-up to the subprime 

crisis. Dodd-Frank’s proponents, therefore, have the causation 

wrong. Financial innovation was not the primary cause of the 

build-up of risk. The implicit guarantee was the primary cause. 

The use of securitizations and derivatives to concentrate risk was 

not mindless gambling facilitated by lax regulation but a purposive 

and rational attempt to maximize the private benefits of the implicit government guarantee. Choosing to see the origins of the financial crisis in insufficient regulation rather than in the unintended consequences of prior government policies has important 

practical consequences. 

Dodd-Frank subjects non-deposit-taking institutions to regulation 

by the Federal Reserve, which, in practice, may mean that they 

will be regulated like banks or bank holding companies. If so, a 

likely consequence is that there will be fewer and larger financial 

intermediaries in the United States. Some insurance companies, 

private equity funds, and institutional asset managers operate 

under the umbrella of a bank holding company, but most do not. 

If the stand-alone entities are regulated as if they were banks, 

a possible result is that bank holding companies will begin acquiring them to economize on regulatory costs. This would be good 

news for the largest U.S. banks and for the regulatory agencies 

that oversee them, both of which would become larger and more 

powerful. But there is no reason to think it would be better for investors, depositors, and taxpayers. And it is exactly the opposite of 

the model that many Dodd-Frank proponents say they favor, which 

is a model of smaller, more focused banks. 

Time and again, regulated industries and their regulators have 

used financial crises to pursue their private goals, which are not 

congruent with the public interest and often result in decreased 

competition and innovation. My recently published book describes 

how this occurred in the aftermath of numerous past financial crises. 

To avoid this phenomenon, financial reform should be made incrementally, preferably during noncrisis periods. For example, careful observers of the financial markets warned about excessive leverage for many years before the subprime crisis. It would have 

been useful to focus regulatory attention on capital requirements 

for commercial banks and their holding companies and to impose 

appropriate capital requirements on investment banks and other financial intermediaries. 

Instead, Congress waited until after the crisis and designed a 

statute that increases the reach of bank regulators and will likely 

7 

increase the market share, size, and political clout of the too-bigto-fail banks. 

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

30 of the appendix.] 

Chairman DUFFY. Mr. Mahoney, thank you for your testimony. 

Ms. Peirce, you are now recognized for 5 minutes. 

STATEMENT OF HESTER PEIRCE, DIRECTOR, FINANCIAL MARKETS WORKING GROUP, AND SENIOR RESEARCH FELLOW, 

MERCATUS CENTER, GEORGE MASON UNIVERSITY 

Ms. PEIRCE. Chairman Duffy, Ranking Member Green, and members of the subcommittee, thank you for the opportunity to be here 

today. 

The crisis was a welcome wake-up call that what happens in the 

financial sector affects the rest of the economy. The crisis was built 

on flawed regulation, and the response to the crisis is built on a 

flawed narrative that regulation—that market failure was to 

blame. And so the flawed narrative led to a solution that was built 

on additional flawed regulation. 

The consequences are serious. Not only is a future crisis likely, 

but in the interim, our economy is not living up to its full potential. 

A well-regulated financial system is the key to a strong economy. 

It directs funds to individuals and businesses that could best use 

them, and it disciplines those that fail. 

Poor government regulation can distort the financial system’s 

ability and inclination to respond to the signals that it gets from 

consumers, Main Street companies, and investors. We saw the results of that kind of distortion with the crisis in 2007–2009. And 

when the bubble burst, many people suffered tremendously as they 

lost their homes, jobs, and retirement savings. But even before the 

dramatic failures of 2008, think of all the sectors that didn’t get 

funds because funds went into the housing market because of regulatory inducements. 

As the last financial crisis unfolded, there was understandable 

outrage. We needed to do something fast, and the result of that 

was Dodd-Frank. Dodd-Frank was developed on a false narrative 

that the crisis was the product of inadequate regulation. If only we 

had regulated the financial system more tightly, the story goes, we 

wouldn’t have had the crisis. But the role of the regulatory system 

in provoking and deepening the crisis was ignored in the post-crisis 

frenzy to set things right. 

Regulations played an important role in the crisis. As Dean 

Mahoney just outlined, there are multiple government policies, 

from government housing finance policy to the regulation of credit 

rating agencies to bank regulation, that helped to encourage markets to look to regulatory signals instead of to market signals to 

dictate their behavior. The result of the false narrative, as one 

might expect, was a statute that doubles down on regulation. A 

blanket of new regulatory agencies and new regulations was 

thrown around the financial system, from the CFPB to the Volcker 

Rule to a whole new regime for credit rating agencies to the Financial Stability Oversight Council. 

The post-Dodd-Frank regulatory system makes regulators even 

more important movers and shakers in the financial system than 

8 

they were before the crisis. They are determining how financial 

firms are structured, what activities they are engaged in, and how 

they are funded. They are even trying to attend bank board meetings. 

Strategic decisions are being made by regulators, not by firms, 

their managers, and their shareholders. Our financial sector is 

turning into a set of public utilities with the characteristic high 

prices, poor service, lack of creativity, and lack of entry. Government regulators are removed from day-to-day reality. No matter 

how much data they collect, they cannot receive the important signals that the marketplace offers. These regulators have good intentions, but so did the pre-crisis regulators. 

So what can we do to make the regulatory system provide clear, 

strong rules without inhibiting the market’s unique ability to reward success and punish failure? First, we should ensure that regulators are looking back to see what worked and what didn’t in the 

past. It is often easier just to slap on a new rule rather than to 

look at whether the ones in place are working. 

Second, when regulators adopt new rules, they should understand what problem they are trying to solve. It is not enough just 

to make the assertion that this rule will prevent another crisis. 

And third, we should rethink the approach taken by Dodd-Frank. 

The desire to place key decisions in the hands of regulators is a 

natural reaction to a narrative that markets failed. But the new 

system depends so heavily on regulators to get things right that if 

they don’t, things could go terribly wrong. 

As it is played out, for example, the systemic designation approach is designed mostly to give the Fed more regulatory power 

rather than to address systemic risk, which was its purpose. If we 

really wanted to address systemic risk, there would be clear guidance for firms to get out of the systemic risk designation. 

Another example is derivatives clearinghouses. We assume that 

pushing lots of derivatives into highly regulated clearinghouses 

would be an easy way to de-risk the derivatives markets. But more 

and more, people are recognizing that these clearinghouses themselves might be the source of future troubles or even of a future 

crisis. 

Dodd-Frank was built on a false narrative about the crisis. It 

failed to deal with key issues in the last crisis that covered many 

unrelated topics, and it created a new set of problems. If we are 

willing to rethink it, we will be rewarded with a strong, dynamic 

economy. 

[The prepared statement of Ms. Peirce can be found on page 39 

of the appendix.] 

Chairman DUFFY. Thank you, Ms. Peirce. 

And Mr. Stanley, you are recognized for 5 minutes. 

STATEMENT OF MARCUS M. STANLEY, POLICY DIRECTOR, 

AMERICANS FOR FINANCIAL REFORM (AFR) 

Mr. STANLEY. Chairman Duffy, Ranking Member Green, and 

members of the subcommittee, thank you for the opportunity to testify before you today. 

I would like to make several broad points in my testimony. First, 

the Dodd-Frank reform should create very large benefits. The 

9 

2007–2009 financial crisis led to over $10 trillion in lost economic 

output and 8 million lost jobs. 

My written testimony includes a report that is based on a comprehensive regulatory review of all existing studies of the costs of 

financial crises. Based on this study, we conclude that financial 

regulations, which reduced the probability of a systemic crisis by 

50 percent, would produce $2.9 trillion in economic benefits over 

the next decade. Reducing the probability of crisis by just 25 percent would produce almost $1.5 trillion in benefits. These figures 

include only financial stability benefits and do not even count the 

benefits of improved fairness for consumers and investors due to 

Dodd-Frank reforms. We believe that the Dodd-Frank Act will succeed in reaching these goals and that the benefits will far exceed 

its costs. 

Second, the 2008 crisis revealed comprehensive issues in our financial system that demanded a comprehensive solution. This financial crisis was the first crisis of the post-Glass-Steagall era. It 

revealed that the fusion of commercial banking and capital market 

activities created major new issues in the oversight of financial 

risk. These included the creation of an originate-to-distribute model 

that concealed poor underwriting, abusive lending, and securities 

fraud; the growth of large universal mega-banks that combined 

commercial and investment banking and had become both too-bigto-fail and too-big-to-manage; and a failure by both regulators and 

bank management to track, understand, and control financial risk. 

Due to the post-Glass-Steagall interpenetration of lending securities and derivatives markets, the crisis also featured a prominent 

role for non-bank entities. The American political system, with its 

many veto points, creates strong reasons for legislators to pursue 

comprehensive change through the vehicle of a single bill. 

Third, while the Dodd-Frank Act is lengthy and comprehensive, 

it is a product of compromise and pursues incremental improvements in our regulatory system. Mr. Mahoney has stated his belief 

that it is wiser to engage in incremental rather than radical improvements. Examining the actual regulatory tools used in DoddFrank, tools such as increased capital requirements, stress testing, 

the use of central clearinghouses to manage risks, greater regulatory reporting and transparency, and better enforcement of consumer protections shows that they are traditional elements of financial regulation that have been used for many decades, if not 

centuries. These tools have been tested over many years and are 

hardly radical departures. In fact, if one looks at the three major 

financial crises over the last century—the 1907 crisis, the 1929 crisis, and the 2007 crisis—Dodd-Frank is probably the most moderate and incremental response to a crisis out of those three. 

Furthermore, Dodd-Frank grants very extensive discretion to 

regulators to adjust the use of these regulatory tools as they are 

applied to different segments of the market. 

Finally, we believe that rolling back Dodd-Frank would be a serious error. We have supported changes in the Dodd-Frank Act 

where we believe such changes are called for. We have particularly 

supported changes to address one of the areas Mr. Mahoney highlights in his testimony: ending too-big-to-fail and the associated 

practice of government bailouts. 

10 

While we believe that elements of Dodd-Frank, such as graduated capital standards and Title I resolution planning, if forcefully 

implemented, can themselves address too-big-to-fail effectively, we 

have also supported additional changes. For example, AFR has 

joined Representatives Hensarling and Garrett in criticizing the 

Federal Reserve’s implementation of new restrictions on emergency 

lending, and we have supported Senators Warren and Vitter in 

their call for Congress to act if the Federal Reserve does not place 

stronger conditions on these loans. However, changes that roll back 

Dodd-Frank rules or create major new exemptions to them would, 

in most cases, have a negative impact on financial stability or consumer protection. 

Dodd-Frank also grants regulators extensive discretion to accommodate reasonable concerns without statutory change, and they 

have shown great willingness to use this discretion. In practice, the 

great majority of the statutory changes we have seen proposed to 

the Dodd-Frank Act would not build constructively on the advances 

made by the legislation but would instead roll back the clock by 

stopping regulators from responding to the issues revealed in the 

financial crisis as well as new emerging issues in the financial 

markets. We believe that interfering in the regulatory process in 

this way would be a grave error and would restore the failed status 

quo that gave us the 2007–2009 crisis. 

In conclusion, I would also like to point out, just in response to 

some of the things that Ms. Peirce said, that significant parts of 

the Dodd-Frank Act are, in fact, instructions to regulators to do 

their jobs better and to do a better job handling issues like leverage, with which they have traditionally been entrusted. Most of 

Title I does this, essentially. 

Thank you for the opportunity to testify. I am happy to answer 

further questions. 

[The prepared statement of Dr. Stanley can be found on page 65 

of the appendix.] 

Chairman DUFFY. Thank you, Mr. Stanley. 

The Chair now recognizes himself for 5 minutes. 

Mr. Stanley, I would have to disagree with calling a 23-page 

Dodd-Frank bill moderate reform. I think that is pretty extensive, 

even when all the rules have not been written. 

At the time that Dodd-Frank was written, we weren’t in the middle of a financial crisis. The crisis had passed. We had time, as a 

Congress, to sit back and reflect on what the root causes of the crisis were and to try to address the root causes. Instead of reflecting 

and waiting and thinking, there was a rush to judgment in this institution to pass a massive bill, and I would argue that a lot of 

folks in this town opened up their drawers, dusted off 30 years of 

old folders of bills that they wanted passed that they knew they 

could get into a package that was going to move through the Senate and the House, which gave us the Dodd-Frank bill, which has, 

I would argue, wreaked havoc on our financial sector. 

I guess to you, Mr. Mahoney, I get concerned when I hear my 

friends across the aisle talk about how we have ended too-big-tofail. Do you think that the Dodd-Frank Act has ended too-big-tofail? 

11 

Mr. MAHONEY. I don’t, unfortunately. I think that—and this is 

a point Ms. Peirce made in her written statement—Dodd-Frank 

really puts bank regulators in the driver’s seat in a lot of decisions 

that the largest financial institutions will make. It is going to be 

very hard for the government the next time to step back and say, 

‘‘This wasn’t our doing, this wasn’t our problem,’’ when the regulators are driving so much of what is going to happen in the market. 

It is also, I think, important to note that by, in effect, pre-identifying the too-big-to-fail institutions in the guise of declaring them 

systemically important, the government is going to encourage the 

markets to think of them in the way the markets thought of Fannie 

Mae and Freddie Mac before the crisis, that is to say, as institutions that are government-guaranteed in all but name. And it is 

going to be extremely difficult for the government, again, to say 

‘‘not our problem’’ when a crisis comes. 

Chairman DUFFY. So with this new package, if it is not the fault 

of the markets, arguably, the markets could come and say, ‘‘Listen, 

this is the fault of the regulators. They didn’t get it right.’’ 

Is it fair to say that those institutions that may fail will come 

to the regulators and say, ‘‘Well, it is your fault; we want a bailout?’’ 

Mr. MAHONEY. Absolutely. Yes. I agree. 

Chairman DUFFY. Okay. In regard to the financial crisis, was it 

your testimony that two portions of the root cause were from housing and monetary policy? Was that your testimony? 

Mr. MAHONEY. I think both certainly contributed. 

Chairman DUFFY. And what did Dodd-Frank do to address monetary policy? 

Mr. MAHONEY. Dodd-Frank really does not address monetary policy. 

Chairman DUFFY. I would agree with that. 

When we have more rules and regulations in the financial sector, 

does it help small startups get into the marketplace or does it help 

keep larger institutions at the top? Do more rules and more regulations help small businesses or help large businesses? 

Mr. MAHONEY. My research—and I have looked at a lot of regulations, primarily in securities markets, but I don’t think the insight 

is limited to securities markets—shows that if you look at the actual effects, often what happens is that the regulated industry, particularly after a crisis, is able to, in effect, cut a deal. They come 

to hearings like this one, hang their heads in shame, and are pilloried. And meanwhile, their lawyers and lobbyists are working 

with the people who are writing the new regulations, whether it be 

Congress or regulators. And they write them in ways that entrench 

the position of leading firms and make it very much harder for new 

firms to enter the market, and often drive out smaller firms from 

the market. 

Chairman DUFFY. Okay. 

Mr. MAHONEY. This is very clear, I think, in the case of the New 

Deal financial reforms. They were great for the leading investment 

banks. They were great for the leading stock exchanges. They were 

great for the leading mutual fund complexes. They drove smaller 

12 

regional stock exchanges out. They drove smaller broker-dealers 

out. 

Chairman DUFFY. Wonderful. Thank you. 

I don’t have time to fully get your answer. But, Mr. Stanley, you 

talked about the cost of the financial crisis, and I share your concern in that cost. Maybe we can follow up later to see if you have 

calculated the cost of overregulation, putting the clamps down on 

our financial sector and what that does to growth and opportunity 

in the country, and also, what does it do if we send our capital 

markets from America to other parts of the world, what does that 

do for the security of the country if you have calculated that as 

well? But I am out of time. 

With that, I yield 5 minutes to Mr. Cleaver. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

Ms. Peirce, I am just curious, and this is a serious question, what 

do you think we should have done in this committee when the Secretary of the Treasury came in, and the head of the SEC, and the 

FDIC, and explained where we were headed, if nothing was done? 

Ms. PEIRCE. I agree with you that was a terrible time, and it was 

a terrifying time. And having them come in and say, ‘‘We need to 

do something,’’ was a big weight toward pushing Congress to do 

something. But they did not have a clear plan on what to do, and 

things were bad, even though there was a rescue put in place. 

Things would have been bad if there hadn’t been a rescue put in 

place. But I argue that not having the government step in at that 

time would have made for a shorter crisis and a healthier recovery. 

Mr. CLEAVER. So, because we took action, we lengthened the recession? 

Ms. PEIRCE. Yes. 

Mr. CLEAVER. Now, I am really a little confused. 

So what did we do to the housing market? I mean, the housing 

market actually collapsed. And I think you and Mr. Mahoney both 

were saying that we misread the state of affairs, and we played— 

we actually responded to a narrative that was incorrect. Did I understand you correctly? 

Ms. PEIRCE. Yes, sir. 

Mr. CLEAVER. Okay. So there was nothing going on in the housing market? 

Ms. PEIRCE. I’m sorry if I was unclear on that. What I meant to 

say was that the problems in the housing market were driven by 

regulations and not only housing policy that encouraged people to 

lend to people who couldn’t afford the size houses they were buying, but it also— 

Mr. CLEAVER. Excuse me. Say that one more time. I don’t want 

to misunderstand you. 

Ms. PEIRCE. So there are different elements of government policy 

that led to the housing crisis. 

Mr. CLEAVER. Okay. 

Ms. PEIRCE. One was that we encouraged loose underwriting 

standards, but a second— 

Mr. CLEAVER. How? 

Ms. PEIRCE. —important one—there were—I should actually 

have put the other one first because the first thing is bank regulations that encouraged banks to hold certain types of securities, in 

13 

this case mortgage-backed securities, which drove a demand for 

mortgages, which then drove to the writing of a lot of subprime 

mortgages and so that would have been done right then— 

Mr. CLEAVER. The large banks were heavily invested— 

Ms. PEIRCE. Yes. 

Mr. CLEAVER. —into mortgages. 

Ms. PEIRCE. They were. 

Mr. CLEAVER. And so when the housing crisis—you do agree that 

we had a housing crisis? 

Ms. PEIRCE. I agree with that. 

Mr. CLEAVER. Okay. So that impacted the balance sheets of the 

banks. Am I correct? 

Ms. PEIRCE. It did. Right. 

Mr. CLEAVER. So you are saying that, with that going on, the responsibility of this committee was to do nothing? 

Ms. PEIRCE. If you are asking me whether TARP was a good 

idea, I don’t think that TARP was a good idea. It was a bailout that 

perpetuated this notion that the government would step in when 

there is a problem. It— 

Mr. CLEAVER. I’m sorry. Go ahead. 

Ms. PEIRCE. It perpetuated the idea that people who make bad 

decisions are not responsible for the consequences. And I am talking about the banks who made bad decisions. They should have 

been responsible for the consequences of their decisions. 

Mr. CLEAVER. Yes. I agree with you on that, but I am not sure 

that I understood the answer. 

Either you or Mr. Mahoney, what I am getting at is, so the response we had was to walk into the committee room where we met 

and say, ‘‘We are in the midst of the greatest financial crisis since 

the Great Depression and let us together hold hands and do nothing?’’ 

Ms. PEIRCE. Restraint is sometimes the best indicator of wisdom. 

Mr. CLEAVER. So you are saying that is what we should have 

done? 

Ms. PEIRCE. I am not saying that the crisis wouldn’t have been 

bad, but the crisis was bad even with the emergency programs that 

were put in place. There are certain things that could have been 

done to help homeowners, for example, to soften the blow. But to 

take this big action of putting money into banks was not a wise response. And I understand what drove it, but I would argue that it 

perpetuated the problems that we have. 

Mr. CLEAVER. Thank you. 

Chairman DUFFY. The gentlemen yields back. 

The Chair now recognizes the gentleman from Virginia, Mr. 

Hurt, for 5 minutes. 

Mr. HURT. Thank you, Mr. Chairman. 

Dean Mahoney, I was intrigued by your testimony and what you 

have to say as you sit before a committee of Federal policymakers—that your study has shown, over the course of history, 

that so often the effect or the underlying problems that we have 

had in terms of stock market crashes, that so often Federal policymakers respond in a big, bold way in order to, frankly, cover themselves politically. And I think that is interesting when you consider 

14 

Dodd-Frank and why it was passed in the way that it was and 

what the consequences have been. 

And I guess what I would ask you to comment on is sort of the 

irony that Federal housing policy was, in my mind—and, I think, 

in the minds of many well-respected people—very much the cause 

of what happened in 2008. And what an irony it is that here we 

are, 7 years later, and we still haven’t put a glove on Federal housing policy and Fannie Mae and Freddie Mac. Dodd-Frank does not 

do anything about that. And I was wondering if you could comment 

on that irony, and why is that? Is that consistent with what you 

have found as it relates to policy responses to previous crises? 

Mr. MAHONEY. Yes. Thank you. 

I think that there are two underlying problems, and I think they 

are surfacing in some of the discussions we are having here. First 

is the notion that it is just about the quantity of regulation; should 

we have more or less? And that is a very easy way for policymakers 

to avoid responsibility and just say, ‘‘Well, we layered on more stuff 

and so we have done what we are supposed to do.’’ 

The second big problem is to see regulation as, in some sense, a 

punishment of the financial industry for what it did in the past as 

opposed to looking forward at, how do we prevent problems in the 

future? And that makes it very easy for the regulated industry, 

again, to come in, hang its head in shame but in the meantime 

work on shaping the regulations in ways that benefit them. 

If you want to punish banks that are too-big-to-fail, don’t layer 

on more authority for bank regulators. 

Mr. HURT. Thank you. 

I come from a district, a rural district in Virginia. I think that, 

if you look at the trends over the last 30 years, you see that community banks have taken a real—have seen real losses. I think we 

have gone from somewhere around 15,000 community banks to 

today about 6,000, and a lot of that decline has happened in the 

last 7 years, 6 years since Dodd-Frank was enacted and, I guess, 

enacted with the idea that it was going to end too-big-to-fail. I 

would suggest that it has only enshrined it. 

And I was wondering, Mr. Stanley, if you could—when you hear 

community banks talk about the tremendous and profound challenges that they face in implementing Dodd-Frank, do you think 

they are lying, or do you think that they are being sincere? 

Mr. STANLEY. I think that there has been a long-term trend toward a decline in the number of community banks that dates back 

to the 1980s, that is driven by many different factors. I think 

that— 

Mr. HURT. Do you think it is specifically the effect of DoddFrank? 

Mr. STANLEY. I think it is too early to conclude as to whether 

Dodd-Frank has actually changed that trendline. I do think that— 

Mr. HURT. Do you think that having fewer community banks contributes to a healthy economy where there is more competition, 

where you have more innovation, and consumers have more choice 

and lower costs? 

Mr. STANLEY. No. We are supportive of the community banking 

model and the relationship lending that is included in the community banking model. We believe in assisting community banks to 

15 

comply with regulations. It can be more burdensome on smaller entities to comply with regulation. We understand that. 

We do also feel, however, that competition with large banks and 

changes in economies of scale have both contributed to the decline 

in the number of community banks. 

Mr. HURT. Okay. 

Mr. STANLEY. And we feel that Dodd-Frank makes many accommodations to community banks. Regulators have been willing to exempt community banks in many cases. And Dodd-Frank does specifically call for regulators to be tougher on larger banks than 

smaller banks, and we support that. 

Mr. HURT. Thank you, Mr. Stanley. 

My time has expired. 

Chairman DUFFY. The gentlemen yields back. 

The Chair now recognizes the gentleman from Minnesota, Mr. 

Ellison, for 5 minutes. 

Mr. ELLISON. Thank you, Mr. Chairman. And, Ranking Member 

Green, I appreciate the time. 

I would also like to thank you, Dr. Stanley, because this committee is thankful to receive the incredibly important feedback that 

Americans for Financial Reform provides . 

Mr. STANLEY. Thank you. 

Mr. ELLISON. And I also want to say publically that your colleagues and your partners have been reliable and responsive to legislation and hearings on topics that would help and weaken consumer protection and investor protections. And I am glad to be able 

to benefit from the work that you all do by knowing a little bit 

more and being a little more informed. 

The Americans For Financial Reform budget is tiny, particularly 

compared to other players in this space, but you all still show up 

every day and try to look out for the consumer. And I just want 

to say publically that I appreciate it. 

Mr. STANLEY. Thank you. 

Mr. ELLISON. So I wonder if you would offer your views on a New 

York Times editorial from yesterday entitled, ‘‘The Title Insurance 

Scam.’’ I don’t know if you saw this article. It is actually not really 

fair for me to spring it on you, but I know you review the literature. And so I wonder, did you have a chance to see this particular article? 

Mr. STANLEY. I did see it, yes. 

Mr. ELLISON. I wonder if you wouldn’t mind just offering your 

candid views on how title insurance is routinely handled? 

Mr. STANLEY. I think that editorial was citing new evidence from 

New York that, frankly, adds to a mountain of evidence that title 

insurance, particularly affiliated title insurance, is a broken market, that it is marked by kickbacks between the lender and the title 

insurer, that consumers don’t and often aren’t able to shop around 

for less expensive title insurance so they are exploited through title 

insurance that is massively overpriced and that charges excessive 

fees. And I think that this really underlines the importance of controls on title insurance and not making exemptions for title insurance in the legislation in the consumer protections that we have. 

Mr. ELLISON. Thank you. 

16 

Before Dodd-Frank—and I know we are talking about DoddFrank around here quite a bit—what we saw quite a bit was predatory lending. We saw securitization. We saw a lot of problems in 

the consumer market. And I just hope that some of our critique of 

Dodd-Frank keeps in mind what Dodd-Frank was passed to try to 

fix. 

We now have a Consumer Financial Protection Bureau taking 

steps to lower costs, provide access to high-quality mortgages, and 

ensure that home buyers get early notice of their actual closing 

costs. Yet we—I am sure you are aware and many people in this 

room are aware that Congress voted to weaken those protections 

recently and most recently to enable steering to affiliated title insurance firms to hire cost manufactured home loans. And that is 

a concern of mine. 

Let me ask you this, Dr. Stanley: Are you concerned that if we 

do not try to step into the affiliated title space, that consumers and 

home buyers could be hurt? 

Mr. STANLEY. Yes. As I said, the New York Times editorial highlighted evidence of precisely that kind of harm that came out of 

New York State. The GAO has highlighted some of the same issues 

at a national level. I think the cap on points and fees that was associated with the Qualified Mortgage rule would have done a great 

deal and should do a great deal to protect consumers from this 

kind of exploitation. But if we put in exemptions for some of the 

most problematic areas, such as title insurance, it is going to lose 

its effectiveness. 

Mr. ELLISON. Now I have a little while, so I just want to ask you 

a question. I have a bill out there called the Ensure Fair Prices in 

Title Insurance Act. It is H.R. 1799. Have you had a chance to review it? 

Mr. STANLEY. I regret to say I have not had the chance to review 

that bill. 

Mr. ELLISON. Fair enough. 

Mr. STANLEY. But some of my colleagues in AFR may have. 

Mr. ELLISON. Okay. Well, no problem. I am not going to ask you 

to offer an opinion on it. And, by the way, I wouldn’t be sensitive 

if you didn’t like it. But if you knew anything about it, I thought 

I would ask. 

And, with my last moments, can you offer your views on some 

of the investor protections put in place by Dodd-Frank? 

Mr. STANLEY. Yes. I think the registration of private equity and 

hedge funds, which creates a fiduciary duty—we saw when the 

SEC did a follow-up investigation based on that, they found violations at up to 50 percent of private equity funds. I think there are 

other protections in the securities markets in terms of asset-backed 

securities and the underlying data there that are valuable, though 

I think they could be better— 

Mr. ELLISON. That was—I think that little click noise means— 

Mr. STANLEY. Yes. Sorry. 

Mr. ELLISON. —that I am way out of time, so I do want to thank 

you again and thank the Chair. 

Mr. HURT [presiding]. The gentlemen yields back. 

The Chair now recognizes Mr. Fincher from Tennessee for 5 minutes. 

17 

Mr. FINCHER. Thank you, Mr. Chairman. 

I appreciate you having this important hearing, addressing the 

concerns we all have about Dodd-Frank and the impact it is having 

on our districts across the country. 

I was just making a few notes listening to the testimony of the 

witnesses and listening to the conversations from the other Members as to how many problems that Dodd-Frank has actually solved 

since it has been passed. 

When I go back home to my district every week and talk to my 

local community bankers, they tell me, ‘‘You know, Stephen, Washington just doesn’t get it because the people at the top are not 

being harmed as much as the folks at the bottom.’’ They are the 

ones who can’t get loans anymore because Dodd-Frank has made 

it impossible for the banks to be able to loan these guys money. 

Crushing banks through unnecessary regulation crushes the consumer. This is not about making community banks pay for something they had nothing to do with back a few years ago. 

And to reiterate something that Mr. Hurt said a few minutes 

ago, government had a big hand in what happened with telling 

banks who to loan money to and who not to loan money to, to loan 

money to people who couldn’t pay it back. They had a heavy hand 

in how all of this started and how all of this unfolded. And it is 

almost to the—I don’t want to read too much into it. But some of 

the comments that the opponents or the proponents of Dodd-Frank 

make, it is almost like they want to do away with the community 

banking industry and all of the competition and just have one or 

two big banks run everything. 

Back home in our districts, something that is the overall theme 

is that ‘‘Big Government’’ is good for ‘‘Big Business,’’ but it does 

nothing to help the small guy. It crushes the small guy. 

And then you look at Dodd-Frank and how it is being carried out. 

Congress doesn’t appropriate money. It gets its money from the 

Fed. We have very little when it comes to holding them accountable 

for what they are doing. They make the rules. They write the rules 

themselves. They regulate how they see fit with almost no oversight—at the CFPB, it is Director Cordray who actually makes the 

decisions on what is happening and who is it affecting—not a panel 

of people but one guy. 

So, what is wrong with trying to fix all these unnecessary burdensome regulations that are hurting our constituents on both 

sides of the aisle? We have a bill, a manufactured housing bill, 

something that was unintended in Dodd-Frank that former Chairman Barney Frank addressed, that needed to be taken care of. 

Ranking Member Waters also, just a few months ago, signaled that 

we needed to fix this problem. But now it has become a very partisan issue. We can’t touch it because it is part of Dodd-Frank. This 

is the problem. We need to do what we can to make sure we are 

working for our constituents, not more government and more burdensome regulation. 

Mr. Maloney, would it be beneficial—and I know the answer, but 

I want to hear your feedback—if we allowed these rules and these 

regulations to sunset a lot of it? So we could go back—we had a 

jobs bill last Congress, and it was dealing with the IPO process and 

Sarbanes-Oxley. And if some of that would have been allowed to 

18 

sunset, we would not have had to do what we did to fix that problem. So comment, please. 

Mr. MAHONEY. I agree with that. And I recognize the pressure 

that any policymaker feels in a time of crisis to do something. I 

agree with Ms. Peirce that it is often the right thing not to give 

into that pressure, but I understand the pressure. 

One way of reducing the cost would be to have automatic sunset 

provisions in legislation so that once things have cooled down, we 

can go back and say, what is it that actually needs to be done here. 

And I just want to make the observation that one of the things 

that Dodd-Frank clearly does is it increases the authority of the 

bank regulators over non-bank entities. 

But if you say, okay, so let’s go back to roughly, say, 2006, what 

did the Fed know at the time? It could see that the default rate 

on subprime loans was rising. It could see that housing prices were 

beginning to fall in many areas of the country. Why didn’t it do 

something at that point? Was it because there was no statute that 

said, ‘‘think about systemic risk?’’ Or was it that the Fed, just like 

the banks that it regulates, figured the ultimate experience with 

losses here is going to look like it has always looked and that is 

not going to be— 

Mr. FINCHER. My time has expired, but the answer is more government is not the answer. 

I yield back. 

Chairman DUFFY. Thank you. 

The gentleman’s time has expired. 

The Chair now recognizes Mrs. Beatty, the Congresswoman from 

Ohio, for 5 minutes. 

Mrs. BEATTY. Thank you, Mr. Chairman. Thank you, ranking 

members, and thank you to our witnesses for coming in today. 

In reviewing the testimony, and in my short time here listening 

to both sides of the aisle, it is very interesting to me that one document, the Dodd-Frank Act, has so many different interpretations 

and opinions and purposes. But one common thread that I have listened to from my colleagues on both sides of the aisle is, going back 

to our districts, how do we explain this? Consumers have been 

mentioned by everyone, so—and problems. 

So for me, I put in achievements of Dodd-Frank. I am not sure 

if you are aware of this, but since the passage of it in February of 

2010, nearly 12.3 million private sector payroll jobs have been created. That is something pretty good to take back to your districts. 

Further, our economy has added 3 million new jobs over the past 

12 months, nearly the fastest growth in more than a decade. Yes, 

those are achievements of Dodd-Frank because I think it also created the Consumer Financial Protection Bureau. Since its inception, the Bureau has returned $5.3 billion to 15 million consumers 

who have been subjected to unfair and deceptive practices. 

So where I am going with this, since I repeatedly hear attempts 

to block the appointment of having a Director or to move it toward 

an independent funding source, Mr. Stanley, first with you, as this 

committee moves forward with its oversight and financial regulatory agency in drafting financial services legislation, what do you 

think we can do to ensure that the CFPB is able to continue its 

legislative mandate and be fully funded? 

19 

Mr. STANLEY. Frankly, I think the structure that currently exists 

in the Dodd-Frank Act, which provides it with dedicated funding 

from the Federal Reserve, as the other financial regulators receive, 

with the exception of the CFTC, they are self-funded and not within the appropriations process; I think maintaining that is very important. And, frankly, I think that structure of a single director 

helps the CFPB act quickly and forcefully when it sees problems. 

So I think that maintaining that structure in the Dodd-Frank Act 

would be—is very valuable. 

Mrs. BEATTY. And to the other witnesses, if there were no DoddFrank Consumer Protection Bureau as it is, how would you counter 

these achievements and wonderful statistics that it has been provided to do? 

Mr. MAHONEY. It is, of course, hard to run the experiment and 

go back and say, ‘‘What would the economy look like today without 

Dodd-Frank?’’ 

We, unfortunately, lack the ability to do that. And I would just 

say that everyone believes that it would be wonderful if we could 

come up with a way to reduce the likelihood of future financial crises. 

Mr. Stanley, I think, did a very good job of quantifying what it 

would be like if we could reduce the likelihood of future financial 

crises. 

Mr. MAHONEY. Unfortunately, I see no evidence whatsoever that 

Dodd-Frank is going to do that. I think, in fact, there is a very good 

chance that it will make future financial crises more likely because 

it is concentrating risk, for example, of derivatives transactions in 

a new too-big-to-fail entity, a centralized counterparty. It is going 

to, I think, inevitably force more activities under the umbrella of 

the too-big-to-fail banks. 

And I think by doing that— 

Mrs. BEATTY. Because my time is short, let me piggyback and 

ask you a question on that. 

I think you said in your testimony that Dodd-Frank misunderstands the causes of the financial crises and particularly blames 

monetary policy, Federal housing policy, and moral hazards created 

by government bailouts. 

So, in your opinion, what were the main causes of the recent 

twin housing and financial crises? 

Mr. MAHONEY. I think the cause of the housing and financial crises had, in part, to do with government policy. They had, in part, 

to do with the fact that banks that tried out new forms of mortgage 

loans that were not very well-tested, which turned out to not work 

as effectively as the banks thought they would. And in a well-functioning market, the banks that did that would have been allowed 

to fail. That wasn’t what happened here. 

Chairman DUFFY. The gentlelady’s time has expired. 

The Chair now recognizes the gentlelady from Missouri, Mrs. 

Wagner, for 5 minutes. 

Mrs. WAGNER. Thank you very much, Mr. Chairman. 

And thank you, panelists, for being here. 

I would like to discuss the Dodd-Frank Act and the regulatory 

overreach that has resulted from it. Now that we are 5 years out 

from the law’s enactment and have seen many of the over 400 sepVerDate Nov 24 2008 15:56 Sep 17, 2015 Jkt 095065 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 K:\DOCS\95065.TXT TERRI
20 

arate rulemakings required under the law go into effect with many 

more in queue, we are starting to be able to more accurately see 

the long-term consequences from such a massive piece of legislation. I believe many of the consequences are unintended. 

A recent research paper released last week from the American 

Action Forum estimates that the burden of compliance under DoddFrank will result in a reduction of nearly $900 billion in GDP over 

the next 10 years. The study goes on to say that this will, in turn, 

result in a cost of over $330 per year for each working-age person 

over the next decade: $330 per year per working-age person. For 

families, this is a—for many of them, it is a car payment. It is a 

whole month’s worth of groceries. 

Mr. Mahoney and Ms. Peirce, these are some general questions. 

Has how regulatory overreach from Dodd-Frank contributed to increased costs for working Americans? 

Ms. PEIRCE. I think that is a great question. And the focus on 

compliance costs is one thing to look at, but there are actually costs 

that are deeper than compliance costs— 

Mrs. WAGNER. Correct. 

Ms. PEIRCE. —which are the structural problems that the 

changes are creating in the economy. And so I think what we are 

seeing is we are seeing—we had the example of community banks. 

We are seeing a lot of community banks close their doors, and it 

is, in part, due to Dodd-Frank and, in part, due to other regulations. 

And that means that a local community who depended on that 

bank for loans to their small businesses, for example, is going to 

be in trouble. They are going to have to go somewhere else for that 

funding, and it is more difficult to get outside of the community. 

So that is one example of how Dodd-Frank has affected the economy. 

Mr. MAHONEY. I agree with that. 

And I would also just point to another cost that I think really 

has not been quantified and would be very hard to quantify, and 

that is the notion that because we have now given the regulators 

the power to look for systemic risk, this is a solved problem and 

that we have banished systemic risk from the market. 

We have not done that. When it comes back, it is going to come 

back even more vigorously, and that will impose substantial costs. 

Mrs. WAGNER. And this leads almost exactly into my next question, Mr. Mahoney, which is: Despite the adverse effects of DoddFrank both on costs and economic growth, has it fully protected us 

from future financial crises? 

Mr. MAHONEY. No. I think not at all. Again, I think it does some 

things that could make a crisis more probable, as I mentioned, the 

provisions on over-the-counter derivatives— 

Mrs. WAGNER. Right. 

Mr. MAHONEY. —and the designation of systemically important 

institutions. I think that the regulators ought to focus on risks 

rather than institutions. And I think Ms. Peirce made the very important point that by just identifying these institutions and accepting them as too-big-to-fail rather than trying to reduce their risk, 

the statute goes in the wrong direction. 

21 

Mrs. WAGNER. And speaking of new institutions, as both of you 

know, Dodd-Frank created a number of new institutions also within itself, such as FSOC, the OFR, and the CFPB, that have very 

little oversight and operate with very, very limited transparency. 

What further unintended consequences could these new institutions pose in the future beyond what was included in Dodd-Frank? 

Ms. PEIRCE. One concern that I have, for example with the 

CFPB, with the lack of accountability, is that consumers are actually losing out on opportunities. It is really important for—I think 

Mr. Stanley mentioned that competition can be very helpful for 

consumers. It ensures that they get a better deal. 

And if you have an agency that is focused on putting a lot of regulations in place, it keeps new entrants out, and that limits competition and it limits options for consumers and it can hurt the consumers who are most deeply in need of options. 

Mrs. WAGNER. Thank you. 

I believe my time has run out. I yield back, Mr. Chairman. 

Chairman DUFFY. The gentlelady yields back. 

The Chair now recognizes the gentleman from Washington, Mr. 

Heck, for 5 minutes. 

Mr. HECK. Thank you, Mr. Chairman. 

I would like to use my time today to talk about markets. Markets 

are great and powerful, and I firmly believe that the strength of 

our markets is what led us to win World War II and the cold war 

and served as a shining example for a lot of other countries who 

set up their post-war economies. 

But just because the markets are better—and they are—in a 

command economy does not mean they are perfect or 100 percent 

reliable. And no reading of history could conclude thusly. Frankly, 

I feel like that is being lost in the service of ideology. 

When we were contesting a philosophical battle with the Soviet 

Union, we were very aware of market shortcomings. In the early 

days of communism spread a century ago—I remember it well—we 

recognized that financial markets are prone to panics. And so we 

set up commissions to regulate the futures market and stock markets. 

We recognized that money markets are the same way and that 

they drive boom and bust cycles in the broader economy. So we set 

up the Federal Reserve to smooth out the money supply and try 

to promote economic stability. 

We set up the FDIC to try to bring an end to bank runs that 

happen in a free market for deposits. We set up a whole host of 

agencies to smooth out the market for home mortgages, and the list 

goes on and on. 

It took a while for all those systems to evolve and be put in place 

and work, but 75 years after the Great Depression, it is fair to say, 

and it is accurate to say, that economic growth has been steadier 

and more broadly shared than it was in the 75 years prior to the 

setting up of some of those entities to help. 

We recognize now that there is inherent volatility and to, in fact, 

harness the power of markets and to enable growth that is shared 

by the masses, if you will, we need to have these entities functioning. And I miss those days. 

22 

We are having a fight lately over another one of those agencies 

that was set up to address market failures 80 years ago. We all 

agree, everybody in this room, that in a perfect world, the ExportImport Bank wouldn’t exist. 

Of course, in a perfect world, neither would the FDIC, neither 

would the Federal Home Loan Banks. In a perfect world with perfect markets, we wouldn’t need to respond to market failures, but 

markets aren’t perfect. 

In our world, we recognize that even if we could somehow get 

China and Russia to play by the same rules as everybody else so 

that we had a level playing field internationally, trade financing 

markets would still fail in predictable ways. International financing markets would still have panics and would still freeze from 

time to time. 

Good customers in countries with poor legal systems would still 

struggle to get loans to buy products. Small companies who use 

community banks would still not be able to get working capital for 

products to be sold out of country. Private credit insurance would 

still only be available at scales too large to be useful to small manufacturers. 

These are predictable market failures, and they will reappear if 

the Export-Import Bank goes away. Even the banks that compete 

and function in trade financing acknowledge it. 

We used to be dedicated to addressing the failures of market so 

that everyone could benefit from capitalism strengths. Maybe we 

did this because we were committed to helping all Americans share 

in capitalism’s success. Maybe we did this because we were worried 

about being embarrassed by communist propaganda. Either way, 

we seem to have lost our way. 

The Export-Import Bank is good for capitalism, but capitalism’s 

self-appointed defenders frankly seem to have lost sight of that. 

And I frankly hope we can reverse that mistake before it is too 

late. And to put a fine point on it, ‘‘too late’’ is defined here today, 

now, in this moment, as 23 more legislative days. I pray that does 

not happen. 

With that, Mr. Chairman, I yield back the balance of my time. 

Chairman DUFFY. The gentleman yields back. 

The Chair now recognizes the gentleman from Colorado, Mr. Tipton, for 5 minutes. 

Mr. TIPTON. Thank you, Mr. Chairman. 

I would like to thank our panelists for joining us here today. It 

has been interesting hearing your comments. 

I come from the private sector, a small businessman. And the 

best definition of that, I guess, is you are working on a high wire 

without a net. There is nobody there to catch you. And that is actually the best incentive to be able to perform and to be accountable 

and responsible with the dollars that you currently have. 

And I share, I think, a great concern with many of my colleagues 

that with the institutionalization of Dodd-Frank, we are seeing an 

incredible overreach that is going to be impacting the freedom that 

this country has been built upon to be able to have great 

entrepreneurialism, to be able to create jobs. When I am hearing 

comments that we are having a recovery, I am strictly reminded 

that we have the lowest labor participation rate in 4 decades. 

23 

We are seeing $2 trillion in costs now that are coming onto businesses nationwide. For the first time since we have kept records, 

we are seeing more small businesses shut down than there are new 

business startups in this country. And are we seeing the government becoming a platform off of which to be able to launch 

entrepreneurialism, to be able to put people back to work, or has 

it become a stumbling block? 

That is my concern and something, Mr. Mahoney, I would like 

you to be able to speak to when we are looking at the FSOC. 

Given the broad definitions that are put forward for the FSOC— 

that they can work on anything that is a threat to the financial 

stability of the United States—do you have some concerns that we 

could see the Federal Government moving into a variety of different areas, instruments, in terms of financial liquidity, that can 

hurt economic growth in this country and something that is critically important in my district for young people to be able to live 

that American dream? 

Mr. MAHONEY. Yes. I agree with that. 

And I think that the very vagueness of the concept is itself going 

to be a problem. Because, ultimately, when you have something affect the financial stability of the United States that does not have 

any recognized meaning, its meaning is going to be determined ultimately by lobbying, to put it bluntly. 

Because businesses that want to see their competitors harmed 

are going to go to the regulators and say, ‘‘What that person is 

doing is a bad idea. What we do is the best practice.’’ 

And I think it is very important to note that a lot of regulation, 

a lot of discretion exercised by regulators, tends to be because, obviously, they are not involved in the markets day to day. 

They have to get their information from somewhere else. So they 

turn to so-called best practices, which typically are just what the 

very largest firms do because they can afford to do it. And smaller 

businesses can’t afford to do it, and they are the ones that are 

harmed. 

Mr. TIPTON. I appreciate that comment, and I think it comes to 

a specific point. 

And, Ms. Peirce, you might want to speak to this as well. 

We often talk about the big institutions, we need to be able to 

regulate them so they are autonomous from the rest of the economy. And I am worried about the folks back home who are trying 

to put food on the table for their families. 

As we increase these regulations—and no one argues that there 

shouldn’t be some regulations; I think many of us are just hoping 

we can find some sensible, commonsense regulations to be able to 

apply—are these costs impacting the people who are ultimately 

paying the bills? 

Ms. PEIRCE. Yes, absolutely. When we talk about imposing costs 

on financial institutions of any size, ultimately, a lot of those will 

get passed on to the consumers and companies that rely on those 

financial institutions. So it is something that we really do need to 

be concerned about. 

And if we focus on—I think, as Dean Mahoney laid out really 

nicely, one of the problems is that regulation can entrench certain 

regulatory schemes that work very well for certain institutions and 

24 

keep out new entrants. The best way to lower prices for consumers 

and to increase their options is to have more competition. 

Mr. TIPTON. More competition. 

Mr. Mahoney, you were pointing out and have spoken to the fact 

that we are seeing more small banks being shut down. I have cited 

in this committee a bank in Delta, Colorado, $50 million, a small 

bank, saying that they don’t know if they want to continue because 

they are working not for their customers, but for regulators and for 

the Federal Government. 

Is this helping the American consumer? 

Mr. MAHONEY. Not at all. And I would just note in the few seconds left that virtually all of the bank failures since 2010 have 

been small institutions. Only a handful of those have had assets of 

more than $1 billion. 

Mr. TIPTON. Thank you. 

I yield back, Mr. Chairman. 

Chairman DUFFY. The gentleman yields back. 

The Chair now recognizes the gentleman from Texas, Mr. Green, 

for 5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. 

Please allow me to address the notion that the ‘‘do nothing’’ solution was the best or better solution. The ‘‘do nothing’’ solution assumes that things couldn’t have gotten worse. The recession of 

1929, which was the Great Depression, disproves this. 

Things could have been worse. How soon we forget Bear Stearns, 

Lehman, AIG. Banks were not lending to each other. I was here. 

I saw it unfold before my very eyes. Banks refused to lend to each 

other. How soon we forget. Rush to judgment. Somehow we went 

to bed one night, came to work the next day, and created DoddFrank. Not so. 

Amendments: 120 Republican amendments considered, 46 roll 

call votes for Republican amendments, 51 Republican amendments 

accepted, 134 Democratic amendments, 24 bipartisan amendments, 

debate time a total of 15 hours and 41 minutes, and this is with 

reference to the Financial Stability Improvement Act. There was 

careful, considerable deliberation before this legislation passed. 

Small banks: There is a deep abiding affinity for small banks 

among the members of this committee. Unfortunately, when we try 

to do something for small banks—by the way, 90 percent of all 

banks in this country are small banks. 90 percent plus, and they 

are under $1 billion. We could pass legislation for small banks but 

for the fact that, when we try to do something for the small banks, 

it becomes legislation that will also impact $50-billion banks, huge 

banks. 

I support doing something for small banks and will work with 

anyone who wants to do something for small banks, but I refuse 

to allow the facade of small banks to become what is called a community bank that is worth $50 billion to $100 billion or even more. 

We have had one witness who said that any bank could be a community bank. So I no longer use the term ‘‘community bank’’ because we are not talking about the mega-banks. 

I agree with the concern for small banks, and want to do something about it. But we can’t do it if we continue to allow the megabanks to drive the legislation. And that is what is happening here. 

25 

The mega-banks want legislation. So they use the small banks to 

accomplish their end. This is the real deal. This is what is going 

on. How soon we forget. 

I think another appropriate title for the hearing would be, ‘‘Let’s 

Get Back to Business as Usual.’’ Let’s get back to no Financial Stability Oversight Council. It is not perfect. What is? But it does provide us at least an opportunity to look for the next crisis. 

Ending too-big-to-fail? Why not have a means by which you can 

wind down the next AIG? That doesn’t mean that you won’t have 

a bank that is so big or some institution that is so big that it can’t 

have an impact, but it does mean that we have a way now to deal 

with it. We didn’t have that before Dodd-Frank. Let’s get back to 

business as usual. 

Stock market’s at an all-time high. Big investment banks and the 

companies are making lots of bucks. We are here trying to help 

them make more money when we have people working at minimum 

wage who can’t take care of their families. 

When are we going to hear something about raising the minimum wage? We take care of those at the top at the expense of 

those at the bottom. 

I yield back, Mr. Chairman. 

Chairman DUFFY. The gentleman yields back. 

The Chair now recognizes the gentleman from Arkansas, Mr. 

Hill, for 5 minutes. 

Mr. HILL. Thank you, Mr. Chairman. 

And thanks to the panel for participating in this hearing. I appreciate it very much. 

Mr. Mahoney, I am interested in your thoughts. And the panel, 

please join in as well. 

The Financial Crisis Inquiry Commission was well-conceived and 

well-designed right after the 2008 crisis, and it put forward a very 

thoughtful report and yet, Dodd-Frank was passed 6 months before 

that report ever came out, which really struck me, as a business 

guy, as putting the cart before the horse. 

But, of course, the President asked for a deficit panel to be 

impaneled when he first became President to try to reduce our 

chronic budget deficit and our chronic debt, and he ignored that report as well. 

So I am interested in what your thoughts are that were contained in that commission that were ignored or not contained in 

Dodd-Frank that are good ideas and should have been considered. 

Mr. Mahoney, do you want to start? 

Mr. MAHONEY. I think I would just start by saying the report 

tried to have a little something for everyone in the sense that it 

pointed out some of the policy issues that we have discussed today, 

the monetary policy questions, the government housing policy questions, but it also pointed out some of the market issues that have 

widely been blamed for the crisis: securitization; over-the-counter 

derivatives; combining banking and capital markets activities into 

the same institution. 

The thing that has always puzzled me is, if those things were so 

destabilizing, it is a little bit strange that the financial crisis didn’t 

occur much sooner. Those things were all under way in the 1980s. 

The financial crisis happened in 2007, 2008. Why did it take so 

26 

long if those things were so incredibly destabilizing? So I find the 

sort of smorgasbord approach of the report a little bit puzzling. 

Mr. HILL. Ms. Peirce? 

Ms. PEIRCE. I would point to Peter Wallison’s dissent, which 

talked about housing policy. And while I don’t think housing policy 

was the only cause of the crisis, I do think that he does a nice job 

explaining the roles that Fannie and Freddie played in the crisis. 

And that, of course, was left out of Dodd-Frank entirely. 

Mr. HILL. Mr. Stanley? 

Mr. STANLEY. I do think that many elements of the FCIC report 

were addressed in Dodd-Frank, and many of the people who testified before the FCIC also testified before Congress in helping to 

frame the Dodd-Frank Act. 

And I also think that Dodd-Frank included many things in it 

that came directly out of the regulatory response to the crisis. For 

example, the regulators were already working on the new Basel 

capital rules, which contained many changes in the rules to respond to the problems that were seen in the crisis. 

And a lot of the time, when people talk about Dodd-Frank, they 

are actually referring to those new Basel capital rules. They are referring to the continuation of the Federal Reserve stress testing 

started in the crisis. A lot of things in Dodd-Frank emerged directly 

out of what was learned in the crisis in that response. 

Mr. HILL. I would like to ask each of you: Would you support a 

single prudential regulator that was not the Federal Reserve, that 

was a separate independent regulator that had bank authority— 

I’m not talking about securities, but bank authority—and put it in 

the hands of one non-Fed prudential regulator? 

Mr. Mahoney? 

Mr. MAHONEY. I think either a single prudential regulator or 

simply ending the problem that we did have—and it was a regulatory problem that we should have solved before the crisis, which 

is that you had holding companies that had individual functional 

regulators at various regulated entities. 

But there may not have been a single regulator that had a complete picture of everything that was going on within the holding 

company. I think that was particularly true in the investment 

banks. 

And I think having a regulator at the holding company level that 

is looking at everything is a perfectly fine idea. Now, that could be 

the Fed for banks, the SEC for investment banks. It could be a new 

prudential regulator. But I do think that is a sensible reform. 

Ms. PEIRCE. I think pulling the regulatory responsibility out of 

the Fed is a very important step. Putting it in one prudential regulator for banks could be a good idea. 

Of course, the structure would matter. You would want to make 

sure that it was subject to appropriations and had the proper oversight, not that it had a commission structure, for example. I think 

that would be very important. 

Chairman DUFFY. The gentleman’s time has expired. 

The Chair now recognizes the gentleman from Maine, Mr. 

Poliquin, for 5 minutes. 

Mr. POLIQUIN. Thank you, Mr. Chairman. I appreciate it very 

much. 

27 

And thank you, folks, for sitting through this for a couple of 

hours now—or going on that. I appreciate it. 

Part of the American dream is everybody wants to own a home. 

That is good. However, up until roughly 2006 or 2007, it seemed 

like there were Washington regulators who were putting lots of 

pressure on banks to make sure they enticed families to buy homes 

even though they couldn’t afford those homes. 

Sometimes they pressured banks to offer no money down. Some 

folks who applied for homes didn’t have jobs, but they were still 

given credit in order to entice them to take on more than they 

could chew off. 

And then, when these folks couldn’t make their mortgage payments, the housing market collapsed. And with that, it took the financial services industry of the financial markets that collapsed. 

So here you have these families who are now going through this 

process of losing their homes. They are going through bankruptcy, 

and some of the reasons for this happening were the bank regulators here in Washington. 

Now, in my district, which is western, central, northern, and 

Down East Maine, some of the hardest working people you could 

possibly find, they saw the value of their homes plummet 40, 50 

percent subsequent to the market crash. And folks who were saving for their kids’ college education or their retirement saw their 

savings and mutual funds and 401(k) plans plummet 20 or 30 percent. 

So now they are in a position where they have to work longer, 

the nest egg has shrunk, and now they are more and more dependent on the government, not to say that we have a Social Security 

system that is a $15 trillion unfunded defined benefit pension plan 

with no real plan to take care of that. 

So, of course, after this happened—Washington knows best—the 

big brother government sort of ran to everyone’s rescue. Even 

though they helped create the problem, they imposed this huge 

Dodd-Frank net over the entire financial services industry. 

I come from Maine, and we do a lot of fishing up there. And 

sometimes a net should have holes in it big enough for the small 

fish to get through. 

So we have a real problem here in our district with small banks. 

And as my colleague, Mr. Green, mentioned, he may not want to 

call them small banks. I call them community banks. 

But whatever it is, we have a lot of small credit unions and small 

financial institutions, small banks, that are the backbone of our 

economy. And they want to lend money to individuals who want to 

buy a new truck or maybe put a new diesel in a lobster boat, and 

they are unable to do it because some of these regulations. 

So what happens is the cost of regulations goes up. Bank fees go 

up. You talk to Larry Barker, who runs the Machias Savings Bank 

in Down East Maine, and they have about 100, 120 employees, and 

they are putting more people on the payroll to deal with regulations instead of lending money to folks who need it. 

So I am really concerned about this Dodd-Frank net, which has 

started to smother our small banks that are the backbone of our 

community. Jobs are being lost. Credit is not being extended. And 

then, if you go over to the investment management space, you have 

28 

fees going up and rates of return on retirement savings going 

down. 

So I would like to ask you, Ms. Peirce, first, if you don’t mind: 

Do you think and can we agree that this is happening, there should 

be reforms to this regulatory burden? And, specifically, what would 

you recommend? How can we help our small community banks 

keep money flowing to our families, grow businesses so they hire 

more people? 

Ms. PEIRCE. The Mercatus Center did a study a couple of years 

ago on small banks and found that, indeed, they were suffering 

very heavily, and it was this concept that you mentioned of spending a lot more time on compliance, trying to hire more compliance 

employees. 

But even more important than that is the manager’s time is now 

going towards thinking about compliance and regulation instead of 

consumers. 

The answer, I think, lies in simplifying bank regulations. You 

could have a simple capital standard, for example, and then, in return for that, you eliminate the other regulations that require a lot 

more time to think about complying with. 

So I think the simple regulations can benefit banks of all sizes, 

but I think especially small banks will benefit from that chain. 

Mr. POLIQUIN. So you do believe that there should be and could 

be reforms to Dodd-Frank? 

Ms. PEIRCE. I believe that reforms are necessary to make the 

economy work better. 

Mr. POLIQUIN. Mr. Mahoney, what do you think? 

Mr. MAHONEY. I agree with that. 

I have been struck by the number of bankers that I have spoken 

to from banks of all sizes who now say, ‘‘My primary constituent 

is no longer my customer. It is Washington, D.C.’’ 

Mr. POLIQUIN. I hope you folks speak up. You have a tremendous 

amount of authority and influence here in Washington with your 

experience in this area. So I hope you speak up. And I am very 

grateful that you are here today. Thank you. 

My time has expired. Thank you. I yield back. 

Chairman DUFFY. The gentleman yields back. 

I believe that concludes all of our questions for today. I want to 

thank the witnesses for their testimony, and for taking time out of 

their busy schedules to provide their insight on this important 

issue. 

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

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous 

materials to the Chair for inclusion in the record. 

Without objection, this hearing is adjourned. 

[Whereupon, at 11:08 a.m., the hearing was adjourned.] 

(29) 

A P P E N D I X 

May 13, 2015 

30 


95065.001
31 


95065.002
32 


95065.003
33 


95065.004
34 


95065.005
35 


95065.006
36 


95065.007
37 


95065.008
38 


95065.009
39 


95065.010
40 


95065.011
41 


95065.012
42 


95065.013
43 


95065.014
44 


95065.015
45 


95065.016
46 


95065.017
47 


95065.018
48 


95065.019
49 


95065.020
50 


95065.021
51 


95065.022
52 


95065.023
53 


95065.024
54 


95065.025
55 


95065.026
56 


95065.027
57 


95065.028
58 


95065.029
59 


95065.030
60 


95065.031
61 


95065.032
62 


95065.033
63 


95065.034
64 


95065.035
65 


95065.036
66 


95065.037
67 


95065.038
68 


95065.039
69 


95065.040
70 


95065.041
71 


95065.042
72 


95065.043
73 


95065.044
74 


95065.045
75 


95065.046
76 


95065.047
77 


95065.048
78 


95065.049
79 


95065.050
80 


95065.051