PRESERVING AND EXPANDING MINORITY BANKS

HEARING

BEFORE THE

SUBCOMMITTEE ON 

OVERSIGHT AND INVESTIGATIONS

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

OCTOBER 30, 2007

Printed for the use of the Committee on Financial Services

Serial No. 110–78

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PRESERVING AND EXPANDING MINORITY BANKS

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PRESERVING AND EXPANDING MINORITY BANKS

HEARING

BEFORE THE

SUBCOMMITTEE ON 

OVERSIGHT AND INVESTIGATIONS

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

OCTOBER 30, 2007

Printed for the use of the Committee on Financial Services

Serial No. 110–78

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin, 

LINCOLN DAVIS, Tennessee 

ALBIO SIRES, New Jersey 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

ROBERT WEXLER, Florida 

JIM MARSHALL, Georgia 

DAN BOREN, Oklahoma 

SPENCER BACHUS, Alabama 

RICHARD H. BAKER, Louisiana 

DEBORAH PRYCE, Ohio 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III)

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

MELVIN L. WATT, North Carolina, Chairman

LUIS V. GUTIERREZ, Illinois 

MAXINE WATERS, California 

STEPHEN F. LYNCH, Massachusetts 

NYDIA M. VELA ́ ZQUEZ, New York 

MICHAEL E. CAPUANO, Massachusetts 

CAROLYN MCCARTHY, New York 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

ROBERT WEXLER, Florida 

GARY G. MILLER, California 

PATRICK T. MCHENRY, North Carolina 

EDWARD R. ROYCE, California 

RON PAUL, Texas 

STEVEN C. LATOURETTE, Ohio 

J. GRESHAM BARRETT, South Carolina 

TOM PRICE, Georgia 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

KEVIN McCARTHY, California 

(V)

C O N T E N T S 

Page 

Hearing held on: 

October 30, 2007 ............................................................................................... 1

Appendix: 

October 30, 2007 ............................................................................................... 47

WITNESSES 

TUESDAY, OCTOBER 30, 2007

Braunstein, Sandra F., Director, Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System ................................ 12

Cooper, Robert P., Senior Counsel, OneUnited Bank, on behalf of the National 

Bankers Association ............................................................................................. 16

Saunders, Kim D., President and CEO, Mechanics & Farmers Bank ................ 19

Scott, George A., Director, Financial Markets and Community Investment, 

U.S. Government Accountability Office (GAO) .................................................. 7

Thompson, Sandra L., Director, Division of Supervision and Consumer Protection, Federal Deposit Insurance Corporation (FDIC) ........................................ 9

Walsh, John G., Chief of Staff and Public Affairs, Office of the Comptroller 

of the Currency (OCC) ......................................................................................... 14

Yakimov, Montrice Godard, Managing Director, Compliance and Consumer 

Protection, Office of Thrift Supervision (OTS) ................................................... 10

APPENDIX 

Prepared statements: 

Watt, Hon. Melvin L. ....................................................................................... 48

Braunstein, Sandra F. ...................................................................................... 53

Cooper, Robert P. .............................................................................................. 62

Saunders, Kim D. ............................................................................................. 74

Scott, George A. ................................................................................................ 85

Thompson, Sandra L. ....................................................................................... 113

Walsh, John G. ................................................................................................. 136

Yakimov, Montrice Godard .............................................................................. 153

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Watt, Hon. Melvin L.: 

GAO Report to Congressional Requesters, dated October 2006, ‘‘Minority 

Banks, Regulators Need to Better Assess Effectiveness of Support Efforts’’ ............................................................................................................... 210

GAO Report to the Chairman, Committee on Government Operations, 

House of Representatives, dated November 1993, ‘‘Minority-Owned Financial Institutions, Status of Federal Efforts to Preserve Minority 

Ownership’’ .................................................................................................... 259

Responses to questions submitted to Sandra F. Braunstein ........................ 303

Response to question submitted to George A. Scott ...................................... 319

Waters, Hon. Maxine: 

Disclosure submitted for the record ................................................................ 320

(1)

PRESERVING AND EXPANDING 

MINORITY BANKS 

Tuesday, October 30, 2007

U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON OVERSIGHT

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

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

2128, Rayburn House Office Building, Hon. Melvin L. Watt [chairman of the subcommittee] presiding. 

Members present: Representatives Watt, Waters, Lynch, McCarthy, Klein; and Miller. 

Also present: Representative Meeks. 

Chairman WATT. The Subcommittee on Oversight and Investigations will come to order. 

Without objection, all members’ opening statements will be made 

a part of the record. I will now recognize myself for an opening 

statement. 

Minority and women-owned banks serve an important but often 

overlooked role in the U.S. economy. For too long in the Nation’s 

history, women and racial and ethnic minorities were shut out of 

this Nation’s banking systems. Minority and women-owned banks 

stepped into the breach and today provide critical banking services 

and financial products to distressed or traditionally underserved 

communities throughout the United States. 

Today’s hearing is designed to highlight the role of minority- and 

women-owned banks in the economy and to examine how Federal 

regulators and Congress can work together to support these important financial institutions. 

The Federal Deposit Insurance Corporation (FDIC) and the Office of Thrift Supervision (OTS) are charged under Section 308 of 

the Financial Institutions Reform, Recovery, and Enforcement Act 

of 1989 to ‘‘preserve and promote’’ minority banks. This includes 

preserving the number of minority banks, preserving these institutions’ minority character in mergers and acquisitions, and providing technical assistance to the institutions. 

In 1993, the GAO issued a report entitled, ‘‘Minority-Owned Financial Instructions: Status of Federal Efforts to Preserve Minority 

Ownership.’’ The report found that while the Federal banking regulators had taken some steps to preserve minority ownership, they 

had not assessed whether these steps were effective. The GAO 

therefore recommended that the Secretary of the Treasury consult 

with the FDIC and the OTS to systematically assess the effectiveVerDate 0ct 09 2002 17:10 Feb 11, 2008 Jkt 039916 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 K:\DOCS\39916.TXT HFIN PsN: TERRIE
2

ness of their minority bank support efforts, including surveying minority institutions to gain their insight. 

Thirteen years later, unfortunately, the regulators still have not 

implemented the major recommendations from the 1993 GAO report. The October 2006 GAO report entitled, ‘‘Minority Banks: Regulators Need to Better Assess Effectiveness of Support Efforts,’’ 

might just as well have been a reprint of the 1993 report. The report again examined Federal regulators’ efforts to comply with Section 308 of FIRREA to preserve and promote minority banks, and 

raised many of the same issues raised in 1993. 

This hearing will expose and shed light on the key findings, ask 

why regulators still have not implemented the 1993 GAO recommendations, and focus attention on what more can and must be 

done to preserve, support, and expand these banks. 

I ask unanimous consent to insert into the record both the 1993 

and the 2006 GAO reports. Without objection, it is so ordered. 

The 2006 GAO report suggests mixed results by the Federal Government in supporting minority banks. On one hand, some Federal 

banking regulators have developed initiatives training and outreach events for minority banks. For example, the FDIC and the 

OTS apparently have national and regional coordinators to interface with minority banks and to provide technical assistance. 

On the other hand, the GAO report indicated that neither the 

OCC nor the Federal Reserve have developed specific minority 

banking initiatives. While neither of these regulators is covered 

under Section 308 of FIRREA, both the OCC and the Federal Reserve have issued policy statements in the last several years expressing support for minority banks, and both have indicated that 

they plan to develop programs and initiatives to support and advance these policy statements. 

We would like to hear about the OCC and the Federal Reserve’s 

progress in fulfilling the rhetorical objectives set out in their policy 

statements. Apparently the Federal Reserve has stated that they 

will merely consider implementing the GAO’s recommendation. We 

would like to find out whether the Federal Reserve will indeed implement the GAO regulations or, alternatively, whether the Fed 

might prefer to be directed to do so by being included under Section 

308 of FIRREA. 

The GAO report suggests that many minority banks operate in 

unique environments, often serving distressed and underserved 

areas, and consequently must retain higher reserves for loan losses 

and have higher overhead costs because they spend more time 

training their staff and provide extensive customer service. Yet the 

GAO report also reveals that less than 30 percent of minority 

banks actually utilize the technical assistance offered by the Federal regulators. 

We want to explore why that is so. The GAO reported that several minority bank officials suggested that Federal regulators 

should consider undergoing additional training to gain sensitivity 

to the unique challenged faced by minority banks. I would like to 

hear more about those challenges and what would be appropriate 

to respond to them. 

We must remain vigilant in fulfilling Section 308’s mandate to 

preserve and promote minority banks. I look forward to hearing 

3

from these regulators and minority-owned banks about best practices for preserving and expanding this important segment of the 

financial services industry. 

I will now recognize Ranking Member Gary Miller, from California. 

Mr. MILLER. Thank you, Mr. Chairman. Well, I want to welcome 

our distinguished panel. It is good to have you here this early 

morning. And I thank Chairman Watt for holding this hearing. It 

is rather informative when we discuss issues like this. 

It is important to examine the important role banks have in serving the financial needs of underserved communities and minorities. 

Like most community banks, minority banks may also confront 

challenges because of their smaller size. Recognizing the important 

role of minority banks, in 1989 Congress called on the banking regulators to establish goals to help promote and preserve minority 

banks. In response to these objectives, the OTS and the FDIC created staffing structures, resources, events, technical assistance, and 

outreach programs to assist minority banks. 

While ensuring the safety and soundness of financial institutions 

is their first responsibility, the regulators have also hosted and 

continue to host a variety of educational events such as conferences, roundtables, and workshops which bring minority banks 

and their regulators together to give the banks a chance to share 

their concerns regarding compliance examinations, community development, deposit insurance, and other issues facing the banks. 

Last year the Government Accountability Office, GAO, found 

that the profitability of most large minority banks—that is, with 

assets greater then $100 million—was nearly equal to that of similar size banks. However, small minority banks and African American banks of all sizes tend to be less profitable than they appear 

despite the efforts of the regulators. 

The study shows that these differences were due to relatively 

higher loan loss reserves and operating expenses, and from competition from larger banks. The GAO also reported that while 

banking regulators have adopted many different approaches to support minority banks, they have not regularly assessed the effectiveness of these efforts. 

While the banking regulators have been criticized for not assessing their efforts to promote minority banks, the GAO found that 

not even half of the minority banks attended the FDIC roundtables 

and conferences designed to assist them. The bank officials that did 

attend these events found the events extremely useful. Furthermore, only half of the banks actively participate in their regulators’ 

training and educational activities. The GAO found that most 

banks that participated in these activities reported favorably on 

these events. 

The FDIC and the OTS emphasize technical assistance services 

as key components of their efforts to assist minority banks, but less 

than 30 percent of the minority banks utilized such assistance. The 

GAO found that the banks that do use technical assistance offered 

by the regulators rated the assistance as extremely or very useful. 

In 2004, in response to the FDIC corporate performance objectives, the FDIC completed review of its minority bank outreach efforts; only 7 of the 20 banks that were surveyed responded. AddiVerDate 0ct 09 2002 17:10 Feb 11, 2008 Jkt 039916 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 K:\DOCS\39916.TXT HFIN PsN: TERRIE
4

tionally, in 2005 the FDIC requested feedback on several proposals 

to better serve their institutions, and 25 minority banks responded. 

The GAO reported that only about one-third of the survey respondents rated regulators’ efforts as very good or good. Since so 

few minority banks are participating in the regulators’ efforts, perhaps the one-third figure represents the banks that are participating in the events, while the banks that rated their agencies’ efforts as poor have not participated in programs at all. 

The GAO reports that the banks not participating in such efforts 

may be missing opportunities to address the problems that limited 

their opportunities or financial performances, assistance and availability. But it is the bank officials’ responsibility to take advantage 

of these programs to ensure that their banks succeeded. The regulators cannot force banks to participate in these programs. 

Regardless of these findings, positive news regarding the minority banks has been more recently documented. Last month, Creative Investment Research, Inc., a Washington consulting firm that 

focuses on minority banks, reported that assets of minority-owned 

banks are on the pace to increase by an average of about 18 percent this year, compared to the overall industry average of only 6 

percent. 

The report stated that a dozen banks have opened since the end 

of 2005 targeting Hispanics. The report also showed that while the 

return on assets of these banks has dropped off dramatically in the 

last 18 months, this was attributed to an increase in the startup 

targeting minorities. Mr. Cunningham, president of Creative Investment Research, Inc., said that he expects when minority 

startups mature, the returns will move closer to the industry rate. Additionally, Evelyn Smalls, president and CEO of the $72.3 million asset United Bank of Philadelphia, an African-Americanowned bank, has stated that interest in economic development has 

increased. Evelyn stated that the bank has been contacted by numerous people expressing interest in working with the bank and 

bringing business to the bank. She expects her bank will increase 

in assets to about $100 million over the next few years. 

While I believe that the success of these banks is obviously important, as it is in the success of any bank, it seems to me that 

the most important part of the discussion is missing here, to consumers, that we need to focus on them. If the intent of Section 308 

of FIRREA was to promote the economic viability of minorities in 

underserved communities, instead of focusing on who owns a bank, 

we should be discussing whether banks are successfully serving minorities in underserved communities. That is the overarching goal 

of the law. 

Additionally, we must consider the value of the opportunity that 

the thousands of banks, big and small, in this country have offered 

traditionally underserved communities, which has ultimately increased competition and consumers’ choice. 

I look forward to hearing from our panel today. Thank you. 

Chairman WATT. I thank the gentleman for his opening statement, and we certainly want to focus on the part of his statement 

regarding service to the community and customers in underserved 

areas. That is an important focus. And we are likely to be having 

some hearings on that aspect of this issue, too. 

5

Mr. Lynch, would you care to be recognized for an opening statement? 

Mr. LYNCH. Thank you. 

Chairman WATT. The gentleman from Massachusetts is recognized. 

Mr. LYNCH. Thank you, Mr. Chairman. As is the custom here in 

Washington, I am required this morning to be in three separate 

hearings all occurring at the same time, so I must beg the Chair’s 

indulgence. I am going to have to jump over to those other two 

committees during the course of the morning. 

But I would like to thank you and Ranking Member Miller for 

convening this hearing on the importance in the future of minority 

banks. We have a copy of the GAO report this morning on the effort to promote and preserve minority-owned community financial 

institutions, which report confirms the critical nature of minority 

banks in historically underserved areas. 

But it also points out that it was difficult for regulators to best 

assess the effectiveness of support efforts to these institutions, in 

the report which is entitled, ‘‘Minority Banks: Regulators Need to 

Better Assess Effectiveness of Support Efforts.’’ As a result of this 

72-page report, I believe it is vital that we are here today to use 

our oversight capacity on this committee to ensure that these critical minority institutions’ needs are best met. 

On a Federal policy level, especially in regards to Federal bank 

examination, competitive advantages or disadvantages that might 

exist in particular areas, I am particularly pleased to see that a 

friend and constituent of mine, Bob Cooper, is here this morning. 

He is the chief legal strategist and architect for OneUnited, which 

just happens to be the largest African-American-owned bank in the 

country. 

And I know that since he joined OneUnited’s management team, 

it has acquired and turned around at least three troubled banks 

that I know of, and it has grown from $56 million to about $650 

million in assets, making it the fastest-growing African-Americanowned bank in the Nation. Mr. Cooper has also been instrumental 

in the bank received CDFI bank expertise awards over the past 4 

years for its lending in distressed communities, particularly in my 

district. 

Mr. Cooper is testifying today in his capacity as the chairman of 

the National Bankers Association, and his expertise is particularly 

valuable, I believe today, as we address the issues faced by minority depository institutions around the country. I am particularly interested in his testimony regarding CRA. As we all know, over the 

years, the responsibility of the volume of mortgages underwritten 

by the banks has reduced, banks covered by CRA has been reduced, and yet mortgage companies and mortgage brokers not covered by the CRA have seen a dramatic increase. 

And so I am eager to receive Mr. Cooper’s testimony, just as I 

am all the panelists who have been willing to come forward this 

morning to help this committee with its work. 

With that, Mr. Chairman, I yield back. 

Chairman WATT. I thank the gentleman for his opening statement. And I would just say to Mr. Cooper that Representative WaVerDate 0ct 09 2002 17:10 Feb 11, 2008 Jkt 039916 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\39916.TXT HFIN PsN: TERRIE
6

ters and Representative Lynch were lobbying to introduce you. 

So— 

Mr. LYNCH. And Mr. Capuano, I might add. 

Chairman WATT. That must mean you are doing something right. 

I will make my own personal statement about my banker a little 

bit later. 

Other members obviously will be in and out. There are a lot of 

hearings going on this morning. In fact, I am supposed to be in 

three right now in various committees, so you can anticipate that 

members will be in and out. 

I just spoke of Ms. Waters. I am getting ready to introduce the 

witnesses, but if you would care to make an opening statement, I 

would be delighted to recognize you before I do that. 

Ms. WATERS. Thank you very much, Mr. Chairman. It is very 

kind of you. And I do appreciate this hearing that you are holding 

today. This is a very, very important subject, and one of those 

areas that has not gotten much attention in the Congress in the 

years that I have been here. 

But as we know, there has always been an effort to truly be a 

part of the American business and economic community in this 

country. It has been very difficult, and we have talked a lot about 

access to capital. We have talked a lot about entrepreneurship, a 

lot about involvement of minority communities in financial institutions, and the desire for ownership by minorities. We talk about it 

a lot, but there has not been a lot of support for minority institutions, many of whom have struggled in order to stay in business 

and provide services, services for the minority communities that oftentimes are not being provided by anybody else. 

I am reminded of the disaster in the Gulf Coast with Hurricanes 

Katrina and Rita and the impact that they had on some of our minority banks. While I know there was some assistance, it was not 

enough. We do very little to preserve and/or expand minority 

banks. And even though I think we can find somewhere in our laws 

that it is intended that we should try and preserve and expand minority banks, when we have attempted to use that instruction and 

law, we have not been able to execute anything in a real way. 

This hearing today will help us to understand better what is 

going on out there and how perhaps we can be of assistance and 

get this Congress on record for our desire to preserve and expand 

minority banks. So I thank you Mr. Chairman. 

And while I am doing that, I would like to make a disclosure—

because I think it is absolutely necessary—that my husband is a 

director of a minority bank. So I want that on the record, and I will 

submit my disclosure in writing. 

Chairman WATT. All right. For a change, we have to make disclosures. So that is a good thing. 

Without objection, other members’ opening statements will be 

made a part of the record, and they will have some additional time 

to submit them for the record. 

I am now going to introduce the panelists briefly. Without objection, each of your written statements in their entirety will be made 

a part of the record. And each witness will be recognized for 5 minutes, although—we try to stay close to that, but I am a little bit 

more lenient on that than most Chairs are. 

7

We will start with Mr. George Scott, who is the Director of the 

Financial Markets and Community Investment team of the GAO, 

where he helps lead the GAO’s work assessing the ability of the financial services industry and its regulators to help maintain a stable, well-functioning financial system. He is responsible for leading 

the GAO’s work related to higher education issues, including Federal student loan and grant programs also. 

Mr. Scott, you are recognized for 5 minutes. 

STATEMENT OF GEORGE A. SCOTT, DIRECTOR, FINANCIAL 

MARKETS AND COMMUNITY INVESTMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE (GAO) 

Mr. SCOTT. Thank you, Chairman Watt, Ranking Member Miller, 

and members of the subcommittee. I am pleased to be here today 

to discuss the efforts of Federal bank regulators to support minority banks. 

Minority banks are a small community within the banking industry, accounting for 2 percent of all financial institutions and total 

industry assets. Despite their small numbers, these banks can play 

an important role in serving the financial needs of historically underserved communities such as African Americans, and growing 

populations of minorities such as Hispanic and Asian Americans. 

Federal regulators are to work to preserve and promote minority 

banks. For example, the Federal Deposit Insurance Corporation 

and the Office of Thrift Supervision are required to provide minority banks with technical assistance, training, and educational programs. They must also work to preserve the character of minority 

banks in cases involving mergers or acquisitions or these institutions. 

My testimony today summarizes the key findings of our 2006 report, which discussed the profitability of minority banks, regulators’ efforts to support such banks, and the view of minority 

banks on these efforts. 

In summary, our analysis showed that the profitability of most 

minority banks with assets greater than $100 million nearly 

equaled that of their peers. However, the profitability of smaller 

minority banks and African American banks of all sizes did not 

meet their peers’ size and profitability. 

Many small minority banks had return on assets that were substantially lower than those peer groups. Moreover, African American banks of all sizes had return on assets that were significantly 

lower than those of their peers. 

Our analysis identified some possible explanations for the low 

profitability of some minority banks, such as higher reserves for potential loan losses, higher administrative expenses, and competition from larger banks. Nevertheless, the majority of officials from 

minority banks were positive about their bank’s rational outlook, 

and many saw their minority status as an advantage in serving 

their communities. 

In terms of fellow efforts to support these banks, we found that 

bank regulators have adopted different approaches. The FDIC, 

which supervises more than half of all minority banks, had the 

most comprehensive program to support minority banks and led an 

inter-agency group that coordinates such efforts. Among other 

8

things, the FDIC designated officials to be responsible for minority 

bank efforts, held periodic conferences for banks, and established 

formal policies for annual outreach. 

The OTS also designated staff to be responsible for the agency’s 

efforts to support minority banks, developed outreach procedures, 

and focused on providing technical assistance. 

The OCC and the Federal Reserve, while not required to do so, 

also undertook some efforts to support minority banks. Despite 

these initiatives, at the time of our review, no agency had regularly 

assessed the effectiveness of its efforts or established outcome-oriented performance measures for their programs. Consequently, regulators were not well-positioned to assess the results of their efforts or identify areas for improvement. 

Some minority banks identify potential limitations in the regulators’ support efforts. About one-third of survey respondents rated 

their regulators’ efforts for minority banks as very good or good, 

while 26 percent rated the efforts as fair, and 13 percent as poor 

or very poor. 

FDIC-regulated banks were more positive about their agency’s efforts than banks regulated by other agencies. However, only about 

half of the FDIC-regulated banks and about quarter of the banks 

regulated by other agencies rated their agency’s efforts as very 

good or good. Furthermore, although regulators emphasize providing technical assistance to minority banks, less than 30 percent 

of such institutions said they had used this assistance within the 

last 3 years. 

Some minority bank officials also said that regulators did not always understand the challenges minority banks face in providing 

services in their communities. They suggested that examiners 

needed to undergo more training to improve their understanding of 

minority banks and the customers they serve. 

In conclusion, regulators are now taking steps to better assess 

their support efforts. For example, all the regulators are in the 

process of consulting with minority banks to obtain feedback on 

their efforts. Some regulators also plan to provide additional training to their examiners on minority bank issuers. 

While the regulators’ recent efforts are encouraging, it is too soon 

to assess their effectiveness. As they undertake these initiatives, 

we encourage regulators to ensure that they collect and analyze 

relevant data and take steps to continue to enhance their minority 

bank support efforts. 

Mr. Chairman, this concludes my prepared statement, and I 

would be happy to answer any questions you or other members of 

the subcommittee may have at this time. Thank you. 

[The prepared statement of Mr. Scott can be found on page 85 

of the appendix.] 

Chairman WATT. I can certainly tell that this gentleman has testified here before. He hit 5 minutes on the head, and followed the 

purpose for our being here, which is to evaluate and talk about the 

GAO’s report. 

Our second witness is Ms. Sandra L. Thompson from the FDIC. 

She is the Director of FDIC’s Division of Supervision and Consumer Protection, where she directs risk management and consumer protection examination activities relating to approximately 

9

5,200 FDIC-supervised institutions. She previously served as the 

FDIC’s Deputy to the Vice Chairman and led the FDIC’s Bank Secrecy Act and anti-money laundering and financial crimes supervisory activities. 

She holds a degree in finance from Howard University. And Ms. 

Thompson, we would love to hear from your for 5 minutes, approximately. 

STATEMENT OF SANDRA L. THOMPSON, DIRECTOR, DIVISION 

OF SUPERVISION AND CONSUMER PROTECTION, FEDERAL 

DEPOSIT INSURANCE CORPORATION (FDIC) 

Ms. THOMPSON. Thank you. Chairman Watt, Ranking Member 

Miller, and members of the subcommittee, I appreciate the opportunity to testify on behalf of the FDIC regarding our role in preserving and expanding opportunities for minority institutions. Historically, these institutions play a vital role in their communities. 

They serve as a key source of credit and other banking services 

that are essential to economic growth and business development in 

areas that are often underserved by traditional institutions. 

My written testimony details the FDIC’s efforts to preserve and 

encourage minority ownership of depository institutions, as well as 

our actions to respond to the recommendations in the October 2006 

GAO report. 

As for the overall health of the 205 minority institutions in the 

banking system, while most are profitable, their financial performance as a group lags behind non-minority institutions. The capital 

levels of minority institutions are roughly comparable to that of the 

industry. However, the average return on assets for these institutions in the first half of this year was .69 percent compared to an 

industry average of about 1.21 percent. 

The difference in profitability can result from many factors. Minority banks, like most community banks, often must compete with 

larger financial institutions for both business and staff. In addition, 

some minority institutions are challenged by operating in economically distressed areas. The disparities in profitability and other key 

measures between minority banks and other financial institutions 

demonstrate the continued importance of the FDIC’s goals to encourage and preserve these institutions. 

In order to achieve these goals, the FDIC operates under a policy 

statement that was adopted by our Board of Directors. This statement provides the framework for the training and technical assistance we offer to banks under our minority bank program. The 

FDIC has staff dedicated to the minority bank program nationwide. 

At its core, the FDIC’s minority bank program focuses on two key 

elements. First, our program is designed to provide technical assistance and training to minority banks. We use a number of methods. They range from assistance to individual banks to national 

and regional conferences and forums that focus specifically on minority bank issues. 

The second element of our minority bank program is to train our 

examiners. The FDIC has specific programs in place to educate 

bank examiners and sensitize them to the unique issues often 

found in minority institutions. Traditional measures of success for 

the industry as a whole may not apply to minority institutions, so 

10

examiners have been advised not to place undue emphasis on peer 

analysis when evaluating minority institutions. We also invite minority bankers to speak at all major FDIC examiner training conferences to share their experiences and perspectives. 

The FDIC’s minority bank program receives attention at the 

highest level in the agency. The national minority bank coordinator 

submits a quarterly report of all minority bank activities to our 

Chairman, and we also highlight elements of the program in our 

annual report. 

In response to the GAO’s recommendations, the FDIC has developed an annual survey that will be sent to all minority banks at 

the end of this year. The banks will be able to rate the effectiveness of FDIC assistance programs. We also implemented the recommendation to develop and track specific outcome-oriented performance measures for our minority bank program. 

In summary, minority institutions face many challenges. The 

FDIC recognizes the vital role that these institutions play in the 

economic development of communities throughout the United 

States, and we are dedicated to the goals of preserving, promoting, 

and encouraging the creation of minority depository institutions. 

This concludes my statement, and I will be happy to answer 

questions. 

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

113 of the appendix.] 

Chairman WATT. Thank you so much, Ms. Thompson. 

Our third witness is Ms. Montrice Yakimov of the Office of Thrift 

Supervision. Ms. Yakimov joined the Office of Thrift Supervision in 

June of 2006, and is responsible for the development, implementation, and evaluation of examination programs for compliance with 

Federal consumer protection laws, including fair lending, the Community Reinvestment Act, and the BSA anti-money laundering requirements. She also heads up compliance policy, and is responsible for the consumer complaint function and the agency’s community affairs program. 

Ms. Yakimov received her undergraduate degree in broadcast 

management from Howard University, and received her MBA from 

George Washington University. Welcome, Ms. Yakimov, and you 

are now recognized. 

STATEMENT OF MONTRICE GODARD YAKIMOV, MANAGING DIRECTOR, COMPLIANCE AND CONSUMER PROTECTION, OFFICE OF THRIFT SUPERVISION (OTS) 

Ms. YAKIMOV. Thank you. Good morning, Chairman Watt, Ranking Member Miller, and members of the subcommittee. Thank you 

for the opportunity to discuss the Office of Thrift Supervision’s program on preserving and expanding minority ownership of savings 

associations, Federal savings associations. 

The OTS recognizes and supports the critical mission, the legacy, 

and the role that minority institutions have played in the United 

States. Since the 1970’s, before there was a legislative requirement 

to do so, the OTS, through its predecessor, has provided technical 

assistance and other forms of support to the minority institutions 

we supervise. 

11

You have asked about our efforts to address GAO recommendations to improve our minority institutions program. These actions 

are detailed in my written statement, but I will highlight today 

some of the initiatives that the OTS has recently undertaken under 

the leadership of our Director, John Reich. 

The OTS minority institution program provides technical assistance and various forms of support to 22 minority thrifts, many of 

which primarily serve minority and lower income communities. We 

have more than 30 staff members, including senior management 

and directors, who directly provide various forms of assistance such 

as providing regular input and guidance on strengthening various 

compliance risk management systems; conducting training for 

boards of directors on various issues such as corporate governance, 

capital credit, and accounting policy; and occasionally assisting institutions in identifing and hiring new senior management and directors. 

Although the coverage ratio of OTS staff to minority institutions 

enables frequent contact with the management and leadership of 

those institutions, the GAO report recommended that the banking 

agencies institute a survey to see how we could do more to ensure 

that our minority institution program is delivering the forms of assistance most valued and desired by the institutions we supervise. 

OTS agreed, and has implemented this recommendation. We will 

use the results of this survey to continue to enhance our program. 

Our survey supplements an annual questionnaire entitled, ‘‘The 

Thrift Satisfaction Survey,’’ which we are also tailoring in order to 

solicit ongoing information from the minority institutions we regulate. 

In order to proactively seek input on our program, we have also 

increased our contact with executives from minority institutions. 

For example, OTS Director Reich recently hosted a meeting of 

thrift institution executives at the 2007 Inter-Agency Minority Institution Conference in Miami. The Director also spoke at the National Bankers Association conference this fall, as he did last year, 

seeking advice and input on what the OTS could do to improve our 

minority institution program. 

We have received excellent suggestions at these meetings, and 

will be incorporating them into the 2008 strategic plan for our minority institutions program. Our strategic plan will be finalized by 

year end, and it is consistent with the GAO recommendation to develop outcome-oriented performance measures to assess the 

progress of our efforts in relationship to the minority institution 

program goals. 

Additionally, consistent with one of the principles contained in 

FIRREA regarding minority institution support programs, next 

month the OTS will pilot more training for our examiners on our 

minority institution program during an advanced examiner school 

here in Washington. Also with the objective to support the creation 

of new minority institutions, the OTS has proactively participated 

in conferences widely attended by minority bankers, entrepreneurs, 

and other interested parties across the country. Through our booth, 

we have participated in events such as the Congressional Black 

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ference, and the Multicultural Business Symposium sponsored by 

the Black Business Professionals and Entrepreneurs. 

The OTS, along with the other agencies, is considering how supervisory guidance can support minority institutions. For example, 

last year the OTS realigned our CRA regulations with that of the 

other agencies and joined the agencies in proposing guidance to 

permit non-minority-owned institutions to receive favorable CRA 

consideration for investing in minority-owned institutions. 

Notwithstanding all these efforts, we believe we can do more. Development of a minority institution strategic plan is underway as 

we look to the future and additional steps we can take to further 

strengthen our program. 

Thank you, Mr. Chairman, for highlighting this important issue. 

We look forward to working with you, Ranking Member Miller, the 

members of the subcommittee, and our fellow banking regulators 

to help support a bright future for minority-owned financial institutions. Thank you. 

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

153 of the appendix.] 

Chairman WATT. Thank you, Ms. Yakimov. Our witnesses are 

doing great staying in the time limit, but that is not to put pressure on the last two witnesses. They don’t have the experience at 

doing this that the regulators do, so don’t feel intimidated by that. 

Our next witness is Ms. Sandra Braunstein. Ms. Braunstein is 

the Director of the Federal Reserve Board’s Division of Consumer 

and Community Affairs. As Director, she is principally responsible 

for the development and administration of Federal Reserve policies 

related to consumer financial services and consumer protection. 

Ms. Braunstein also administers outreach efforts to the financial 

services industry, State, local, and Federal Government officials, 

and consumer and community organizations. 

Ms. Braunstein, you are recognized for your statement. 

STATEMENT OF SANDRA F. BRAUNSTEIN, DIRECTOR, DIVISION OF CONSUMER AND COMMUNITY AFFAIRS, BOARD OF 

GOVERNORS OF THE FEDERAL RESERVE SYSTEM 

Ms. BRAUNSTEIN. Thank you, Mr. Chairman. Chairman Watt, 

Ranking Member Miller, and members of the subcommittee, I appreciate this opportunity to discuss the Federal Reserve’s longstanding commitment to, and work in support of, minority-owned 

depository institutions. 

Nationally, there are about 200 minority-owned depository institutions serving a broad range of communities and populations. The 

Federal Reserve System supervises 19 minority-owned State member banks that are geographically dispersed across 8 of the system’s 12 districts. They are diverse in terms of their minority ownership, including African American, Native American, Asian, and 

Hispanic-owned institutions. 

Some of these banks are quite profitable and operate in higher 

income markets, while others serve lower income communities and 

in some cases are challenged to achieve earnings commensurate 

with their peers. Their issues are similar to those faced by many 

other banks—controlling overhead expenses, difficulty in retaining 

13

qualified management, and meeting competition from larger institutions in their markets. 

Through our regulatory, supervisory, and community development functions, we consistently provide assistance that addresses 

the unique challenges and needs of minority-owned banks while at 

the same time holding these institutions to the same supervisory 

standards that we apply to all insured banks. 

To enhance our support for minority-owned institutions, the Federal Reserve has developed an innovative and comprehensive training and technical assistance program. This program will be fully 

operational in 2008. 

In developing the program, Federal Reserve staff met with a 

number of minority-owned and new banking organizations across 

the country, as well as trade groups, bank consultants, the Conference of State Bank Supervisors, and other State and Federal 

banking agencies to learn about the challenges that institutions 

confront in raising capital, and in growing and attracting talent. 

These meetings provided valuable information about the special 

needs of minority-owned banks, and also enhanced our understanding of the various issues that new and smaller institutions 

face. 

The resulting training program consists of three modules that 

focus on issues that are most relevant at a particular point in a 

bank’s life cycle. The modules have value for potential entrance to 

the industry as well as those that have been in the market for 

many years. They draw on data and experience from experts in the 

fields of economics, accounting, finance, compliance, and may focus 

on the particular challenges of establishing and sustaining robust 

and vibrant minority-owned depository institutions. 

Given that our minority-owned institutions are geographically 

dispersed and serve different types of communities, a great deal of 

flexibility is being built into the curriculum so that modules can be 

tailored to address institution-specific concerns or issues. The program also includes a way to obtain continuous feedback on the usefulness of the course materials. The Federal Reserve is committed 

to respond to changes in the training needs of minority institutions 

by reviewing and adapting the curriculum as needed. 

Concurrently, efforts are underway to incorporate material from 

the new training modules into the Federal Reserve examiner training programs. Relevant training will be provided for both safety 

and soundness and consumer compliance examiners. 

In addition to this new program, the Federal Reserve has had 

other ongoing efforts that specifically provide support to minorityowned institutions. We joined the other banking agencies in 2006 

and 2007 in hosting national conferences for federally insured minority-owned institutions. 

System staff have also participated in regional events. Our ongoing commitment is further demonstrated through coaching and 

mentoring minority-owned banks that have struggled to manage 

growth while remaining profitable. We have also assisted institutions through the acquisitions process, including branch acquisitions. 

On the regulatory front, the banking agencies recently issued for 

comment some clarifications regarding the Community ReinvestVerDate 0ct 09 2002 17:10 Feb 11, 2008 Jkt 039916 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 K:\DOCS\39916.TXT HFIN PsN: TERRIE
14

ment Act. One of the proposed questions and answers indicates 

that non-minority banks’ investments in minority-owned banks receive favorable consideration under the investment test even if the 

minority-owned institution is not located in and the activities do 

not benefit the assessment areas of the investing institution. 

I would like to reiterate the Federal Reserve’s commitment to 

promoting vibrant, competitive, and diverse banking markets. We 

are dedicated to using our roles as supervisors, regulators, community development facilitators, and consumer educators to support 

minority-owned institutions and the consumers who contribute to 

our robust financial services system. 

Thank you. 

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

53 of the appendix.] 

Chairman WATT. I thank you for your statement. Our next witness is Mr. John Walsh of the OCC. Mr. Walsh is the Chief of Staff 

and Public Affairs for the OCC, serving as the Comptroller’s senior 

advisor on all matters. He represents the Comptroller in internal 

and external meetings and events, and provides expert policy advice. He also oversees the Agency’s public affairs, congressional liaison, banking relations, program analysis and leadership learning, 

and workplace fairness functions. 

Mr. Walsh holds a masters in public policy from the Harvard 

Kennedy School of Government. Mr. Walsh, you are recognized for 

your statement. 

STATEMENT OF JOHN G. WALSH, CHIEF OF STAFF AND PUBLIC AFFAIRS, OFFICE OF THE COMPTROLLER OF THE CURRENCY (OCC) 

Mr. WALSH. Thank you, Chairman Watt, Ranking Member Miller, and members of the subcommittee. I am John Walsh, Chief of 

Staff and Public Affairs at the Office of the Comptroller of the Currency. 

I am pleased to appear before you today to discuss the GAO’s October 2006 report, ‘‘Minority Banks: Regulators Need to Better Assess Effectiveness of Support Efforts,’’ and the actions that the 

OCC has taken to address the recommendations of that report. 

The OCC recognizes that minority-owned banks are important 

community and national assets. Minority banks have long performed a vital role in the American financial system by serving the 

market needs of their local communities, and the OCC is committed to encouraging their continued success. While the OCC is 

not subject to Section 308 of FIRREA, it has voluntarily taken the 

initiative to support minority banks in keeping with that legislation. 

The OCC issued a policy statement on minority-owned national 

banks in 2001 to further the ability of minority banks to prosper 

and meet the needs of their communities. Let me review a few of 

the actions we have taken to implement this policy. 

First, the OCC created a senior advisor position in 2004 to serve 

as the agency’s focal point for minority banking issues. Second, the 

OCC formalized its longstanding practice of making experts available in each of the OCC’s districts to provide guidance on a range 

of supervisory issues of importance to minority-owned institutions. 

15

Third, we have issued guidance, distributed publications, and conducted information sessions regarding the provision of capital and 

other resources to minority-owned banks, including majority bank 

investments in many institutions. 

As you know, the 2006 GAO report recommended that we consider serving minority institutions or undertaking other measures 

to determine how minority banks view our support efforts and related activities, and to assess the progress in meeting our goals. 

Building on our minority bank policy statement, we have undertaken additional efforts to increase the effectiveness of our supervisory services and outreach to our minority banks, as recommended in the GAO report. 

Our initial step, now completed, was to conduct an internal survey of the assistant deputy comptrollers and portfolio managers 

who directly supervise minority national banks. 

The second phase of our review began in August 2007, when we 

distributed a survey directly to our minority-owned national banks. 

The minority national banks survey is very focused on how we can 

make our education, outreach, and technical assistance efforts 

more useful and effective to these banks. 

The survey also provides minority bankers the opportunity to 

comment on the OCC’s supervisory policies and guidance and to 

state whether they believe our examiners have the training and 

guidance necessary to effectively supervise their banks. 

I can report that the early returns from these surveys underscore 

the importance of specialized supervision for minority-owned 

banks. These results encourage us to place even greater emphasis 

on how to improve the effectiveness of our supervisory policies and 

guidance, and the ongoing training needs of both our examiners 

and our minority institutions. 

As I describe further in my written testimony, the OCC is also 

implementing several additional initiatives to further the ability of 

minority banks to prosper and meet the needs of their communities. These include improving communications with organizing 

groups interested in entering the national banking system, expanded participation in outreach meetings and conferences 

throughout the country to discuss supervisory and industry issues, 

and the expanded use of the internet to support minority institutions. 

The OCC created an external outreach and minority affairs page 

on the OCC’s public Web site, and a special informational page for 

bankers on OCC’s National BankNet site is under development. 

New BankNet features will include comparative bank performance 

metrics, discussion of legislative and regulatory issues, upcoming 

training opportunities, and other information of interest to minority bankers. 

In conclusion, let me restate the OCC’s commitment to work with 

minority-owned national banks and to provide effective technical 

assistance and supervisory services. As I mentioned, the OCC has 

voluntarily taken the initiative to support and reach out to minority banks under FIRREA’s Section 308 provisions, and we would 

have no objection to that being made explicit by the Congress. 

Thank you, Mr. Chairman. I would be pleased to answer your 

questions. 

16

[The prepared statement of Mr. Walsh can be found on page 136 

of the appendix.] 

Chairman WATT. Thank you, Mr. Walsh. 

Sometimes when you are in the middle of these hearings, you 

have a flashback to an earlier time in your life. And I just had one 

because—and Ms. Waters is going to get me out of the problem. I 

had two guys in my high school class. One of them was named 

‘‘Cooper’’ and one of them was named ‘‘Cooper’’—spelled exactly the 

same way. So I have had this dilemma in my whole life, and I don’t 

have to answer that today because I am going to recognize Ms. Waters to make the introduction of our next witness, whatever his 

name is. 

Ms. WATERS. Thank you very much for putting me on the spot, 

Mr. Chairman. 

There may be two ways to pronounce this gentleman’s name, but 

I have always referred to him as Mr. ‘‘Cooper.’’ Mr. Bob Cooper, the 

chief legal strategist for OneUnited, the largest African Americanowned bank in the country. Mr. Cooper is typical of the young, brilliant minds that have been amassed at OneUnited Bank by Mr. 

Kevin Cohee. 

Since Mr. Cooper joined OneUnited, it has acquired and turned 

around three troubled banks, and grown from $56 million to $650 

million in assets, making it the fastest-growing African Americanowned bank in the Nation. Mr. Cooper is here today as the current 

chairman-elect of the National Bankers Association, the nation’s 

oldest and largest trade association representing minority- and 

women-owned banks and thrifts. 

Thank you, Mr. Chairman. 

Chairman WATT. And I will recognize Mr. ‘‘Cooper,’’ or Mr. ‘‘Cooper,’’ for his remarks. 

STATEMENT OF ROBERT P. COOPER, SENIOR COUNSEL, 

ONEUNITED BANK, ON BEHALF OF THE NATIONAL BANKERS 

ASSOCIATION 

Mr. COOPER. Good morning, Chairman Watt, Ranking Member 

Miller, and members of the subcommittee. My name is Robert Patrick Cooper, and I am providing this testimony on behalf of the National Bankers Association, the NBA, and its national constituency 

of minority- and women-owned banking institutions. 

First of all, we would like to thank you for taking the time to 

hold this hearing regarding the concerns of minority banks. We are 

confident you recognize the importance of minority banks in this 

country, particularly to our inner cities, where they not only provide critical financial services but also, as importantly, serve as a 

beacon of hope to underserved minority residents. These remarks 

seek to initiate a dialogue with you and your congressional colleagues to rectify certain problems minority banks face, and thereby avoid further crises for these institutions. 

Regulators thus far have steadfastly refused to focus on the benefits and changes they are uniquely empowered to provide, instead 

emphasizing the straightforward FIRREA mandate regarding technical assistance. FIRREA was about more than technical assistance. It was a recognition of the unique challenges of minority 

17

banks and a promise to rectify them, a promise that thus far has 

been unfulfilled. 

Let me briefly provide some context. The assessment of the GAO 

report accurately can be described as no less than alarming. For 

example, African-American banks, which are at the very heart of 

many large U.S. cities, have ROAs that significantly lag that of 

their peers, in some cases by as much as 75 percent. Unfortunately, 

the regulatory response to this crisis has fallen far short of congressional mandates as outlined in FIRREA. 

As a result, we are well beyond the point where nebulous promises of future assistance are sufficient. Having failed to see expected benefits in the 18 years since FIRREA’s passage, the NBA 

strongly believes that more forceful congressional action and oversight is now required. 

Accordingly, the NBA is requesting specific, prompt, forceful action at the legislative, regulatory, policy, and procedural level to 

change the environment in which minority banks operate. We 

would very much appreciate the committee leading this effort and 

forcing the banking agencies to appear before you in formal hearings in which we can also participate on no less than an annual 

basis to explain their performance on a ‘‘outcome-oriented’’ basis 

recommended by the GAO. 

Now, as a road map of certain objectives, we suggest the following. On the legislative front, we would ask respectfully that 

Congress amend FIRREA to expressly make it apply to all four 

Federal banking agencies, and to make it a mechanism of change. 

In my written remarks, I have prepared specific language for the 

committee’s consideration. 

To emphasize, however, while we believe amending FIRREA is 

important unto itself, it is far from sufficient. Our fundamental dissatisfaction is not with Congress. As a result, we wanted to provide 

a non-exhaustive list that the banking agencies can target to begin 

to improve the standing of minority banks. 

First, the current capital rules are not designed to address the 

particular experience of minority banking institutions, and thereby 

to enable them to become prominent by asset size as well as role, 

and members of the financial services marketplace. 

The avenue of raising capital commonly used by majority banks, 

broad public offerings of common stock, is not practically available 

to minority banks. The general concern is that by raising such 

funds, the shareholder base of the bank will change in a way that 

is adverse to its status and role as a minority bank. 

We thus submit, and wish the banking agencies to recognize, 

that: one, nonvoting preferred stock held by institutional investors 

is a stable, safe, and sound form of capital; and two, it would not 

be an unsafe or unsound banking practice to amend the capital 

rules to permit minority banks to have a high percentage of capital 

consisting of such nonvoting preferred stock. 

As a second specific area for change, despite certain recent and 

appreciated regulatory initiatives, the current CRA rules still do 

not address the particular environment in which minority banks 

operate, for example, with respect to encouraging majority banks to 

support them through investments, loans, or deposits. 

18

Majority banks should receive CRA credit for funding minorityand women-owned banks, which are often community development 

financial institutions, or CDFIs. By modifying the CRA framework 

to make it expressly clear that such funding is wholly consistent 

with the purposes of CRA, minority banks can materially increase 

the funding they receive from bank institutional investors. 

We are aware of Q&As designed to address this issue. Nevertheless, we strongly believe that the banking agencies should amend 

the CRA regulations to more expressly grant CRA credit to majority banks for providing funding to minority- and women-owned 

banks in CDFIs. 

As a third specific area for change, banking agencies should consider the particular challenges faced by minority institutions when 

making broad policy statements. Such statements tend to address 

sweeping topics of current relevance to financial services, often in 

untailored terms. Consequently, minority banks face the prospect 

of examinations and criticisms not appropriate given their role in 

the industry. 

We would suggest each banking agency either create a blanket 

policy addressing minority banks or amend their existing policies 

to expressly provide that regulators and examiners thoughtfully 

consider the unique circumstances of minority institutions in applying such policies. 

Going forward, we would further suggest that each time regulators propose a policy statement, they strongly consider whether 

minority banks should be separately addressed in the statement, 

and specifically discuss their reasoning and conclusion in this regard in the preamble to the proposed policy. 

In conclusion, we look forward to working with you and the regulators to address the foregoing challenges facing our institutions. 

We appreciate your attention to this important matter, and I would 

be pleased to answer any questions you may have. Thank you. 

[The prepared statement of Mr. Cooper can be found on page 62 

of the appendix.] 

Chairman WATT. Thank you, Mr. Cooper, for your testimony. 

And I will now make my disclaimers so that I get them on the 

record. Most people recognize my congressional district as being the 

second largest financial center in the country in Charlotte, North 

Carolina. And they recognize Bank of America and Wachovia. 

But it should be clear that my bank account has always been, 

throughout my entire banking history, at Mechanics & Farmers 

Bank, a minority institution in our great State. And I should also 

disclose, although it is a matter of public record, that I am a shareholder in Mechanics & Farmers Bank—not on the board; I don’t 

have any close connections like that. 

But I wanted to get that out of the way before I introduced our 

next witness, Kim D. Saunders, who has served as president and 

CEO of M&F Bancorp, Inc. and M&F Bank, Mechanics & Farmers 

Bank, since February of 2007, and before that held the same title 

at Consolidated Bank & Trust Company. She was the second female president and CEO in Consolidated Bank’s history, a distinction she also holds at Mechanics & Farmers Bank. 

Ms. Saunders has a B.S. degree in economics from the Wharton 

School of Finance at the University of Pennsylvania, and an honVerDate 0ct 09 2002 17:10 Feb 11, 2008 Jkt 039916 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 K:\DOCS\39916.TXT HFIN PsN: TERRIE
19

orary Doctorate of Humane Letters from Shaw University in Raleigh, North Carolina. We welcome you today. To the extent that 

there is such a thing as a personal banker, Ms. Saunders might be 

it, although she is way—150 miles away from where I am in Charlotte. 

So we recognize you for your statement. 

STATEMENT OF KIM D. SAUNDERS, PRESIDENT AND CEO, 

MECHANICS & FARMERS BANK 

Ms. SAUNDERS. Good morning, and thank you. Mr. Chairman, 

Ranking Member Miller, and other distinguished members of the 

subcommittee. Again, my name is Kim D. Saunders and I am president and CEO of M&F Bancorp, Inc., and Mechanics & Farmers 

Bank. On behalf of the boards of directors of M&F Bancorp, Inc., 

and Mechanics & Farmers Bank, I am honored to provide you with 

comments on this very important subject of preserving and expanding minority banks. 

M&F is a $223 million community bank that conducts business 

in four of North Carolina’s largest markets. The bank is celebrating 

its 100th anniversary throughout 2007 and 2008, and our parent 

company currently is anticipating approval of a merger agreement 

that should elevate Mechanics & Farmers Bank into the top five 

largest African-American-owned banks in the United States. 

In deference to this committee’s time, I would like to focus on the 

specific areas that I believe offer the potential of substantive assistance for minority banks. They are how regulators may increase utilization of technical assistance among minority banks, and specifically legislative steps that should be taken to assist minority banks 

to raise capital and to operate efficiently. 

In August 2006, the FDIC’s Vice Chairman, Martin Gruenberg, 

identified some of the challenges to minority banks operating in a 

highly profitable manner: the relatively higher cost of doing business in communities with incomes below market average; high immigrant populations; smaller deposit base; and a preference for inperson service. 

To assist minority banks in addressing these unique challenges 

as well as facilitating capital investments in these institutions, I 

recommend the Committee on Financial Services consider legislation to ensure that bank regulators provide the necessary notification regarding the array of technical assistance services that are 

available, and to amend regulatory peer group benchmarking and 

examination evaluations to recognize the differences between minority banks and the UBPR-designated peer groups. 

Finally, although I recognize that the Federal tax legislation is 

outside the purview of this committee, the ability of minority banks 

to raise capital would be enhanced if the CDFI fund guidelines 

were modified to allow tax credits for investments specifically in 

those institutions, more specifically with respect to increasing the 

use of technical assistance by minority banks. 

Banking regulators should correspond at least semi-annually 

with the CEOs of the minority banks they oversee to apprise them 

of the forms of technical assistance that may be available and to 

provide the appropriate contact information for future reference. 

20

They should also utilize this opportunity to determine what other 

pertinent forms of technical assistance could be provided. 

Regulators should be proactive in communicating with minority 

banks, especially those deemed to be low-performing. Our overall 

relationship with regulators has been positive, but there is room for 

improvement. 

In terms of specific legislative steps to assist minority banks to 

raise capital and operate efficiently, let me state clearly that my 

bank and the other minority banks share the regulators’ goal of ensuring the safety and soundness of the banking system. 

The GAO report clearly highlights the traditional and universal 

difference in performance between minority and majority banks. 

However, regulatory benchmarks by which minority banks’ performance is graded always compares these institutions with the 

UPBR-designated peer groups such that a truly equitable comparison of performance factors is not considered nor possible. 

The Financial Services Committee should consider legislation so 

that regulatory peer group benchmarking and examination evaluations are tailored to recognize these differences. Just as there exist 

today certain examination differences for money center banks 

versus smaller community banks, regulators should modify the 

grading process utilized in bank examinations by comparing minority banks to a peer group of other minority banks, and within the 

context of this peer group structure, apply the factors of safety and 

soundness. 

Finally, and as aforementioned, while the Financial Services 

Committee does not have jurisdiction over taxes, which is the purview of the Ways and Means Committee, there is a palpable role 

for incentives. The market places such a significant discount on the 

value of minority banks that we are at a significant disadvantage 

regardless of our stature of profitability in our abilities to raise 

capital. Therefore, the CDFI fund guidelines should be modified to 

include tax credits for investments specifically in minority banks. 

It is the sincere wish of the boards of directors of M&F Bancorp 

and Mechanics & Farmers Bank that this committee will consider 

the recommendations made today and take the necessary actions to 

truly preserve and expand minority banks. 

Again, I am honored and appreciative of this opportunity to testify, and I am available for questions and comments from this distinguished panel of committee members. Thank you. 

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

74 of the appendix.] 

Chairman WATT. Thank you so much for your testimony. She 

said she was a little nervous, but she did fine—wonderful. Thank 

you. 

We welcome Representative Greg Meeks, who is not a member 

of our subcommittee, but is a member of the full Financial Services 

Committee. I understand that he may wish to make an opening 

statement. If so, I would ask unanimous consent to allow him to 

do that. 

Mr. MILLER. Who is wanting to speak? I want to know before I 

grant unanimous consent. Oh, Mr. Meeks. Okay. 

Chairman WATT. He is reserving the right to object. I think he 

is giving you a hard time this morning. 

21

Mr. MEEKS. He always does. I will get him in the gym tomorrow. 

Thank you, Mr. Chairman. I am very thankful to you, Mr. Chairman, for holding this hearing. Coming from the City of New York, 

and listening to you as you talked about Ms. Saunders, I want to 

say that in New York we have one bank, Carver Savings Bank, 

where we have an individual whom Ms. Saunders reminds me of, 

Debbie Wright, who is the president of that bank. 

I want the record to reflect that my account is at Carver Savings 

Bank, and that every—even my campaign’s account, every dollar 

goes through Carver Savings Bank in New York. And we then try 

to advocate for all of the electeds that are in New York to try to 

put whatever—not only their personal money, but whatever political money they raise, if you are going to keep it at a bank, keep 

it at Carver Savings Bank because it is tremendously important to 

us and it is tremendously important to the development, the economic development, of our communities. 

And so it is tremendously important—this hearing is tremendously important for me and important for communities throughout 

America because the banks, they are responsible for and help revitalize our communities. And when we are talking about individuals 

needing loans, whether it is for a home, whether it is for a business, whether it is, you know, in having someone that you can go 

in to and trust and you are talking about truly a neighborhood type 

situation of understanding the community in a way that no one 

else can, it is the minority banks that we have. 

And there is a desperate need, I believe, all across this Nation 

to make sure those that we have, that we cherish, and that we 

make sure that that playing field is leveled and equal for them, 

and that they are evaluated in the appropriate way. And so I am 

thankful to be here at this hearing. 

I am also thankful to be sitting in the Financial Services hearing 

room, Mr. Chairman, and seeing so many people of color testifying. 

Too often, that is not the case here in this hearing room. And I look 

forward to the individuals who are testifying to be also testifying 

very shortly because I know that they are going to be the heads 

of many of their regulatory agencies in particular. And so I look 

forward to the government reflecting America, and having them as 

heads of some of the regulatory agencies, and testifying before the 

full committee representing their agency in that capacity. 

I yield back the balance of my time. 

Chairman WATT. I thank the gentleman for being here, and I am 

personally aware of his longstanding commitment in this area and 

his predecessor’s longstanding commitment in this area. Representative Floyd Flake, who formally chaired this subcommittee, was in 

office before Representative Meeks, so we know that congressional 

district has a long, longstanding commitment. 

Now, I have to chair this subcommittee, so I am going to be here, 

but I know some of the other members have commitments that 

may require them to leave. I have a bunch of questions, as you can 

probably imagine, but I am going to defer my right to go first and 

would recognize Ms. Waters for 5 minutes for questions. 

Ms. WATERS. Thank you very much, Mr. Chairman. I would ask 

unanimous consent to submit for the record my disclosure stateVerDate 0ct 09 2002 17:10 Feb 11, 2008 Jkt 039916 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 K:\DOCS\39916.TXT HFIN PsN: TERRIE
22

ment, which includes my husband’s service on the board as a director. He is also a shareholder in OneUnited Bank. 

Chairman WATT. Without objection. 

Is that required? 

Ms. WATERS. I beg your pardon? 

Chairman WATT. Maybe I need to do that, too. Is that required? 

Ms. WATERS. Well, I think we should always— 

Chairman WATT. Okay. We will put it in the record. 

Ms. WATERS. —put it in the record. And while we are doing that, 

let me just explain for those who are wondering about why so 

many of us have personal involvement with minority banks. 

In the African-American community, the test of your commitment to economic expansion and development and support for business is whether or not you put your money where your mouth is. 

And so for people who may be in the audience who don’t understand all that you are hearing, you will find that most black professionals belong to, participate with, their minority banks in their 

community. It is expected of us. We should do it. And it is a true 

test of our commitment. So I want that on the record also for those 

people who don’t understand our relationship to minority banks. 

Having said that, let me just say to our agencies that testified 

today that the report on minority banks, the regulators’ assessments of the effectiveness of their support efforts, have been limited. The statement by Mr. Scott is really kind of an indictment on 

your ineffectiveness. 

We are not here to beat up on you this morning. But while I appreciate your testimony about the conferences you have attended, 

we really want to get to the core of what your assistance is really 

all about. 

Have any of you been involved in assisting minority banks with 

capital formation or access to capital so that they would be able to 

provide better services? I see Ms. Thompson is saying ‘‘yes.’’ Would 

you tell me in as short a period of time as you possibly can, what 

have you done to assist with capital formation? Is it Ms. Thompson 

or Ms.—Yarrow, is that it? 

Ms. YAKIMOV. Montrice Yakimov. 

Ms. WATERS. Yes. 

Ms. YAKIMOV. Our agency at the regional level, at the highest 

levels in our regional offices, has worked with a number of our institutions, and is reaching out to potential investors and supporting 

their efforts to raise capital. 

Ms. WATERS. Who have you been successful with? 

Ms. YAKIMOV. I think we have some positive stories to share. 

There is one effort that is difficult to talk about right now because 

we are early in the process. 

Ms. WATERS. You don’t have to name names. Just tell us, there 

has been a particular effort that you have made that helped to 

identify and assist in getting ‘‘X’’ number of dollars for capital for 

a minority bank. 

Ms. YAKIMOV. Yes. 

Ms. WATERS. How much? 

Ms. YAKIMOV. You know, I would be happy to submit that for the 

record. I don’t have the specific dollar amount. But I do know that 

there have been a number— 

23

Ms. WATERS. All right. We will get back to you on that. 

Ms. YAKIMOV. Sure. 

Ms. WATERS. Because this is what we are really interested in, 

not the conferences and the generic outreach. We want to really 

talk about, for example, who was involved in saving a minority 

bank that may have been taken over by a majority bank in a merger? Has anybody been involved in that kind of activity? 

Ms. THOMPSON. The FDIC regularly gets involved in— 

Ms. WATERS. I am sorry. I didn’t hear you, Ms. Thompson. 

Ms. THOMPSON. Sorry. The FDIC regularly gets involved in troubled institutions. 

Ms. WATERS. Give me an example of a minority bank that you 

have helped to save. 

Ms. THOMPSON. I can’t talk about open institutions. But I can tell 

you and assure you that there have been near-failures in minority 

institutions where we have put together bid lists that comprise specifically— 

Ms. WATERS. Are you familiar with Independence Bank? 

Ms. THOMPSON. Yes, I am. 

Ms. WATERS. Do you know that was a minority bank that was 

owned by a minority family for many years in this area that was 

taken over by one singularly dedicated white male, who has ended 

up with 51 percent ownership of the bank? Were you involved in 

that? 

Ms. YAKIMOV. That is— 

Ms. WATERS. Oh, you were involved in that? 

Ms. YAKIMOV. I am sure Ms. Thompson is happy to pass that one 

on to me. Independence is supervised by the Office of Thrift Supervision. Representative Waters, I appreciate your point. I can share 

with you that the OTS did reach out to potential partners to retain 

the minority ownership of the institution. It is difficult to talk 

about all of that. Some of it has been publicized in the media. 

Ms. WATERS. Okay. I am not going to let you go on. I just bring 

this up as a point of reference to let you know that we know about 

these things, and I am very much involved. I kept up with this effort with Ms. Carolyn Jordan, who was the first African American 

to serve in the Congress of the United States on the Banking Committee many years ago, a brilliant woman who worked very hard 

to try to save that bank. 

I just bring that to your attention to let you know that we are 

serious about what is supposed to be law and supposed to be your 

attempts to honor Section 308 of the Financial Institutions Reform, 

Recovery, and Enforcement Act of 1989 that established goals toward which Federal regulators must work to preserve and promote 

such institutions. 

And I want you to know that I was involved in reaching out to 

the FDIC in particular when there was another bank that was 

about to be acquired by a major white bank out of Illinois. And basically, I was told that there was nothing that could be done. 

Now, let me be clear. We are all interested in making sure that 

our banks are sound, that they are operating properly, and that 

they are following the rules and the laws. So I don’t want anybody 

to think that we are trying to get something for minority banks 

that they don’t deserve. 

24

But let me just say to you that we do not believe that our agencies who are charged with this responsibility—and it is pretty 

much documented in this report—are doing enough. I appreciate 

some of the recent efforts to organize after this report was in process. This is very important to African American and minority communities, and we are going to do everything that we can to assist 

you. 

We like the recommendations that are coming forward today 

about what we can do. And I particularly want to know about the 

peer review more, and I want to know about the capital, the reserves that are required for so-called at-risk institutions, so that we 

can see what we can do legislatively to assist our minority banks. 

Having said that, let me wrap up because I am over my time. 

Do any of you have any suggestions for legislation that would help 

you, as we have coming from our minority institutions? What 

would you suggest we do that could be helpful to you? 

Chairman WATT. All of them are swallowing hard. So maybe we 

should ask them to think about that and come back with written 

recommendations, if they have any. And maybe you can do it in 

consultation with others in your regulatory structure. 

Ms. WATERS. Thank you very much, Mr. Chairman. I yield back. 

Chairman WATT. We unfortunately heard the bells and whistles 

going off, which means that we have a series of three votes. The 

first is a 15-minute vote, followed by two 5-minute votes. 

We have time to get in one additional question. 

Mr. MILLER. Maybe two. 

Chairman WATT. If there is somebody who will not be able to 

come back— 

Mr. MILLER. Well, now, the minority side has some rights over 

here. 

Chairman WATT. You have the right to go. 

Mr. MILLER. Nobody wants me to buy bank stock, but, I mean, 

I want to speak. 

Chairman WATT. You have to come back. 

Mr. MILLER. I am going to be back. 

Chairman WATT. No, that is fine. I was going to go to somebody 

who might not be able to come back. 

Mr. MILLER. Well, for the record— 

Chairman WATT. In that case, I will recognize the gentleman for 

5 minutes. I would have given him the right to do that anyway. 

Mr. MILLER. For the record, I bought quite a bit of bank stock 

yesterday from my perspective. But nobody is here that I bought—

there are some great deals out there in the banking industry, I 

hate to say it, as you all know. 

This has been a very good panel. I am just amazed that everything stayed—probably the first time ever that many stayed within 

the 5-minute timeframe. And it is really good to see. 

Mr. Scott, let’s start with you on this side. Can you please describe the technical assistance that you are providing to minority 

banks that you think is of benefit to them, and how many banks 

utilize the assistance available? 

Mr. SCOTT. Mr. Miller, as GAO, we actually are not involved in 

providing technical assistance to the financial institutions. The 

work we did focused on the efforts by the regulators— 

25

Mr. MILLER. But you did a study on it? Yes. 

Mr. SCOTT. We just reviewed their efforts. Yes, sir. So I would 

defer to the regulators to describe their technical assistance effort. 

Mr. MILLER. Okay. And the GAO study in 1993 on minority 

banks, has there been significant growth in minority banks since 

that study was done, from your perspective? 

Mr. SCOTT. Most recently, I believe the number we have in our 

report is around 195. I think the regulators are saying over 205 

now. So there continues to be some growth in those numbers. Yes, 

sir. 

Mr. MILLER. Mr. Cooper—Cooper, excuse me. I will get it right. 

I don’t want to be wrong—I really enjoyed your testimony. Is there 

a reason that you couldn’t sell common stock to maintain minority 

management in that same process? And wouldn’t this balance both 

concerns, having adequate capital and accessing capital like other 

banks, but maintaining minority leadership roles within the bank? 

Mr. COOPER. The short answer to that is no. But first I would 

like to echo Congresswoman Waters, that in no way are we advocating compromising any of the standards of safety and soundness, 

nor are we requesting that this committee contemplate any measure— 

Mr. MILLER. But to my question, why couldn’t you sell common 

stock? 

Mr. COOPER. Well, we could sell common stock. The concern 

there is that you actually dilute your shareholder base, and that 

minority banks are at a competitive disadvantage in that, for the 

majority, if you go out and have a public offering, you are still a 

majority institution. As a minority bank, if you go out and engage 

in that same activity, then you risk losing your minority character 

either in the initial public offering or in sort of a secondary offering. 

Mr. MILLER. But how do individuals who believe in minority 

banks—let’s say I believed in minority banks and I wanted to invest in a minority bank to assist you in what you are doing in an 

area. That seems counterproductive that the bank couldn’t allow 

that because it increases your assets and available funds to serve 

the community. 

Mr. COOPER. Well, as we know, there are individuals who can invest in institutions, but the resources of most individuals are relatively small. The access that or the advantage that minority 

banks actually have is their access to large institutional investors, 

such as large media conglomerates, insurance companies, oil companies, and the like, and that they are willing to invest money in 

preferred shareholdings which have no voting rights. 

Mr. MILLER. So you are afraid that common stock sales would 

create a situation where a different group could take over the bank 

rather than the minorities? 

Mr. COOPER. Correct. And then by definition, you wouldn’t have 

a minority bank. 

Mr. MILLER. It is sad to say, but that is counterproductive to everything we are trying to do in society to integrate groups in and 

create opportunity in a fashion. I mean, it really is, but it is sad. 

Mr. COOPER. I would respectfully disagree with those remarks, 

that it is sad. Minority banks, particularly African American— 

26

Mr. MILLER. I mean, it is sad that the others can’t be involved 

in the process. 

Mr. COOPER. No. Others certainly can be involved, and any of our 

banks welcome capital that is provided to our institutions. So we 

are actually not refusing capital from these different sources. I 

guess what I would suggest to you is that those amounts of capital 

can be found in limited amounts as opposed to the larger amounts 

of capital that banks need to survive and prosper and grow. 

Mr. MILLER. Ms. Thompson, is there a limit with what regulators 

can do with respect to balancing safety and soundness concerns 

and helping minority institutions at the same time? 

Ms. THOMPSON. Well, that is a priority for our organizations. 

Mr. MILLER. Microphone? 

Ms. THOMPSON. I am sorry. Yes. Safety and soundness of financial institutions is a priority for our organizations. I would say that 

capital is important because capital really is used to absorb unexpected losses, and it promotes public confidence. And when people 

see that FDIC seal, it ought to stand for something. 

Capital is critical in terms of the institution. And we have taken 

a look at some of the suggestions that have been made by Mr. Cooper, with regard to preferred stock. These instruments are kind of 

a hybrid. They have some characteristics that look like equity, and 

they also have characteristics that look like debt. 

And when you are talking about capital, we want pure capital. 

We want to make sure that there is money available to absorb 

losses. Preferred stock represents a debt obligation for the institution because you have to pay dividends, which is effectively interest. So we want to make sure that when we are talking about capital, that it is there and it is available to absorb losses. 

Mr. MILLER. Do minority institutions face different challenges in 

respect to sound management than other institutions would? 

Ms. THOMPSON. Well, I don’t know that they face different challenges with regard to sound management. I would venture to say 

that I am familiar with many of the management of these organizations, and I think that they are as sound as any other in their 

peer groups. 

I would say that there are some challenges that are specific to 

minority institutions. They often operate in economically distressed 

areas. Many times they operate in urban areas. And they often 

have a high reserve for losses. They have high expenses. They have 

a high touch operation where they have to deal directly face-to-face 

with their customers. So there are some challenges that are unique 

to minority institutions. 

Mr. MILLER. Well, I am in a situation, Mr. Watt, of too many 

questions and too little time. Thank you. 

Chairman WATT. Well, we will recognize you again on the next 

round of questioning, but right now we have about 5 minutes to get 

to the Floor. So we will recess, and we should be back immediately 

following the series of votes. That should be probably 20, 25, or 30 

minutes at the most, so you all be at ease, and we shall return. 

[Recess] 

Chairman WATT. We will reconvene. Mrs. McCarthy, unfortunately, had another meeting she had to go to, but she said she 

would get back, hopefully, before we finished up. The ranking 

27

member, I think, is on the way back from the Floor. And it is my 

turn to ask questions, anyway. 

And since I have so many, maybe I should get on with it so as 

not to hold up either the panel or members who come in. There are 

a number of areas here that I would like to explore. Perhaps I 

should start with Mr. Scott, to ask a general question. 

It seems to me that the regulators in most of the areas over 

which they have regulatory authority and which they consider important, either because they themselves understand that it is an 

imperative for them to deal in a certain way, or because the Congress has made it absolutely clear to them that we have an expectation. 

We will create a set of outcome-oriented performance measures. 

I am just thinking about some of those areas. There are some specific criteria that define whether you are safe and sound. There are 

some specific criteria, although the regulators didn’t start out 

thinking that maybe this was all that important, there are some 

specific criteria that define success or failure to meet CRA. 

I don’t see anything in this area where that has occurred. Mr. 

Scott, your agency—I guess you weren’t there in 1993—defined this 

as something that might have been desirable in 1993. You identified again in the 2006 report that none of these agencies, none of 

these regulators, have established outcome-oriented performance 

measures, is the way you described it. 

So I guess my first question, Mr. Scott, and then I would like to 

hear from the regulators in this general context, is many of the 

same recommendations you made, the GAO made, in 1993, you 

made again in 2006. In your consultation with the regulators, have 

they provided reasons for not implementing the 1993 recommendations, first of all? 

And can the GAO offer any suggestions for banking regulators in 

this whole context of establishing outcome-oriented performance 

measures, or is that something that they should be taking the initiative on? What kinds of things might be considered an outcomeoriented performance measure? 

Let’s start with Mr. Scott on that. And this is not designed to be 

unfair to the regulators or to beat up on you. That has never been 

my intent. My objective is to be constructive here. But I would like 

to hear from all of you in that context. 

Mr. SCOTT. Thank you, Mr. Chairman. In terms of the progress 

the agencies made or did not make between our 1993 report and 

our 2006 report, I would respectfully defer to them to explain to 

you what was going on in the intervening years. In terms of— 

Chairman WATT. But did they say anything to you about—I 

mean, did you ask the question? You seem to be finding a lot of 

the same things. 

Mr. SCOTT. We had discussions with each of the regulators. I 

think some of what we saw was that they were taking some steps. 

But the point we made in our most recent report was that it should 

be a comprehensive approach—it should be on a more routine, regular basis, so you have ongoing feedback that can be provided to 

the regulators so that they will know realtime that the actions they 

are taking—the technical assistance, the outreach meetings, the 

conferences—are they really making a difference? 

28

So rather than doing things on an ad hoc basis, what we are 

really focusing in on is trying to encourage them to do these surveys and other outreach efforts on a more routine basis that allows 

them to gather feedback, analyze the data, and then where necessary, make changes to their outreach programs or activities. That 

is really the goal of our recommendations, to get more realtime 

data so that the agency is in a better position to be more responsive to the institutions. 

In terms of outcome-oriented performance measures, I mean, 

clearly there is a range of opportunities there for the agencies to 

implement those. The bottom line is that for any action the agencies take, we want to make sure that the actions make a difference. 

If you are going to do a conference, you want to know not only that 

people are attending, but the material they are receiving, the information being shared is making a difference in their operations and 

the financial stability of the institution. 

For example, your examinations, how are they impacting these 

institutions? One outcome-oriented performance measure could 

be—you know, if you examine a bank and find some deficiencies, 

what steps are the institution taking to correct those deficiencies? 

If you hold a conference, not only how many people attend the conference, but did it make a difference in terms of their knowledge 

base growing? 

So those are the sorts of things we are saying the agencies may 

want to consider in terms of outcome-oriented performance measures. Is what you are doing making a difference? And right now it 

is sort of tough to tell exactly what kind of difference some of the 

activities are having at the end of the day. 

Chairman WATT. Ms. Thompson, Ms. Yakimov, Ms. Braunstein, 

Mr. Walsh, I would love to hear from you about this whole concept 

of outcome-oriented performance measures. Failure to have outcome-oriented performance measures, as I said in my lead-up to 

the question, may suggest less of a feeling of importance to the outcomes. 

The banks, for example, complained for years that CRA was a 

process-oriented thing. We get graded on how many times we meet 

with a community group as opposed to whether anything comes out 

of that meeting, no performance-oriented, outcome-oriented result. 

And just about everything I have heard you all talk about is process—very little about outcome. I don’t want to be unfair. 

But talk to me about this whole concept of outcome-oriented performance measures. 

Ms. BRAUNSTEIN. Congressman, yes, I just want it clear for the 

record that the 1993 GAO report that you are talking about only 

focused on the agencies that are covered by FIRREA. We were not 

included in that report, so I can’t speak to us not doing something 

that we weren’t part of. 

Chairman WATT. Well, maybe I should just hear from Ms. 

Thompson and Ms.— 

Ms. BRAUNSTEIN. But I do want to address the outcome-oriented. 

Chairman WATT. All right. 

Ms. BRAUNSTEIN. We have been doing a lot of activities with minority-owned institutions for many, many years, and I will admit 

that our outcome measures have been done on a very informal 

29

basis up till now. We have close relationships with all the banks 

we supervise, and we have held discussions with them about their 

needs and the effect of our exams and our technical assistance. But 

it had not been formalized up till now. 

As part of the program, the new program that we have developed, the training and technical assistance program, we have built 

into that a feedback mechanism so that we can get information not 

just through surveys, but some of that feedback mechanism is actually face-to-face interactions with the institutions that undergo the 

training and go to the classroom training to find out, was it responsive to their needs? Was it helpful to the issues that they are facing 

in their institutions? And if not, what could we do to improve that? 

And we will continue—we built in this flexibility so we can continue to tweak the materials and the sessions to make them responsive and to make sure that they have good outcomes for the 

institutions. 

Chairman WATT. Let me go to Mr. Walsh next, and then we will 

get to the two people who were actually covered by the 1993 report. 

Even before you say it, Ms. Braunstein has acknowledged that you 

all were not specifically directed or encouraged to do anything in 

the 1993 report. So I have that as a background. Do you want to 

respond on the outcome-oriented performance measures part of the 

question? 

Mr. WALSH. Yes, Mr. Chairman. With that as a given, I would 

echo some of the things that Ms. Braunstein said in that we have 

focused recently on a much more specific and intensive process of 

interaction with both our staff that supervise minority institutions 

and the institutions themselves to understand better what can be 

done better in the processes of supervision to support the institutions and to get feedback from the institutions themselves about 

how that is working. 

But even that is somewhat process-oriented in that it is reviewing the nature of these interactions. I would say that the supervisory process is in fundamental ways very performance-oriented in 

that we look at the performance of the banks as to capital assets 

management, etc., and then their actual financial performance. 

So that is the basis on which we are reviewing them, and we 

have made more of an effort to look at minority banks within their 

peer group to see how they are doing and how that performance 

compares to the wider range of institutions that we supervise. 

Ms. THOMPSON. With the FDIC, we have been very intentional 

about our outreach and outcome performance measures. I will give 

you some specific examples. 

We talk regularly with minority institutions. We host conferences 

and forums around the country to find out what the issues are with 

the institutions we supervise and those that we insure. We have 

six regional offices, two area offices, and every year they are required to have outreach meetings. 

As a result, we try to find out the topics that are of interest to 

minority institutions. Specifically, at our national conference we 

heard throughout the regions and throughout the country that capital was important. So we made sure that we had people at the 

conference to address some of the capital issues, specifically for minority institutions. 

30

We heard from our institutions that they had concerns about the 

BSA examination process, so we held forums to talk and specifically go over the BSA examination process so that they would better understand some of the issues they were faced with. 

We heard from our institutions that they were concerned about 

Information Technology (IT), so we brought IT examiners in to talk 

about the IT examination process, electronic banking, and some of 

the nuances that were associated with these matters. We also 

heard from them that they were having concerns about accounting, 

so we brought our chief accountant to address the minority banks 

so that they could find out what the new accounting rules were and 

how they would be applied to their specific institutions. 

In addition to the conferences and things that we do on a regular 

basis, one of the things that we require our examiners to do is 90 

to 120 days after an examination of a minority institution, they are 

to contact that institution to review the exam report and to make 

sure that the institution understands any issues or concerns that 

we have highlighted in the report. And we can help them. We provide technical assistance through the pre-application process, 

through the branch application process, and we also take ad hoc 

calls. 

One of the other things that we have done that is pretty outcome-oriented is in response to many people who said they can’t 

find their policies. So we redrafted our Web page and made our 

policies that were specific to minority institutions available on the 

FDIC’s public Web site so that there wouldn’t be any confusion 

about what our requirements were. 

Ms. YAKIMOV. In response to the 1994 GAO report, the OTS conducted a survey of its institutions to get a better sense of what 

more we could do, and the number one recommendation was to provide additional technical assistance, so we embarked upon a program to expand our efforts. 

In some sense, it is all about performance and outcome—pardon 

me, I am fighting a cold—in the sense that we tailor our outreach 

and our one-on-one contact with minority institutions, specifically 

on issues that they have raised or issues that have come up during 

the course of examinations, where there may be operating challenges or struggles. So it is all about tailoring a program that 

meets the specific need of each minority institution. 

In addition to that, I think going forward, as part of our strategic 

plan, FIRREA requires—it calls for the agencies to promote the 

creation of new minority institutions. One of the reasons I mentioned our outreach to different conferences where there are people 

of color who may be interested in starting an institution is it is 

very easy to measure the success of your outreach on that count 

alone. Was our outreach to various groups successful that were interested in starting a financial institution? That is one that is 

clear, that is not subjective. 

But I think it is important to note that there is not a one-sizefits-all approach to the minority institutions in this country. There 

are different strategies, core competencies, strengths, and we have 

tailored our program to really be specific to what those individual 

needs and requests have been. 

31

Chairman WATT. All right. I may be missing something here, but 

I guess my outcome-oriented performance measures get a little bit 

more basic than that. But I will pursue that with you. 

We are going to kind of go back and forth here for a little bit. 

I want to go to Mr. Miller, and then to Mr. Meeks for questions. 

Mr. MILLER. Thank you very much. This end of the dais this 

time. We have started at that end. Ms. Saunders, I really enjoyed 

your testimony, and I am trying to figure out what we can do to 

help. I notice in your testimony, you said that you recommend the 

Committee on Financial Services consider legislation to assure that 

bank regulators provide the necessary notifications regarding the 

array of technical assistance services that are available. And I appreciate that. 

I had my staff go online to see what was available, and under 

the FDIC minority depository institution Web site, there was an 

array of information with eight regional coordinators, including 

phone numbers and Web sites. How better do you think we can get 

the information out there and encourage minority bankers to glean 

this information when we are putting it on site and the agencies 

have it? 

Ms. SAUNDERS. As I indicated in my statement, my suggestion is 

that there be semiannual contact with each CEO. The population 

of minority banks is a discrete number that is— 

Mr. MILLER. To discuss things other than what is on the Web 

site? 

Ms. SAUNDERS. Yes, sir. Because as was mentioned, the technical 

assistance that one institution may need may vary from another institution. 

Mr. MILLER. Can you give us a list of what you think that information might be? Is that possible? 

Ms. SAUNDERS. What the services might be? 

Mr. MILLER. Yes. What information the institutions might need 

that isn’t readily available today. 

Ms. SAUNDERS. As I mentioned, it would actually be tailored specifically to that institution. To give you a specific example, we are 

in the midst of a merger and acquisition, as I mentioned. For us, 

it might be specific assistance relating to the filing of that application—the obtaining of capital to support that acquisition. 

Another institution I was formerly CEO of, Consolidated Bank, 

was a troubled institution. Its needs were different than ours. We 

are in a growth mode. 

So as I mentioned, just a semiannual contact from that regional 

coordinator directly with the CEO of each respective minority institution might facilitate the outcomes of that institution from a performance perspective. 

Mr. MILLER. But within the industry, it seems like there needs 

to be more outreach on the part of the industry, too. It seems like—

and I will go to Mr. Scott because I think you in your testimony 

found that only 30 percent of minority businesses, banks, are taking advantage of the training, education, technical assistance that 

is there. 

Is that a correct number? 

Mr. SCOTT. Yes. Of those we surveyed, yes. 

32

Mr. MILLER. And you found that the nonparticipant banks may 

be missing very important opportunities. Is that also a factual 

statement? 

Mr. SCOTT. That is correct. 

Mr. MILLER. Overall—and it was part of an opening statement—

did you review whether the overall minority community and underserved community is being adequately served today by minority 

banks and non-minority banks? Is there any disparity, where larger banks aren’t reaching out to provide assistance and opportunity? 

Is that a factor? Are they being served today? 

Mr. SCOTT. I would defer that to the regulators. That was not 

part of the scope of our review. 

Mr. MILLER. Yes. Regulators, I will let you answer that one. 

Ms. THOMPSON. We are hopeful that all communities are being 

served in a safe and sound manner by financial institutions that 

are supervised by the regulators on this panel. 

Mr. MILLER. Yes. I know the bank I deal with, and I used to deal 

with them as a builder. And they were very proactive because of 

the mandates placed on them to make sure that they were reaching 

out to underserved communities. Because what used to be considered redlining, they were very, very cautious, and that can never 

be challenged with that argument because of the concern. 

Are banks still reaching out as they have in the past? 

Ms. THOMPSON. Banks are very covetous of their CRA rating. In 

fact, most of the institutions that are FDIC-insured are rated satisfactory or outstanding throughout the banking community. 

Mr. MILLER. Mr. Cooper, you are—I am sorry. Go ahead. 

Ms. YAKIMOV. Well, I was just going to mention of the 22 minority institutions, savings associations, a little more than half are 

rated outstanding in terms of meeting the credit needs, the financial services needs of the communities they serve. Just under half 

are rated satisfactory. 

Mr. MILLER. Mr. Cooper, is the National Banking Association—

I know you are very involved with the National Banking Association—are they reaching out to minority banks and trying to educate them on the different information and opportunities available 

to them, and encouraging them to participate more than they have 

in the past? 

Mr. COOPER. Absolutely. 

Mr. MILLER. What result are you getting? If we are only getting 

a response from about 30 percent, do you see it increasing in the 

future? 

Mr. COOPER. I do see it increasing in the future. But again, you 

actually have to ask the reasons why aren’t these banks—why 

aren’t our banks taking advantage of the technical assistance? And 

again, we have heard some remarks from the regulators. I can give 

you just some anecdotal evidence of what is going on. 

Mr. MILLER. But you as an association are trying to proactively 

reach out to get them more involved? 

Mr. COOPER. Absolutely. Yes. As the oldest and largest trade association for minority- and women-owned banks, that is part of our 

mission. 

33

Mr. MILLER. Ms. Yakimov, do you believe that currently FIRREA 

is basically—are they meeting the goals that have been set before 

you? Do you believe that is being accomplished today or not? 

Ms. YAKIMOV. Do I believe that we are living up to the goals and 

the standards that FIRREA sets out? 

Mr. MILLER. Yes. 

Ms. YAKIMOV. I think we have a good track record in living up 

to those responsibilities. Could we do more? I think yes, we can. 

And part of the strategic plan that we are putting together will be 

to carry it forward. 

But I think dating back to the 1970’s, we have tailored technical 

assistance programs to meet the needs of our institutions. We are 

going to do more with respect to education. We think that—we 

have done counseling, to the extent that is education and guidance, 

sending examiners onsite in some cases, working alongside our institutions. So we have done some training. 

But we are planning to expand on that and to do more with that. 

But yes, I think the OTS has worked very hard through our regional offices and in Washington to try to meet the needs of our 

minority institutions, and we are looking forward to doing more. 

Mr. MILLER. Well, I have more questions, but I will wait till the 

next round. Thank you very much. 

Chairman WATT. Mr. Meeks, you are recognized for 5 minutes. 

Mr. MEEKS. Thank you, Mr. Chairman. 

I just have a few questions. Ms. Thompson, let me ask, I believe 

in your testimony you mentioned that minority depository institutions had much lower levels of non-interest income than the rest 

of the industry. I think you said something about 191⁄2 percent as 

opposed to 42.7 percent, respectively. 

I am just curious: What are the primary sources of non-interest 

income? And then whether or not there was a correlation between 

that kind of income and the general population that MDIs represent. 

Ms. THOMPSON. Well, fee-based income would be a source. And 

the minority institutions don’t charge the high fees like many other 

institutions because, again, they are dealing with demographics 

that can be in economically challenged areas. 

So some minority institutions have higher operating expenses. 

They have to spend more on training; they have to spend more on 

this high-touch operation—they are well above the expenses for 

other institutions that are non-minority because they really believe 

in this face-to-face contact, and it requires people. And there is just 

a lot of overhead expense that is associated with minority institutions. 

Mr. MEEKS. So there is more of a personalized service, more 

hand to hand? 

Ms. THOMPSON. Yes, sir. 

Mr. MEEKS. In that regard, maybe less? Well, does it have anything also to do with activities like, for example, fewer individuals 

within the community may be involved in certain trust funds or 

something of that nature, so therefore there is less business there, 

and therefore you are not getting any fees from those areas? 

Ms. THOMPSON. Well, many of the communities that minority institutions serve are underserved or unbanked. If you look at minorVerDate 0ct 09 2002 17:10 Feb 11, 2008 Jkt 039916 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 K:\DOCS\39916.TXT HFIN PsN: TERRIE
34

ity neighborhoods, there is a lot of financial services that are unregulated, so people in the communities have options that are outside of the financial institution that is insured. 

You will find in most—in many minority communities high-cost 

financial service products and providers, whether it is a payday 

lender or a car title loan or just alternatives because many people 

in the communities are underserved. They may have banking accounts, but it is one of the things that the FDIC is working on, is 

trying to bring unbanked and underserved people into the financial 

sector so that they know their money is safe and it is covered 

through regulation and through FDIC supervision. 

We are very intentional about this program that we have underway in eight areas—actually, nine areas around the country to 

bring unbanked and underserved people into the banking sector. 

And it is particularly focused in low/moderate income and minority 

communities. 

Mr. MEEKS. Ms. Saunders, let me just ask you the same thing. 

Could you add anything? What is your experience as head of Mechanics & Farmers Bank, and is there anything that you could recommend that we look at as a committee that might try to help minority institutions so that they can be more efficient with reference 

to banking, and don’t have to depend on payday loans and other—

is there anything that you think that we can do in that aspect? 

Ms. SAUNDERS. Thank you for your question. As was mentioned, 

our cost structure is higher because we do offer more personalized 

service. And as I mentioned in my testimony, understanding again 

that it is outside the purview of this committee, I do think there 

is an opportunity for tax credits and various incentives to be provided—when we bring the unbanked into the banking system, 

through the technical assistance that we provide. The institutions 

that we represent serve a critical role in terms of education and financial literacy in the communities that we serve. And certainly 

that benefits our country, and it could be recognized, I think, 

through certain financial incentives to these institutions such as 

Mechanics & Farmers Bank. 

Mr. MEEKS. And I would assume that you, Mr. Cooper, would 

have the same response, or similar? 

Mr. COOPER. I have a similar response. In my written testimony, 

I actually did discuss two programs that have been very beneficial 

to minority banks that are administered by the CDFI fund. One of 

those programs, the BEA program, is a program—and there is a 

competitive application process—but it is a program that has allowed particularly minority banks to receive stable capital. 

There is another program called the New Markets Tax Credits program which last year provided $3.9 billion in tax credits. This 

was a program designed to provide income streams to banks that 

operate in these low- to moderate-income communities. Unfortunately, last year only one minority bank was the recipient of New 

Markets tax program. And therefore, it is our recommendation that 

there be some general preferences that are given to CDFIs and 

minority- and women-owned banks so that our banks can better 

impact and empower the communities they serve. 

Mr. MEEKS. Let me ask both of you, Mr. Cooper and Ms. Saunders, again. Not too long after I got here, we had the passage of 

35

Gramm-Leach-Bliley. I was wondering, has there been any move or 

any benefit to your banks as a result of the association with insurance companies and security firms? Have you seen—has there been 

any connection with any of them that would enhance your business, thereby stabilizing your institutions and growing at all? 

Ms. SAUNDERS. Not at this point. 

Mr. MEEKS. Nothing? 

Mr. COOPER. By and large, you will find that the institutions in 

this sector are very small and haven’t been able to avail themselves 

of the lowering of the—you know, the breakdown in the barriers. 

There are a couple of banks that have brokerage arms, insurance 

arms. But in terms of the fees that—the profit streams that have 

been received, they are pretty insignificant at this point. 

Mr. MEEKS. Lastly, let me ask this question because I have been 

very concerned about the participation of minorities in the financial 

services industry. And I know that having competent staff is important, etc. 

Where or how do you generally recruit for individuals that you 

need in your banks? I have been an advocate—in fact, in one of the 

GSE bills, I had an amendment saying that the new regulator 

needed to make efforts towards diversity there because it has been 

my opinion that when you have a government agency, and some of 

the regulatory agencies in particular, if they hire minorities in 

there, then the experience that they get from there, they now can 

go out and be employed by individuals like yourselves and in other 

institutions. 

So I am just wondering, how do you find that, and the training, 

and would you say we need to—how could we improve the diversity 

within the financial services industry? 

Mr. COOPER. Let me take a stab at it. There is certainly crosspollination as between regulatory agencies, regulators who will go 

to the private sector and become members of our institutions and 

vice versa. There are also numerous training programs, both private and those conducted by the regulators as well. 

Ms. SAUNDERS. We have been very successful in working with 

young people as early as high school through various nonprofits in 

employing them in internships. We also currently are working with 

local universities, of which there are a number in North Carolina, 

to employ part-time students to allow them to get exposure to the 

banking industry, many of whom have gone on to pursue careers 

in either the regulatory agencies or other banks. 

In terms of recruiting additional talent from other institutions, 

we have been successful, I think, in selling the opportunity to see 

the banking business in its entirety. When you are a small shop, 

you do provide, I think, a unique career opportunity for someone 

who has an entrepreneurial spirit but also wants to obtain a comprehensive understanding of our industry. 

So I would say to continue to support efforts by nonprofits and 

others, even for-profit corporations. My own career started with a 

minority internship program out of Chase of New York, which 

trained many minority bankers back in the 1980’s. And I do think 

that those types of programs are necessary in order for us to continue to train now the Hispanic community and other minority 

groups to be successful in our career. 

36

Mr. MEEKS. Thank you. 

Mr. COOPER. I might just quickly add that success breeds success, and that these institutions aren’t just providers of financial 

products and services. They truly are beacons of hope for the community. So to the extent you have strong, vibrant for-profit institutions, then you will be able to attract individuals to our companies. 

But certainly we see many challenges that we face, so I would 

again hearken to the fact that to the extent we can strengthen 

these institutions, you will see more minorities coming to work for 

us. 

Mr. MEEKS. Thank you. Thank you, Mr. Chairman. 

Chairman WATT. Thank you for your questions. I have been trying to kind of let this go on without interruption as much as possible, so let me recognize myself again for a couple of questions. 

They really follow up to one part of what Representative Meeks 

has raised here, the interplay between the Community Development Financial Institutions fund, CDFI, the Bank Enterprise 

awards, and the New Market tax credit. It was Representative 

Meeks’ predecessor who was instrumental in at least two out of 

three of those, and Representative Rangel who was instrumental, 

probably, as much as anybody in the rest of them. 

Mr. Cooper, Ms. Saunders, what is the process for minority 

banks to become certified under CDFI, and what benefits does that 

give you once you are certified? I want to deal only with CDFI now 

because I think there are three components here that I am not sure 

are playing themselves out in the way that they were perceived to 

play themselves out. But let’s talk about the cost and process and 

the benefits. 

Mr. COOPER. Sure. In terms of the certification process, essentially the bank needs to prove that 60 percent of its activities are 

engaged in low- to moderate-income communities. So it needs to 

show that 60 percent of its lending activities, where it is housed, 

where it gathers its deposits, where it provides its banking products, are in not just low- to moderate-income areas, but specific 

areas down to the census track. So that is with respect to certification. 

In terms of the benefits, there is certainly a marketing benefit. 

It is a United States Department of Treasury certification, so to the 

extent the institution is out in the community and trying to raise 

capital or deposits, it actually has a certification by the U.S. Department of the Treasury that it engages in this do-good activity, 

if you will. 

In terms of other benefits, there are several programs administered by the fund. There is a core award program. There is an FA, 

financial assistance, program. There is a BEA program. The program that—as well as New Market tax credits. The two programs 

that have been most beneficial to minority banks have been the 

BEA program because they provide equity awards to banks based 

on their lending in the most distressed communities, to the census 

track level; as well as—and the other program is New Markets tax 

credits, and as you are probably aware, these tax credits are very 

highly sought after. 

And both of these programs were designed to put money in these 

low- to moderate-income communities, but also designed to provide 

37

capital, in the case of BEA, in minority banks that are primarily 

housed in these communities, and further income streams for these 

banks with respect to the New Markets tax credits program. 

Chairman WATT. How much money is there in the BEA program? 

Mr. COOPER. In the BEA program currently—well, at least last 

year—$11.6 million was allocated. 

Chairman WATT. Compared to the New Markets tax credits, 

which is about— 

Mr. COOPER. They are two different animals. But let me say with 

respect to BEA— 

Chairman WATT. I understand they are two different animals. I 

think that is exactly the point I am trying to make. 

Mr. COOPER. I am sorry. 

Chairman WATT. Does an institution have to be CDFI-certified to 

be eligible for New Markets tax credits? 

Mr. COOPER. No. You have to actually be what is called a CDE. 

You don’t have to be a CDFI. And it is our recommendation that 

CDFIs who are actually engaged in the activities in these communities be given a general preference so that they can take advantage of this $3.9 billion tax credit program. 

Chairman WATT. Ms. Thompson, you seem anxious to say something on this issue, so I want to give you that opportunity. 

Ms. THOMPSON. Yes. We had a conference this year in August, 

and it was all the Federal regulators. The issue that came up from 

the persons who participated—there were lots of questions about 

the CDFI. We had the CDFI representative come to the conference 

and conduct presentations. But even after she left, there were lots 

of questions. 

So I directed the FDIC’s national coordinator to go to the Treasury Department and find out more about the process of having minority institutions being designated as CDFIs. And we have put together a program, working with the Treasury Department, where 

they will participate in our regional conferences, our outreach sessions, and our minority roundtables, so that they can walk through 

the process with applicants to achieve the CDFI designation. 

Chairman WATT. Okay. But CDFI is a gateway to the Bank Enterprise award. CDFI doesn’t seem to lead in the same way to New 

Markets tax credits. Am I wrong or am I right on that? 

Ms. THOMPSON. Well, it is in both. The CDFI program is responsible for—they will get financial assistance, technical assistance. 

There are some other initiatives. The Bank Enterprise Award is 

also part of the community development entities and the New Markets tax credit. Once you get the designation, there are a lot of opportunities that relate to capital and other initiatives that are 

opened up to the institution. 

Chairman WATT. But it doesn’t seem to be working. You have, 

what, $9.8 billion, something like that, in New Markets tax credits. 

Only one minority bank received a New Markets tax credit, and 

you are saying that it is working? 

Ms. THOMPSON. No. We are saying that there are questions with 

regard to the process. And we are willing to provide as much help 

as we can— 

38

Chairman WATT. On the process, but not on the result, which 

gets back to the— 

Ms. THOMPSON. To get the designation. And I think getting the 

designation will open the door. And to the extent we can provide 

any assistance to get these banks the designation, I think that is 

a huge step forward to getting to the next step. 

Chairman WATT. Ms. Saunders? 

Ms. SAUNDERS. Many of the minority institutions already hold 

this designation. So I think it really speaks to what Mr. Cooper 

mentioned earlier, which is that out of the $16 million, only one institution received New Markets tax credit dollars. 

Mr. COOPER. In 2007. And that was a billion with a ‘‘B’’, not— 

Ms. SAUNDERS. Oh, billion. 

Chairman WATT. $16 billion? 

Ms. SAUNDERS. $16 billion? 

Mr. COOPER. No. That is how much the New Markets tax credit 

have been awarded over the last 5 years. Last year’s allocation was 

for $3.9 billion. 

Chairman WATT. $3.9 billion. Okay. But that is—see, there is a 

lot of difference between $3.9 billion in a New Markets tax credit 

that only one out of all of these institutions are getting access to, 

and what is the BEA? BEA is how much money? 

Mr. COOPER. $11.6 million. 

Chairman WATT. $11.6 million, as opposed to $3.9 billion. That 

is the point I am driving at here. And it seems to me that maybe 

the regulators might find that might be something that—I mean, 

that is concrete. That is a result. That isn’t a process. 

And that was the point I was trying to get down to a little bit 

earlier. Representative Waters asked all of you if you had any suggestions to make to us, and those are the kinds of things that I am 

looking for because we are trying to make this work. 

We can have as many meetings, we can go through as many 

processes as we can go through, if at the end of the day you are 

ending up 13 years later with fewer and less vibrant and less 

sound minority institutions than you were 13 years ago. Go figure. 

Nice to have a meeting. Had a good time. It is the results-oriented 

thing that I am looking for. 

My time is expired on this round. I recognize Ms. Waters for 5 

minutes. 

Ms. WATERS. Oh, thank you very much, Mr. Chairman. 

The New Markets initiative, tax initiative, is extremely important to discuss here. I was just in Houston yesterday holding a 

hearing and talking with some of the business people there, where 

I discovered that Wachovia and Capital One have designations, 

have had them, and they are doing very well with them. 

I don’t know what is going on, but minority institutions do not 

appear to be given a fair opportunity to participate in these initiatives that many of us helped to develop under the Clinton Administration. It seems to me there are still questions remaining about 

CDFI, and certainly big questions about the New Markets initiative. 

So I was hoping, and I would really hope, that those who are 

supposed to assist minority institutions maintain and expand, etc., 

would help us with some ideas on legislation that would get at 

39

these initiatives that have been developed that supposedly would 

be supportive, would help not only the minority banks, but we have 

to depend on these minority banks to provide opportunities for minorities where they operate. Many— 

Chairman WATT. Will the gentlelady yield just for a second? 

Ms. WATERS. Yes. 

Chairman WATT. Not to let them off the hook on our expectation 

that they will do that, but just to point out to them that the New 

Markets tax credits are up for reauthorization in the Ways and 

Means Committee. And one of the things that Representative 

Meeks and I were talking about yesterday was that it might be advisable to try to see if we could have a joint hearing with the Ways 

and Means Committee, the subcommittee that has jurisdiction over 

that program— 

Ms. WATERS. That would be a great idea. 

Chairman WATT. —to try to impact that program in a way that 

is doing more in this area. Wachovia is one of the institutions that 

is in my congressional district, so I support their efforts to get New 

Markets tax credits. But I think we need to do more to make sure 

that minority institutions get more New Markets tax credits, too. 

And there may be some things that we can do to help. 

I appreciate the gentlelady’s yielding. But I am going to try to 

seek to have a joint hearing. 

Ms. WATERS. That would be great. That is an opportunity that 

we really do need to try and take advantage of. 

On this how minority institutions are judged, and you have spoken about it in bank terms in terms of peer review, Mr. Scott, what 

did you discover? Are they judging minority institutions based on 

their overall review of other minority institutions—peer review, I 

guess that would be—or are they holding them to the same kind 

of standards of major institutions? How is that working? 

Mr. SCOTT. For the work we conducted, we weren’t looking at 

how they were judging the institutions. We were looking at the return on assets in comparison to peer groups for broader context 

about how these minority banks were doing overall. 

And so we weren’t really looking at whether the regulators were 

using different standards and how they were judging them. It was 

more just context to point out overall how these institutions are 

doing on one key measure, that being return on assets, one measure of profitability. That was the purpose of our citing those numbers. 

Ms. WATERS. I see. And what were the regulators talking about 

when you said that was one of your charges, Ms. Thompson? 

Ms. THOMPSON. We have a regional director memorandum, which 

is in effect the policy that our examiners use to examine institutions. And in that memorandum, it specifically states that when examining minority institutions in particular, that examiners have 

the flexibility to define a custom peer group, not look at peer group 

just based on asset size. A custom peer group can be defined as a 

similarly situated institution, which could mean another minority 

institution. 

Ms. WATERS. So have they been doing that? 

Ms. THOMPSON. I hope they have. That is what I have instructed— 

40

Ms. WATERS. No. We can’t hope, now. We have to know. 

Ms. BRAUNSTEIN. At the Federal Reserve, we do provide onsite 

to our minority-owned institutions customized peer statistics that 

are different than the uniform bank performance report. 

Ms. WATERS. Could you, Mr. Chairman, see that we get a copy 

of how that is working? I understand there is not a lot of followup; even though some of you may be attempting some things, you 

really don’t know how it is working because you don’t have built 

into your systems any real follow-up. And that is one of the things 

that we may have to legislate, Mr. Chairman, to take a look at. 

Now, one last thing, and that is reserve capital requirements. 

Tell me how that works, and tell me whether or not minority institutions for some reason are being asked to have higher reserves 

than maybe other institutions. Because there appears to be some 

risk factor that is above and beyond the norm. Would someone help 

me with that? 

Ms. BRAUNSTEIN. The capital rules are mainly the Federal Reserve’s in terms of holding companies. We have done a couple of 

things to address the concerns that have been raised by the other 

panelists over the last year, and we are still working at this, and 

it is not to say that we can’t do more. But— 

Ms. WATERS. How does it work now? 

Ms. BRAUNSTEIN. Well, the way it works now is that for Tier 1 

capital, a significant amount of the Tier 1 capital needs to be voting stock. And so we do—we require at this point common stockholders’ voting stock to be the dominant element within Tier 1. 

Ms. WATERS. Well, I thought—I don’t know if we are talking 

about the same thing or not. 

Ms. BRAUNSTEIN. So one of the things that we have— 

Ms. WATERS. I really want to understand reserves because to me, 

reserves means an amount that you hold aside to be there to pay 

for whatever—losses, lawsuits, what have you. That is what I am 

talking about. I am not talking about the— 

Ms. BRAUNSTEIN. Control? 

Ms. WATERS. Yes. I want to know about the reserve. Are minority banks required to hold in reserve a disproportionate amount of 

capital or money, compared to other institutions? 

Ms. YAKIMOV. Representative Waters, if you are referring to loan 

loss reserves, we would expect institutions to reserve in a manner 

that was consistent with their experience—not to overly—not to 

manipulate that, but to have in reserve for loan loss and leases an 

amount that has been consistent with their experience and what 

they can generally anticipate. 

Ms. WATERS. I expect that, too. We have said over and over again 

that we believe in safety and soundness and all of that good stuff. 

We don’t want anybody to think we are trying to—I want to know, 

is there something in the formulation of reserves of what is required that makes it seem as if minority institutions are asked to 

do more in holding these reserves than others? That is what I am 

trying to find out. 

Ms. BRAUNSTEIN. The reserves would depend on the kinds of 

loans that are made, the risk assessments, and the bank performance. And so depending on those factors, there could be an appearance of that. But that is—but the same rule is applied to every— 

41

Ms. WATERS. Mr. Scott—excuse me. Mr. Scott, did you take a 

look at this at all in the GAO’s report in terms of reserves? 

Mr. SCOTT. No. We didn’t take a look at it other than pointing 

out the fact that having those higher loan loss reserves may be necessary for safe and sound operation of banks. 

Ms. WATERS. Well, you know, I don’t know. But Mr. Chairman, 

and I am going to finish this, if experience is one of the criteria 

that is used to determine how much money you have to hold in reserve, that is going to put us at a great disadvantage. 

Now, if there are a combination of things, we need to understand 

what that combination of things is and whether or not it adds up 

to minority institutions being disadvantaged because they haven’t 

been in business as long. They are lending to poorer people. Yes, 

they have had maybe more losses or foreclosures; I don’t know 

what the makeup is. 

And if I take a look at it, I can see. I can tell you right away. 

And I guess we will have to do that. But I was trying to understand what you understand about it because I wanted to ask you, 

do you think it is fair or do you think it should be fixed? 

Ms. THOMPSON. The losses are typically based on the quality of 

the assets. And to the extent that an institution holds assets that 

are delinquent—and I will use a mortgage loan as example—if an 

institution has a high level of delinquencies and they are expected 

to go to foreclosure, we require the institution to hold loss reserves 

to offset any potential losses. 

So the more delinquent your mortgage portfolio is, or your commercial loan portfolio, the more reserves you will be required to 

hold to offset— 

Ms. WATERS. Mr. Cooper, is that how it works? 

Mr. COOPER. Actually, Chairman Frank has spoken out on the 

subject. And I think you were referring to the recent policy statement on commercial and real estate that just—that actually came 

out maybe a little over a year ago. And it creates very specific 

thresholds for construction loans, 100 percent of capital, and multifamily and other loans of 300 percent of capital. 

But because of the nature of our operations, where we operate, 

we are disproportionately impacted. So this is again a one-size-fitsall policy statement. And because of the statement, the examiners 

will come in and scrutinize our banks and criticize our banks in a 

way they would not criticize other institutions. 

So again, it is a one-size-fits-all policy that really—there really 

was no consultation or thought given to what the specific impact 

would be on institutions that actually operate in the inner city. 

Ms. WATERS. Thank you, Mr. Chairman. I yield back. I could ask 

101 more questions, but you have been very generous. Thank you. 

Chairman WATT. Mr. Miller. 

Mr. MILLER. I have a question for the regulators. 

Safety and soundness has to be paramount in any lending institution. Don’t all small and community banks have to meet the 

same basic capital standards, whether it is a minority-owned bank 

or it is not? Aren’t they applicable to everybody? 

Ms. THOMPSON. Yes. 

Mr. MILLER. Is there any that are more stringent upon the minority-owned bank than there would be a small community bank? 

42

Ms. THOMPSON. No. 

Mr. MILLER. Okay. So the problem I have is if we are dealing 

with basic safety and soundness issues, they have to be consistent 

and they have to be applied on a broad perspective to all individuals who place their money within a lender, a bank who is going 

to be lending them money. They have to be guaranteed that their 

money is being safeguarded and there is proper oversight. 

It seems to me, from the testimony that I heard, that we have 

to reach out to minority banks to get them to participate in programs that are available. If only 30 percent are participating, we 

can legislate and regulate anything in the world, but if we don’t get 

participation, it is a problem. 

And Mr. Cooper, it is a long question, and I hate to ask this of 

you, but I have been listening to the testimony and reading 

everybody’s testimony. You recommend that each banking agency 

amend their existing policies to provide that the regulators and examiners will thoughtfully apply any existing policies to the unique 

circumstances of a minority institution. 

Yet Mr. Walsh from the OCC discusses how a portfolio manager 

is assigned to each bank and has ongoing responsibilities for understanding the banks unique characteristics and circumstances. 

Ms. Thompson, of the FDIC, discusses how the FDIC has specific 

programs in place to educate bank examiners and sensitize them 

to the unique issues often found within MDIs. 

Ms. Braunstein, with the Fed, has described how through their 

regulatory, supervisory, and community development functions, 

they consistently provide assistance to address the unique challenges and needs of the minority-owned banks. 

Ms. Yakimov of the OTS discusses the development of training 

measures that the OTS has taken to ensure that examiners fully 

understand the operating environment and challenges that minority institutions face in serving their communities. 

Mr. Cooper, in addition to what the OCC, the FDIC, the Fed, and 

the OTS are currently doing, what do you suggest the regulators 

do? 

Mr. COOPER. I think we might be talking about two different 

things. 

Mr. MILLER. No. My question was on one thing. 

Mr. COOPER. I just answered a question in connection with a recent policy statement. And I guess we didn’t hear the regulators 

talk about the impact of that policy statement, even today, on minority banks. There are other policy statements— 

Mr. MILLER. I mean, it appears that all the agencies are doing 

everything in their power to reach out and to make sure that these 

minority institutions are successful, and that they have information provided to them, and that when regulators go out, they are 

trying to deal with the unique circumstances and situations that 

these institutions are in. 

And I am not trying to be a bad guy here. I am really not. Chairman Watt and I have talked about how we get more participation. 

We can mandate and mandate and mandate it, but if nobody is 

going to participate, it is not going to make a difference. But what 

can you see that we can do that they are not already trying to do? 

43

Mr. COOPER. Like I said, their technical assistance is just one action that can be taken. But we really have to think outside of technical assistance. FIRREA was about a lot more than just that. And 

we have actually provided some recommendations as to how these 

institutions can grow. 

So it is one thing to say, hey, we are facing some particular challenges, and here is how you may or may not want to deal with the 

issue. But let me frame it this way for you. 

Mr. MILLER. Well, I think they have a unique situation as far as 

growth when you can’t sell common stock. So that makes it very 

difficult. I understand that. 

Mr. COOPER. Okay. But let me frame it this way. What I believe 

we have it this way is more direct engagement, I think. Thirteen 

years ago we didn’t have any engagement. We have more direct engagement. But what we need is really truly full engagement with 

the banking regulatory agencies. 

Mr. MILLER. But don’t you have to have participation to have full 

engagement? 

Mr. COOPER. You absolutely have to have— 

Mr. MILLER. And if we are only getting 30 percent of the banks 

participating, we are going to have 30 percent of full participation 

at best if it— 

Mr. COOPER. But then you have to ask yourself, why isn’t there 

the participation? 

Mr. MILLER. And that is why I asked you— 

Mr. COOPER. And yes— 

Mr. MILLER. —the National Bankers need to be reaching out to 

encourage these banks to participate. 

Mr. COOPER. Again, I think you need to have full engagement. 

And I think what you have, at least on the congressional level, is 

a mandate on the regulators. And certainly we are reaching out. 

And it is very nice, and we absolutely appreciate having the heads 

of the regulatory agencies visit us at our conventions, where we 

had Mr. Walsh and the directors of the other agencies. And that 

is a once-a-year event. 

But again, coming to conferences, hosting an inter-agency conference where there are 500 people in the room is a very different 

situation than actually drilling down and having the type of dialogue that you need to have very substantive progress, and what 

I think we would all admit are very complex issues. 

Mr. MILLER. All right. I have a limited amount of time, and I am 

going to run out. Ms. Braunstein, is there a limit to what regulators can do in respect of balancing safety and soundness and 

those concerns, and helping minority institutions? Are you somewhat hamstrung when there is only so far you can go? Is it not a 

fact? 

Ms. BRAUNSTEIN. Well, I don’t know that I would phrase it as a 

limit. I think that we try to work very diligently with our minorityowned institutions, the State member banks we supervise, to make 

sure that they are safe and sound because that is of paramount importance, but at the same time recognizing some of the unique 

characteristics and trying to exercise some flexibility in our standards and in our rules. And we will continue to do so. 

44

Mr. MILLER. And in closing, Mr. Cooper and Ms. Saunders, could 

you both send me something in writing, some recommendations, 

something to enlighten me on the situation that we can—what you 

think we can do in the future to create a better situation than currently exists? Because I don’t want you to think I am being argumentative. I am not. I just listen to the testimony and look at the 

numbers. I see, number one, a lack of participation. That has to be 

overcome somehow. 

I would like to have some input from you on what you think we 

can do to make a better situation. I really appreciate your testimony, and if any of my comments were perceived as negative, they 

weren’t meant to be. I just read the documents, have gone through 

the paperwork, and I am a little—you know, safety and soundness 

has to be top priority, number one. 

I understand growth is a concern with the industry. I know you 

would like to grow it. And I know there are limitations based on 

some responses I have received to questions. But if you can help 

me with some information, I would appreciate that. 

I yield back. 

Chairman WATT. All right. 

Ms. WATERS. Mr. Chairman, if I may? 

Chairman WATT. I am happy to— 

Ms. WATERS. Please let the record show that we have insisted 

that we support safety and soundness on more than several occasions here today, that we all believe that safety and soundness 

must be first. And we have said that— 

Mr. MILLER. And I never meant to imply that, if you thought I 

did. I didn’t mean to imply that there was not a concern. I was 

speaking for myself. 

Ms. WATERS. I know. But let me tell you why it is important to 

place it in the record. As we struggle with these issues as public 

policymakers, we have to always educate. Because when people 

speak about minority institutions, whether we are talking about affirmative action, whatever, people will say, ‘‘I support, except...’’ I 

support qualified people doing this. I support safety and soundness. 

We do, too. It is extremely important to us. We have said it over 

and over again. And I want everybody to know that is the prevailing thought and thinking in the African-American community, 

particularly with minority institutions. They know that they have 

to comply with safety and soundness laws, and they do. And we 

support that. 

Chairman WATT. Now that we got that out of the way, we could 

go on and on here. But we have to close this out. I do want to make 

sure that I get on the record a specific response about the coverage 

of Section 308 of FIRREA. This applies currently to the FDIC and 

the OTS. It does not apply specifically, although you all say you 

seem to be supporting the spirit of it, to the OCC and the Fed. 

Mr. Walsh, I think, covered in his testimony that he has no objection to 308 being applied to FIRREA—of FIRREA being applied 

to your agency. What about the Fed? 

Ms. BRAUNSTEIN. Yes. In my written testimony, I state that we 

would not object if we were covered. 

Chairman WATT. That is less than a ringing endorsement. But 

should I— 

45

Ms. BRAUNSTEIN. Well, we feel that we are in compliance with 

the spirit of the law. And if Congress chooses to put us under the 

law, we would not object to that. 

Chairman WATT. And what about an annual reporting requirement of efforts to implement Section 308? There is no written requirement now that any of you report to Congress. 

Mr. SCOTT. Except for the OTS. 

Chairman WATT. Oh, is there? Okay. The OTS reports to Congress. What about applying that to all four of the regulators here? 

Ms. THOMPSON. Well, the FDIC has an annual report that we 

issue, and we do include our activities on minority institutions. But 

we would not object to a separate annual report to Congress. 

Chairman WATT. The Fed? 

Ms. BRAUNSTEIN. We would not object. 

Mr. WALSH. Likewise. We include that information in our annual 

report at present. 

Chairman WATT. All right. Unless you all want to go another 

round—I mean, I will be right here. But in the absence of that, the 

Chair notes that some members may have additional questions for 

this panel which they may wish to submit in writing. Without objection, the hearing record will remain open for 30 days for members to submit written questions to these witnesses and to place 

their responses in the record. 

So I want to thank the witnesses for being here. I think it has 

been a constructive and helpful hearing. We hope to hear back 

from you all on some of the things that have come up today in the 

verbal questions. And of course, we would love to hear back from 

you in response to any written questions that get submitted. 

We thank you all so much for being here, and with that, the 

hearing is adjourned. 

[Whereupon, at 1:20 p.m., the hearing was adjourned.] 

(47)

A P P E N D I X

October 30, 2007

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