U.S. GOVERNMENT PUBLISHING OFFICE

31–475 PDF WASHINGTON : 2018

FINANCIAL INDUSTRY REGULATION: 

THE OFFICE OF THE 

COMPTROLLER OF THE CURRENCY 

HEARING 

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

JUNE 13, 2018 

Printed for the use of the Committee on Financial Services 

Serial No. 115–99 

( 


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HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

STEVE STIVERS, Ohio 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

LEE M. ZELDIN, New York 

DAVID A. TROTT, Michigan 

BARRY LOUDERMILK, Georgia 

ALEXANDER X. MOONEY, West Virginia 

THOMAS MACARTHUR, New Jersey 

WARREN DAVIDSON, Ohio 

TED BUDD, North Carolina 

DAVID KUSTOFF, Tennessee 

CLAUDIA TENNEY, New York 

TREY HOLLINGSWORTH, Indiana 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

JOSH GOTTHEIMER, New Jersey 

VICENTE GONZALEZ, Texas 

CHARLIE CRIST, Florida 

RUBEN KIHUEN, Nevada 

SHANNON MCGAHN, Staff Director 


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C O N T E N T S 

Page 

Hearing held on: 

June 13, 2018 .................................................................................................... 1 

Appendix: 

June 13, 2018 .................................................................................................... 53 

WITNESSES 

WEDNESDAY, JUNE 13, 2018 

Otting, Hon. Joseph, Comptroller, Office of the Comptroller of the Currency ... 4 

APPENDIX 

Prepared statements: 

Otting, Hon. Joseph .......................................................................................... 54 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Otting, Hon. Joseph: 

Written responses to questions for the record submitted by Representative Beatty ..................................................................................................... 81 

Written responses to questions for the record submitted by Representative Hultgren ................................................................................................. 85 

Written responses to questions for the record submitted by Representative McHenry ................................................................................................. 88 


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FINANCIAL INDUSTRY REGULATION: 

THE OFFICE OF THE 

COMPTROLLER OF THE CURRENCY 

Wednesday, June 13, 2018 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The committee met, pursuant to notice, at 10:05 a.m., in room 

2128, Rayburn House Office Building, Hon. Jeb Hensarling [chairman of the committee] presiding. 

Present: Representatives Hensarling, Royce, Lucas, Posey, 

Luetkemeyer, Huizenga, Duffy, Stivers, Hultgren, Ross, Pittenger, 

Wagner, Barr, Rothfus, Tipton, Williams, Poliquin, Love, Hill, 

Emmer, Zeldin, Trott, Loudermilk, Davidson, Budd, Kustoff, 

Tenney, Waters, Maloney, Velazquez, Sherman, Meeks, Capuano, 

Lynch, Scott, Green, Cleaver, Perlmutter, Foster, Kildee, Delaney, 

Sinema, Vargas, Gottheimer, Gonzalez, Crist, and Kihuen. 

Chairman HENSARLING. The committee will come to order. 

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

the committee at any time. And all members will have 5 legislative 

days within which to submit extraneous materials to the Chair for 

inclusion in the record. 

The hearing today is entitled, ‘‘Financial Industry Regulation: 

The Office of the Comptroller of the Currency.’’ I now recognize myself for 3–1/2 minutes to give an opening statement. 

So today, we will welcome Joseph Otting, the 31st Comptroller 

of the Currency, who took his office approximately 7 months ago. 

We will welcome him for our first appearance before the committee. 

What a difference 17 months make in the life of the Nation, and 

what a difference public policy makes. Working together with the 

Administration, this Congress has made a huge difference and perhaps produced the most booming economy in many people’s lives. 

Unemployment now is recorded at the lowest in a generation, 

tied for the lowest in almost a half a century. Also, African-American unemployment is the lowest on record, the lowest on record, 

and the gap has narrowed. Last month, there were actually more 

job openings than there were unemployed. The first time since recordkeeping began in the year 2000 that that has occurred. After 

years and years and years of press reports that unemployed people 

are seeking factories, we now have press reports that factories are 

struggling to find workers instead. 


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We have reports of robust wage growth as well, the best wage 

growth in 11 years. And in the last wage report, 49 of 50 States 

had positive wage growth. 

The National Federation of Independent Businesses said the 

highest number of businesses are increasing worker pay that they 

have ever recorded in their survey. The University of Michigan reports that consumer confidence is at the highest level in 14 years. 

And even, even The New York Times has had to admit, quote, ‘‘The 

economy is humming.’’ 

Again, this did not happen by accident. It is a result of the Tax 

Cuts and Jobs Act and the effort, particularly of the Administration 

and our banking regulators, to right-size regulation, to properly 

calibrate regulation, to ensure that it is working for working people, because all regulation, regardless of its intent, regardless of its 

purpose, can ultimately have a cost on access and cost, cost to credit of hardworking Americans. 

And so it is an incredible achievement that once again we are 

seeing average 3 percent economic growth. And that is so important because when one looks at the data, one sees that in American 

history the greatest employment, probably almost 80 percent of job 

gains, of income gains, of poverty reduction take place in 3 percent 

growth years. And so how wonderful it is to have regulators who 

are committed to growth in our economy. 

And so, again, the greatest boost to our economy is not a government economic stimulus plan, it is not quantitative easing, but it 

is business confidence that comes from good public policy and 

smart regulatory efforts. 

So I look forward to hearing from our witness. I know that he 

has been quite active on a number of fronts, including fintech charters and Volcker and BSA (Bank Secrecy Act) and AML (AntiMoney Laundering). I look forward to getting into all of that and 

seeing what is it we can do to make sure that 3 percent economic 

growth continues for all working Americans. 

The Chair now recognizes the Ranking Member of the committee, 

the gentlelady from California, for 5 minutes for an opening statement. 

Ms. WATERS. Thank you, Mr. Chairman. 

I am looking forward to hearing Comptroller Otting’s testimony 

and asking him about his activities at and plans for the Office of 

the Comptroller of the Currency (OCC). 

Mr. Chairman, I believe that Congress has a responsibility to ensure that our economy and laws work fairly for everyone. And yet 

at a time when banks are posting record profits, the Trump Administration and its allies in Congress have taken banking regulation 

in this country in the wrong direction. 

Last month, congressional Republicans pushed through S. 2155. 

The legislation was championed and signed into law by Donald 

Trump, who made an early promise to, quote, ‘‘do a big number,’’ 

unquote, on Dodd-Frank. 

S. 2155 rolled back protections Democrats put in place following 

the 2008 financial crisis to strengthen oversight of Wall Street and 

ensure that risky activities do not bring down the economy again. 

Since taking office, the Trump Administration has consistently 

taken actions that hurt Main Street and benefit Wall Street. Mick 


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Mulvaney, who was illegally installed, is Acting Director of the 

Consumer Financial Protection Bureau (CFPB) by Trump, is hard 

at work weakening the agency from the inside. His latest act of 

anticonsumer aggression was to fire all 25 members of the Consumer Bureau’s Consumer Advisory Board and then to insult them 

on their way out the door. 

It is in this context that we have Comptroller Otting here before 

us today, testifying here for the first time. The American public has 

the right to know if he plans to follow in the deregulatory and 

anticonsumer footsteps of this Administration. 

I am particularly interested in hearing his perspectives on the direction in which he will guide the OCC on three important issues: 

The Community Reinvestment Act; the opening of fraudulent accounts by our Nation’s banks; and the regulation of the fintech industry. 

It has been widely reported that the Federal banking agencies, 

including the OCC, plan to update their implementation of the 

Community Reinvestment Act, that is CRA. I agree that the CRA 

could benefit from modernization to reflect the changing bank landscape which now includes online banking, which is not solely based 

on brick and mortar bank branches, but any modernization process 

must not be focused on making CRA exams easier for banks. Ninety-nine percent of banks already receive a passing grade from regulators on their exams. Rather, any update to the implementation 

of the law must be focused on ensuring that banks are responsibly 

meeting the credit needs of their communities. 

A recent report by Reveal news found modern day redlining, the 

discriminatory practice where minority communities are denied 

mortgage loans and have less access to credit across 61 metropolitan areas in our country. That is unacceptable. 

So it is absolutely critical that the CRA, which was designed to 

combat redlining, is not weakened to let banks off the hook from 

their obligations. 

I am also very concerned regarding reports that the OCC has 

found that more banks open accounts without the consent of their 

customers in a review conducted following Wells Fargo’s egregious 

fraudulent account scandal. I am looking forward to hearing from 

Comptroller Otting today on the details of the OCC’s findings on 

this subject and their plans to prevent such practices moving forward. 

I would also like to hear the Comptroller’s views on fintech and 

the way their technology is rapidly changing the banking landscape, and how the OCC is responding as Americans are banking 

and accessing credit in new ways in this market. It is important 

that we encourage responsible innovation and, also, that we ensure 

that fintech companies are providing credit fairly to all communities. 

I yield back the balance of my time. 

Chairman HENSARLING. The gentlelady yields back. 

The Chair now recognizes the gentleman from Missouri, Mr. 

Luetkemeyer, Chair of our Financial Institutions Subcommittee for 

1–1/2 minutes. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. 


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Comptroller Otting, thank you very much for joining us today. 

And I certainly can’t tell you how great it is to have somebody that 

actually has banking experience running the OCC. Welcome. 

As a former banker and bank examiner, I felt incredible frustration over the last 8 years. We experienced failed economic policies 

that led to the slowest recovery in the modern era and a regulatory 

pendulum that swung too far after the financial crisis. Our financial system needs stability. It needs rigorous supervision, but it 

also needs certainty. Institutions need clear rules of the road. 

Despite a recent financial renaissance and changes at the most 

senior levels of government, I remain concerned that there are legacy supervisory issues that need to be addressed. That is particularly true when we look at the troubling trend of de-risking, which 

is still an issue I hear about on a near weekly basis. I urge you 

to take steps to ensure that the decisions you make are clearly 

communicated to the field, and that OCC examiners use their positions to promote safety and soundness in our financial system and 

not to advance any sort of political agenda. With your leadership 

and experience, I am confident that we will be witness to a more 

effective and responsible supervisory regime, one that upholds rule 

of law rather than thumbing its nose at it. 

My colleagues and I thank you for being here today and for taking on this responsibility. Look forward to your testimony. 

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

Chairman HENSARLING. The gentleman yields back. 

Today we welcome the testimony of the Honorable Joseph M. 

Otting, Comptroller of the Currency. Again, this is the first time 

that Mr. Otting has appeared before this committee as he was 

sworn in, again, as the 31st Comptroller of the Currency on November 27 of last year. Mr. Otting holds a bachelor of arts in management from the University of Northern Iowa and is a graduate 

from the School of Credit and Financial Management, which was 

held at Dartmouth College in New Hampshire. 

Mr. Otting brings to the job a wealth of banking experience. 

Prior to becoming Comptroller, Mr. Otting was, again, a long-time 

executive in the banking industry. He served as president of CIT 

Bank and copresident of CIT Group from August 2015 to December 

2015. He also was president, chief executive officer, and a member 

of the board of directors of OneWest Bank. 

Without objection, the witness’ written statement will be made 

part of the record. 

Mr. Otting, you are now recognized for 5 minutes to give an oral 

presentation of your testimony. And again, welcome to the committee. 

STATEMENT OF JOSEPH OTTING 

Mr. OTTING. Thank you very much. 

Good morning, everybody. Chairman Hensarling, Ranking Member Waters, and members of the committee, thank you for the opportunity to share my priorities as Comptroller of the Currency 

and my views on reducing unnecessarily regulatory burden and 

promoting economic growth. 

The Office of the Comptroller of the Currency’s mission is to ensure our Federal banking system operates in a safe and sound 


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manner, provides fair access, treats their customers fairly, and 

complies with applicable laws and regulations. We accomplish that 

mission and rationalize our regulatory framework so that the system creates more jobs and economic opportunity. 

My written testimony details the conditions of the Federal banking system, risks facing that system, and my priorities. These priorities include modernizing the Community Reinvestment Act to increase lending, investment, and financial education to where it is 

needed most. And encouraging banks to meet short-term, small-dollar credit needs to provide consumers with additional safe, affordable credit choices. 

My priorities also include enhancing the Bank Secrecy Act, and 

any anti-money laundering compliance so that banks can provide 

a more effective means to support law enforcement and comply 

with statutory and regulatory requirements more efficiently. I also 

support simplifying regulatory capital requirements, recalibrating 

the Volcker Rule, and ensuring that agencies operate effectively 

and officially. 

Today, I also want to discuss the importance and quality of the 

work accomplished at the OCC. Since becoming Comptroller, I have 

been struck by the professionalism and caliber of the agency staff. 

The agency’s 4,000 employees serve our Nation by performing the 

important task of supervising more than 1,300 national banks, 

Federal savings associations, and Federal branches of foreign 

banks. While the vast majority of institutions we oversee are small 

community banks, the system also includes the largest, most globally active banks in our country. Successful supervision requires a 

corps of professionals supported by lawyers, economists, information technology specialists, policy experts, and many others. 

Few Americans know the OCC, but the majority of them have a 

relationship with at least one of the banks we supervise. It is not 

an overstatement to say our Nation’s banking system is the most 

respected in the world due, in large part, to the quality of the supervision the OCC provides. 

The OCC is unique among Federal banking regulators. It is the 

sole regulator exclusively dedicated to prudential supervision. 

Undistracted by multiple mandates, we have a laser focus on bank 

safety, soundness, and compliance. The agency takes a risk-based 

approach to supervision, tailoring its oversight to the risk and business models of each individual bank. At the same time, its broad 

national perspective provides value in identifying the risks and 

concerns that may face similar banks or the broader system. Our 

risk-based approach allows us to adapt the economic opportunity 

and continue core safeguards necessary to protect the safety and 

soundness of our financial system and prevent consumer abuse. 

I am fully committed to implementing the changes in the law as 

quickly as possible. I will work with my fellow regulators on a collaborative interagency basis where appropriate. Where existing 

rules may conflict with the Economic Growth Act, where the statute provides transition periods or where the law requires agency 

rulemaking for implementation, the OCC plans to supervise institutions consistent with the intent of the law, including with respect 

to amendments to these stress testing requirements and will not 

enforce requirements on banks that the bill intends to eliminate. 


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As a bank executive, I relied heavily on the judgment, expertise, 

and counsel of the OCC examiners. They helped me identify issues 

and address them effectively before the concerns turned into serious problems. I felt the OCC examiners understood what we as 

bankers were trying to achieve, and we worked to meet the financial needs of our customers. I slept better knowing that the OCC 

supervised my bank, and you can sleep better knowing that the 

men and women of the OCC are on the job overseeing the national 

banking system. 

In closing, I want to congratulate you, Chairman Hensarling, on 

your leadership of this committee. And thank you again for allowing me to share my perspective as Comptroller. I look forward to 

answering your questions. 

[The prepared statement of Mr. Otting can be found on page 54 

of the Appendix.] 

Chairman HENSARLING. Thank you. 

The Chair now yields himself 5 minutes for questions. 

So, Mr. Otting, we all know, prior to your tenure, Wells Fargo 

ripped off far too many people for far too long a period of time. The 

OCC launched a horizontal review of all retail banks’ sales practices after the Wells Fargo scandal. And by the way, I hope and 

believe the new Wells Fargo management is still in the process of 

cleaning up prior messes. 

But the question has occurred, what has happened on this horizontal review? How extensive was it? There hasn’t been a public 

report. Some press reports. So my question is, how extensive has 

the review been? How long did it take? How many banks were examined? And what are the takeaways from that? And what can be 

presented to the public? And what is still part of a confidential supervisory matter? If you would please comment on this. 

Mr. OTTING. Thank you very much for the question. In 2016, the 

OCC launched a horizontal review. We concluded that examination 

in the fourth quarter of 2017. More than 40 national banks were 

involved in the lookback. We looked at the new account opening activities in the following areas: Mortgages, auto, credit card, checking, savings, and money market. 

This lookback was a 3-year period that included hundreds of millions of new accounts each year, which, on a 3-year basis, probably 

was somewhere between 500 and 600 million accounts. We concluded that, as I said, in the fourth quarter. 

On June 4, we sent letters to the banks’ CEOs wrapping up the 

horizontal review. On June 11, we sent letters to the Chairman 

and Ranking Members of the House and Senate Banking Committees to provide you an overview. I am here to report today that we 

did not find pervasive or systemic issues in regards to improper account openings. We did find the needs for banks to improve their 

policies, procedures, and controls. 

With this, we issued 252 matters requiring attention (MRAs). 

And 20 percent of those have been closed, with the remaining being 

under supervisory review. 

Through this entire process, we found less than 20,000 accounts, 

out of the hundreds and hundreds of activities of opening of new 

accounts, with less than half of that 20,000 being due to unauthorized account openings. 


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So we feel that this report is conclusive. We feel there are ways 

for banks to improve their policies, procedures, and controls. But 

at no point in time did we find pervasive or systemic items associated with this review. 

Chairman HENSARLING. So, Mr. Otting, how long did the review 

take? 

Mr. OTTING. The review took, roughly, 18 months. 

Chairman HENSARLING. It took 18 months. And how many personnel were involved? How would we look upon—how extensive 

was this review? 

Mr. OTTING. I couldn’t give you the exact number in the agency, 

but it was the number one issue over the last 18 months that we 

took most of our examination staff to focus on. 

Chairman HENSARLING. And did I understand you to say that 

there are roughly 500 to 600 million bank accounts within the Federal banking system? 

Mr. OTTING. No. Those are the accounts that have been opened 

over the last 3 years. 

Chairman HENSARLING. Just opened over the last 3 years? 

Mr. OTTING. That is correct. 

Chairman HENSARLING. And you—out of that universe, this horizontal review found roughly 20,000 questionable? 

Mr. OTTING. We found 20,000 accounts that we felt half of those 

were due to unauthorized account openings. The point that I would 

make here is that, as we have gone in, we didn’t find good, documented policies and procedures associated with the account openings. And so the core takeaway from this is that banks are working 

on these issues through the MRAs. And matters requiring attention are very consistent in the industry when we go in and examine 

and if they are not up to a certain standard, then we will issue an 

MRA. And the key takeaway here is that we are asking banks to 

improve their policies, procedures, and controls around account 

openings. 

Chairman HENSARLING. Thank you, Mr. Comptroller. As you well 

know, on May 24, right before Memorial Day, the President signed 

into law the Economic Growth, Regulatory Relief, and Consumer 

Protection Act, which was a bipartisan bill in both the House and 

the Senate, largely viewed as the most pro-growth banking bill in 

a generation since Gramm-Leach-Bliley. But it does direct the OCC 

and other Federal regulators to change its rules undertake 

rulemakings. 

Can you outline the schedule to implement this law? 

Mr. OTTING. Yes. We have quickly assembled resources within 

the OCC, and we are looking at the legislation from three particular ways. One is what can we quickly implement. The second 

bucket is what requires a rule for us to write. And the third is 

what will require coordination amongst the Federal agencies. 

And so I would tell you that we are actively on it right now trying to create critical paths to accomplishment, but it is receiving 

the highest priority in the agency. 

Chairman HENSARLING. That is what I like to hear, Mr. Comptroller. Otherwise, my time has expired. 


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The Chair now recognizes the gentlelady from New York, Mrs. 

Maloney, Ranking Member of our Capital Market Subcommittee for 

5 minutes. 

Mrs. MALONEY. Thank you, Mr. Chairman. 

Comptroller Otting, I would like to ask you about the horizontal 

review of banks’ sales practices that you conducted in the wake of 

the Wells Fargo fake accounts scandal. You said in your letter that 

you sent on Monday that this review included more than 40 banks. 

And you said that the review identified a staggering 250 deficiencies that required the OCC to issue matters requiring attention 

to the banks on review. That is an average of over six matters requiring attention per bank. 

So my question is, did you find problems at every one of the 

banks included in the review? 

Mr. OTTING. Ma’am, what I would say to you is, first of all, I 

don’t view it as staggering, using that word. 

Mrs. MALONEY. Just answer my question, please. My time is very 

limited. 

Mr. OTTING. I know 250 out of 4,000 MRAs that are currently 

active in the industry. When we observed— 

Mrs. MALONEY. Did you find something in every single bank? 

Mr. OTTING. I don’t have the details of that in front of me. 

Mrs. MALONEY. OK. How many of those 40 banks had problems 

that you identified? 

Mr. OTTING. When we issue an MRA, it is an item that we ask 

people to take specific action, and we give that to them in writing. 

Mrs. MALONEY. OK. So let me follow up on that. If you found 

over 250 problems at just 40 banks in your review, doesn’t that 

suggest that you should expand the review to all banks supervised 

by the OCC now that you have identified such widespread problems? 

Mr. OTTING. You continue to use the word ‘‘problem.’’ And I 

would say that we— 

Mrs. MALONEY. I would say opening up—I would say opening up 

bank accounts is a problem. I would say that is a big problem to 

consumers. 

Mr. OTTING. But you are correlating the MRA with opening accounts and I think that is a false way to look at it. 

Mrs. MALONEY. Well, your letter indicated that you did in fact 

find individual banks that had opened accounts for customers without their consent. That is what Wells Fargo did. They opened fake 

accounts for their customers. 

So let me ask you, have you taken any public enforcement actions as a result of your review of sales practices? 

Mr. OTTING. We have not taken a public—these are confidential 

supervisory activities that we have in place that we will track adherence with the MRA activities. 

Mrs. MALONEY. So let me get this straight. Your examiners found 

evidence that there were banks that had opened accounts for customers without their consent, and you decided not to take any public enforcement actions against them, instead gave them a warning. 

I have to say I find that deeply disturbing, especially in light of the 

Wells Fargo scandal, but let’s move on. 


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You said that your agency’s going to make a decision soon about 

whether to allow financial technology firms to obtain a special national charter. As you know, the so-called fintech charter that your 

predecessor proposed would have allowed fintech companies to operate with a national charter, without being subject to the same 

regulations and supervisory regime that banks are subjected to. 

And this was concerning to many of us on this committee. I was 

also very concerned about preempting all the State laws for fintech 

companies which the OCC’s proposal would do. 

If your agency moves forward with a fintech charter, will fintech 

companies be subjected to the same supervision and regulation of 

banks? 

Mr. OTTING. They would be subject to the same supervision of 

national banks. 

Mrs. MALONEY. But not Federal banks. It would be—it would 

have the same supervision. 

Mr. OTTING. That is correct. 

Mrs. MALONEY. All right. Thank you. 

I yield back. 

Chairman HENSARLING. The gentlelady yields back. 

The Chair now recognizes the gentleman from Missouri, Mr. 

Luetkemeyer, Chairman of our Financial Institutions Subcommittee. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. 

Mr. Otting, I read both your testimony and the OCC bulletin on 

short-term, small-dollar installment loans. Quite frankly, I am left 

a little bit puzzled over some of the language you used, specifically 

by your mention of applicability of State laws. I read this to infer 

that the OCC is retreating from strong preemption, which would be 

a major shift in policy. 

Can you please clarify your position and the position of your 

agency? 

Mr. OTTING. Yes. We are not retreating from preemption. It 

wasn’t intended to confer that we would require national banks to 

adhere to the interest rates of each individual State, but the interest rate to which they are headquartered. 

Mr. LUETKEMEYER. OK. So you are basically saying that you still 

have preemption, but you’re saying that there are, in certain instances, State laws that are applicable that would still be there? 

Mr. OTTING. Well, no, the State laws are applicable to interest 

rates based upon where the banks are headquartered. So that is 

the concept. And if we misinterpreted that in either our bulletin or 

letter, we would happily provide clarification to that. 

Mr. LUETKEMEYER. OK. I was certainly concerned about the way 

I read that, but I appreciate your clarification. 

OK. With regards to another issue, I sent to you this morning a 

letter that outlined my concerns over guidance being treated by examiners as treating binding obligations on financial institutions. 

Essentially, examiners are treating guidance as rule without subjecting anything to the process outlined in the congressional review 

process. 

Are you willing to communicate your—to your exam force that, 

in the words of Federal Reserve Chairman J. Powell and Vice 


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Chairman Randy Quarles, rules are rules and guidance is guidance? 

Mr. OTTING. Not only would I be willing to do that, I have done 

that since I have been at the agency. We have issued memos within 

the agency to make sure that all examiners are aware of that. And 

so I am fully supportive. The agency issues Q&A and guidance 

from time to time internally, and our people clearly recognize that, 

as you said, rules are rules and guidance is guidance. 

Mr. LUETKEMEYER. One of the concerns is, as you well know, especially happened at the CPB during Director Cordray’s reign, that 

we would have guidance and then enforce that and wound up being 

your rule of law out of that. And so I think it is important that if 

you can do this when you are trying to explain the guidance is 

guidance, also have in there something that would really clarify to 

the banks that this is guidance, and if you decide not to adhere to 

the guidance or to vary from that, there will be no punitive action 

taken, because I think that is a real concern of the financial industry from the standpoint of how things have been done in the past. 

So that would be a great clarification and an added addition to put 

with your guidance. 

Mr. OTTING. Right. We will take that under advisement. I know 

you made that recommendation. 

Mr. LUETKEMEYER. Thank you very much. 

Also, Chairman Pearce and I have a piece of legislation that is 

getting ready to—that we have been working on here to modernize 

BSA/AML, and you have outlined in your testimony a need for 

some reforms. Can you elaborate on why you think modernization 

of BSA/AML is necessary? 

Mr. OTTING. Yes, I would. First of all, I would say, everybody 

would not want bad money and bad people to take those items into 

the banking system, and so we have designed the system today 

with BSA/AML which is very labor intensive, very paper intensive. 

We produce 10 million pieces of paperwork in the national banks 

today, and I am not sure all that effort is really getting to our ability to catch those bad people. And so I think that we have made 

14 recommendations to FinCEN (Financial Crimes Enforcement 

Network). 

There is an interagency group of people trying to work to aleve 

some of the overregulatory burden on banks. I know you have some 

in your bill that we are supportive of. And we think a collective effort can hopefully allow us to move to a spot where we can be better at detecting bad activity while lessening the burden to financial 

institutions. 

Mr. LUETKEMEYER. Now, as I have talked to a lot of banks about 

this, what their CTRs (currency transaction reports) and SARs 

(suscpicious activity reports), they are literally, literally giving millions and millions of documents to FinCEN. And it takes thousands, literally thousands of people to prepare those documents. 

And so if you think about it a little bit, it is going to take thousands of people to actually look at those documents. So it begs the 

question are they even looked at? Are they even reviewed? 

So if they are spending all this money and all this time in having 

all these people do this, there has to be some sort of benefit from 


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11 

it, and I really don’t see that at this point. So this is one of the 

reasons we are working on this. 

And also, beneficial ownership is a very controversial part of this. 

Can you explain a little bit, if you think that there is a—do you 

have a plan to change the definition or to give some sort of delay 

before implementing—it has been implemented. 

Mr. OTTING. On beneficial ownership, I think it has its merits. 

I think the issue of having that data readily available is very problematic for the banking industry, and I think we are going to have 

to work through those issues. 

Mr. LUETKEMEYER. Thank you. 

I see my time is up. I yield back. Thank you, Mr. Chairman. 

Chairman HENSARLING. The gentleman yields back. 

The Chair now recognizes the gentleman from New York, Mr. 

Meeks. 

Mr. MEEKS. Thank you, Mr. Chairman. 

Mr. Comptroller, I am somewhat favorable of fintechs. I think 

that they could be some good into—availability into communities of 

color, et cetera. And I am glad that the OCC recently came out 

with strong language against abusive charters’ schemes there. The 

sole goal is to evade State law. And I share your views that bank 

fintech partnerships—as I said, there are benefits, but there still 

seems to be some legal uncertainty on the difference between legitimate partnerships and sham relationships. 

So what I want to know is what is your opinion on the difference 

between the two? And will the OCC come out with guidance, specific guidance to clearly distinguish between true partnerships and 

rent-a-charter schemes? Because to me, if we don’t—the bad can 

hurt the good and the potential that I think fintech has. So can you 

give us an indication of how you see it and what the OCC’s role 

will be? 

Mr. OTTING. Yes. Congressman Meeks, I appreciate your interest 

in this. I was in your office and we had a chance to discuss this. 

I think this is an important part of the evolution of banking in 

America today. 

I would add a third equation to your point, which is how vendors 

are coming in and helping financial institutions to reach more customers. As a general rule, we have looked—when you say bad or 

sham or people ridding the charter, we generally looked at financial institutions, where they are actually using their underwriting 

and putting those loans on their books? We don’t view someone 

who can channel or referral those opportunities to the bank as a 

sham, but we definitely hold the banks responsible as to evaluate 

those relationships, make sure customers are being treated fairly. 

I think where most of the activity in the future will be into 

where they will use those people as vendors, where they have a 

great portal or a great way to reach customers and the bank has 

a desire to achieve those customers, and then we will hold those 

financial institutions to their vendor standards. 

Mr. MEEKS. So will you come out with some clear guidance? That 

is what I think it needs. If the OCC would come out with some 

clear guidance that individuals can understand and see, and then 

we would be able to really determine shams from nonshams. So do 

you think you will come out with some actual language? 


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Mr. OTTING. We actually talked about this yesterday at the agency, there were 20-some people around the room. And it was an area 

we spent a lot of dialog. We would be happy to involve your staff. 

I think it is something that will be needed. And we would be happy 

to come out with some thoughts on what is a true vendor relationship, what is a true relationship. And we would welcome you and 

your staff’s input on that. 

Mr. MEEKS. I look forward to working with that, because I think 

that is absolutely key and essential. The potential is there, but it 

can easily be destroyed if it goes the wrong way, and I think guidance will help that. 

You also talked about and I am interested in CRA and the role 

that fair lending should play in CRA examinations. And as you 

know, and I will try to do this real quickly, there are basically like 

three thoughts. One interpretation is that fair lending violations 

should always impact the CRA rating. Another one is that fair 

lending reviews are sometimes relevant to CRA examinations. And 

the third, of course, is that CRA examinations are completely separate and have no difference on each other. 

I know where I am. Where are you? 

Mr. OTTING. I am probably somewhere in the middle. As you 

know, CRA never included fair lending components. It is the bank 

serving the community—the entire community in which they operate, with a general emphasis today on low- to moderate-income 

communities. But I don’t see how a bank personally who is not 

doing fair lending can’t have some impact. 

Mr. MEEKS. Because it is important to note that one of the 

founding reasons when CRA was enacted was because of redlining. 

Mr. OTTING. Right. 

Mr. MEEKS. And they unfair—cutting out districts and, therefore, 

it was not fair lending. So that, to me, should be very much a part 

of one CRA ratings. Because if there is discrimination going on, 

that is a problem. And CRA is supposed to be—help to be inclusive 

therein. Correct? 

Mr. OTTING. Right. 

Mr. MEEKS. So I would hope that we look at that very, very, very 

closely. Well, I don’t think I have time for another question because 

there is somebody over there that is going to bang a gavel on me 

and you won’t have time to answer. 

So I yield back. 

Chairman HENSARLING. The gentleman yields back his 3 seconds. 

The Chair now recognizes the gentleman from Michigan, Mr. 

Huizenga, the Chairman of our Capital Market Subcommittee. 

Mr. HUIZENGA. Thank you. 

Comptroller, we appreciate you being here. I am going to move 

quickly because I have a number of things. 

Just first and foremost, is increasing liquidity in the markets important? 

Mr. OTTING. Absolutely. 

Mr. HUIZENGA. And has the Volcker Rule, as it sits today, impaired that liquidity, especially in times of stress? 

Mr. OTTING. I don’t think we have been in a time of stress to be 

able to test that, to be honest with you. 


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Mr. HUIZENGA. But as you look forward to it, this concentration, 

is that a possibility there? 

Mr. OTTING. It could have the potential. 

Mr. HUIZENGA. OK. So to be clear, have important market-making functions being unacceptably chilling—or chilled by how the 

Volcker Rule has been both drafted and implemented? 

Mr. OTTING. I don’t believe so. 

Mr. HUIZENGA. OK. Now, the OCC and other regulators tasked 

with the Volcker Rule implementation have proposed some 

changes, while still implementing section 619 of the Volcker Rule. 

I think you had used the word you support recalibrating the 

Volcker Rule. And I am curious, how do these reforms clarify or 

streamline or encourage more efficiencies in market places? 

Mr. OTTING. So in our notice of proposed rulemaking, which I am 

sure you have seen, we had taken the under $10 billion and fragmented between $1 billion and less and made assumed compliance. 

In $1 to $10 billion, we said if there was $25 billion or less, and 

over $10 billion, we would go to accounting methodology for that. 

And what I meant by that is, is we can look at the accounting 

methodology to look at individual trades to see if there was proprietary trading, that brings great clarity both, I think, to the financial institutions and the examiners. Because of where we have 

been, we haven’t been able to issue, I think, good examination 

guidelines on how to provide overview to proprietary trading. 

Mr. HUIZENGA. OK. While we are on that, though, under the current regulatory framework, Volcker-affected entities might encounter Volcker-related examinations from multiple regulators such as 

yourself who have different legal supervision and enforcement regimes and who might not, frankly, traditionally regulate them. And 

this committee has heard instances of Volcker-affected entities receiving conflicting guidance from multiple regulators on this. And 

does a regulatory framework that results in industry participants 

not knowing which regulators to listen to in order to even comply? 

You are talking about bringing clarity, but we still have this alphabet soup of regulators that are out there at times giving conflicting 

direction, correct? 

Mr. OTTING. I think that has been the case. And I think it was, 

I would say, a pretty remarkable task in a short period of time that 

we were able to bring the five agencies together and agree on a 

path forward. And I would hope in the future that would eliminate 

the situation that you are describing. 

Mr. HUIZENGA. Well, I think it has to. 

Mr. OTTING. I would agree. 

Mr. HUIZENGA. Has that been a goal, is to harmonize? 

Mr. OTTING. Yes. 

Mr. HUIZENGA. How have you been doing that? 

Mr. OTTING. Well, I think it starts with that we all agree now 

what the rules should look like. And we sent that out for comments, if we can implement that with the provisions of the Economic Act. I think that will create that harmonization. 

Mr. HUIZENGA. OK. Would the regulatory framework be simpler 

if the primary regulator for Volcker-affected entities was charged 

with examining the entities’ compliance with the Volcker Rule? 


nshattuck on FSR297 with DISTILLER
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Mr. OTTING. It would, but I think the problem you have is really 

between the Fed and the OCC. We split evenly those activities. So 

I think if you said— 

Mr. HUIZENGA. Are you kindly saying it is a bit of a turf war? 

Mr. OTTING. No, it is not a turf war at all. 

Mr. HUIZENGA. OK. 

Mr. OTTING. It is like where those activities are within that financial institution. Some entities do it in the bank, some do it in 

the holding company, and so it is split evenly. So if you ask my recommendation, I would suggest that the Fed and the OCC, where 

most of that activity is domiciled, could partner to provide the rules 

or the feedback. 

Mr. HUIZENGA. So let me pursue this, because this is where the 

rubber hits the road. How are you working with the Fed then to 

do that? 

Mr. OTTING. We have an excellent relationship. Randy Quarles 

has been an incredible partner since he has been put in that role. 

Mr. HUIZENGA. And you are meeting regularly? 

Mr. OTTING. We meet every week, the FDIC (Federal Deposit Insurance Corporation), Randy Quarles, and myself are on a conference call, and once a month we meet for lunch. And any issues 

amongst the regulatory agencies are discussed. There is an open 

forum. 

Mr. HUIZENGA. Well, I want to encourage that. And anything 

that we can do to make sure that that happens. Because, frankly, 

this committee needs to look at what those next steps are to make 

sure that that harmonization is happening. And whether it is taken 

care of in-house with yourselves or whether we need to be involved 

in that, it will happen. So thank you. 

I yield back. 

Chairman HENSARLING. The gentleman yields back. 

The Chair now recognizes the Ranking Member for 5 minutes. 

Ms. WATERS. Thank you very much. 

President Trump supported both the Volcker Rule and reimposing Glass-Steagall on the campaign trail, but the Administration 

has quickly backed away from those positions and is now pursuing 

Wall Street’s agenda to roll back the Volcker Rule. 

Do you support the Volcker Rule’s prohibition on proprietary 

trading so that banks that benefit from the Federal safety net do 

not gamble with deposits? And additionally, why did the OCC join 

with our regulators to propose a major overhaul to basically undermine the Volcker Rule, making life easy for very profitable Wall 

Street banks and opening the door to risky trading practices? 

Mr. OTTING. I do support the Volcker Rule. I don’t think our actions open the door to risky trading. I think it brought clarity to 

what was defined in the ability to measure and monitor activities 

within the banks. 

Ms. WATERS. When we debated a recent piece of legislation, I 

think there was some talk about the community banks and the fact 

that community banks were being penalized in some way because 

they had to, basically, follow the rules of the bigger banks as it relates to Volcker. 

Do you have some discussion on that? Because my understanding, of course, is that the community banks were not involved 


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in the kind of trading that they would have to be concerned about 

the Volcker Rule. 

Mr. OTTING. Yes. So in the notice for proposed rulemaking, we 

put out—before the economic act was approved, we assume compliance for all financial institutions $1 billion or below, and between 

$1 billion and $10 billion we excluded those that had net earnings 

on trading of $25 million or below. So it was our viewpoint, we 

agree with you, I am not aware of any small community bank that 

is active in proprietary trading. 

Ms. WATERS. In addition to that, I would like to get your take 

on the fintech. I don’t know, since I have been gone, whether or not 

some other people have talked about it. We have met with some 

of the leaders in the fintech community trying to understand exactly how they see going forward and what they understand about 

the expectations from OCC and Members of Congress. Have you 

been—gotten deeply involved with fintech and what your predecessor was attempting to do prior to leaving? 

Mr. OTTING. I have been directly involved. We publicly said that 

in July we will make a decision about whether we will accept applications for fintech. 

But if I could just take 10 seconds of your time, the world has 

changed dramatically over the last 2 years since Comptroller Curry 

went out. Fintechs used to think that they wanted to be banks, and 

now, most are realizing, because of the capital liquidity and commitment to the community they have to provide, they really don’t 

want to be—most don’t want to be banks anymore, but they want 

to be providers of services to banks. And so we see more and more 

coming in and talking to us about how they partner with banks to 

be able to provide portals and things where they can reach customers. 

So while some will still want to be banks, more and more are 

moving toward saying, I want to be partner with banks and offer 

our services. 

Ms. WATERS. So this participation with banks that you are alluding to, how would they see that working? 

Mr. OTTING. Well, the fintechs have great portals or ways that 

they can approach certain communities. Generally, credit is a big 

driver of that, that they think they can help banks reach into communities, and then they will use that to funnel opportunities to the 

financial institutions. And generally, the fintechs didn’t have the 

capital and liquidity to be able to do that. 

And so what you are finding is a lot of small banks don’t have 

that technology tool. And the analogy I would use, in the 1960’s 

and 1970’s, most banks used to do their own data processing and 

have their own computers, and now, they outsource that. And so 

the interior parts of banks are being done by large FIS (financial 

information servicers) and various others—I think you are going to 

see the next evolution is where banks will use various fintechs to 

help them approach the marketplace to get customers. 

Ms. WATERS. Thank you very much. And I yield back the balance 

of my time. 

Chairman HENSARLING. The gentlelady yields back. 

The Chair now recognizes the gentleman from Wisconsin, Mr. 

Duffy, Chairman of our Housing and Insurance Subcommittee. 


nshattuck on FSR297 with DISTILLER
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Mr. DUFFY. Thank you, Mr. Chairman. 

And, Mr. Otting, welcome to the Financial Services Committee. 

I am back here on the back row if you can’t find me; only one, besides the Chairman, back here on our side. 

I want to talk about small-dollar lending. I think this happens 

all across America, but especially in rural America, people come 

into hard times. And in times of need, if you don’t have a relative 

to borrow money from or if they don’t have a knee-breaking Vinny 

down the street, they are in tough shape. And I know you put out 

a bulletin encouraging banks to make responsible short-term, 

small-dollar loans that are amortized in equal payments. I commend you for that. And I know that you recognize this, but 63 percent of Americans don’t have enough in their savings account to 

cover a $500 emergency expense. So making sure that Americans 

have access in times of need is incredibly important. 

There weren’t a lot of specifics, though, on your bulletin. Do you 

anticipate that you are going to provide guidance in regard to the 

bulletin? 

Mr. OTTING. We do not plan to issue guidance. It was our intention to signal to financial institutions that we are supportive of 

them entering that space. Most of them design products, and then 

we will, through our examination process, determine that what 

they are doing is fair and safe. So we have given the latitude of 

financial institutions to enter that space with indications that— 

Mr. DUFFY. If it is not fair and safe, then what happens? 

Mr. OTTING. Then we would examine that and make a determination if consumers are— 

Mr. DUFFY. Doesn’t it make sense to give them some guidance, 

though? Doesn’t it make sense to offer guidance, instead of saying, 

listen, we want you to do it, but if you do it wrong, our jaws are 

going to clamp around you? 

Mr. OTTING. Yes, I don’t think that would be the case. What we 

want to do is for banks to be creative in that case and to look at 

ways to serve their community. And I am afraid personally if we 

issued some guidance, we may be too restrictive. 

Mr. DUFFY. OK. Obviously, people are concerned about—we are 

concerned about individuals and families who have low credit 

scores, and when they access these small-dollar loans, their rates 

are high. But isn’t there normally a correlation between risk and 

a rate of return? 

Mr. OTTING. Yes, sir. 

Mr. DUFFY. And are you going to be able to change what is happening in the current industry, whether it is current short-term 

lenders or the payday lenders, are we going to be able to change 

that if we go through credit unions and banks? 

Mr. OTTING. First of all, just clarification, there are two product 

segments in here. There is the up to 45 days and there is a 46 days 

and above. But we were addressing the 46 days and above. 

I personally feel that one of the reasons this was a big initiative 

of mine is that we forced banks out of that space in 2013. And for 

the life of me, on a supply and demand basis, if you take a big segment of supply out, what generally happened is that consumers got 

the wrong end of that deal. And by getting banks back in that 

space, I think they get fair, more economically efficient for them 


nshattuck on FSR297 with DISTILLER
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pricing on loans and there is more supply. But more importantly 

is the banks have to use that as a stairstep if they perform well 

on those to report to the credit agencies that then they can get 

back into the mainstream of banking. And that is another one of 

my clear goals. 

Mr. DUFFY. And I would agree with that goal. I think it is important. 

I want to switch gears on you in my 1.5 minutes. I have received 

more questions recently about an idea that would transition our 

post offices into a new banking system. Some have complained that 

rural America doesn’t have enough banks or credit unions. I share 

that concern, but the problem is we have so many rules and regulations, our small banks and credit unions can’t survive, so they go 

out of business or they have to consolidate. And so the regulation 

and laws that have come from this town have caused a problem, 

and so we are now going to come up with a new solution which is 

post offices and banking? Good idea or bad idea? 

Mr. OTTING. I think it is a creative idea if it increases the ability 

for consumers to have access to financial services. I am supportive 

of most activities that— 

Mr. DUFFY. So the government should be involved in lending? We 

say, listen— 

Mr. OTTING. No, I am not saying that. I said it is a creative idea. 

Mr. DUFFY. But we are talking about government lending, Mr. 

Otting, right? We are talking about the Federal Government is 

going to step in and lend through our post offices. You like that 

idea? 

Mr. OTTING. Generally not. But my viewpoint is, I think you 

have to increase the supply. If there is— 

Mr. DUFFY. Is there not enough supply right now? 

Mr. OTTING. There is not enough supply right now. 

Mr. DUFFY. And so do you think political lending is a good thing? 

Mr. OTTING. Do I think what lending is? 

Mr. DUFFY. Political lending. That if we make decisions based on 

politics and whether it is in housing or in student loans or in just 

everyday lending, is that a good thing for the American economy 

and the American consumer? 

Mr. OTTING. I think my own personal viewpoint is, is if we can 

educate people about financial services and that they can go to 

their phone and they can get a loan, or they can make a deposit, 

or they can open up a checking account, that is a better alternative. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Massachusetts, 

Mr. Capuano. 

Mr. CAPUANO. Thank you, Mr. Chairman. And thank you, Mr. 

Otting, for being here. 

Mr. Otting, I don’t know you at all. I just want to ask you a few 

questions generally what you believe in. 

Do you believe that homeownership is probably the most firm 

and sound and most used way for relatively poor or moderately 

poor working class people to move into the middle class? Do you 

believe that assessment? 

Mr. OTTING. I do, but I wouldn’t say all. 


nshattuck on FSR297 with DISTILLER
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Mr. CAPUANO. Not all, but it is the best way. You are talking to 

one of them who did that. Every bit of middle class ability I have 

is because I bought a house 30 years ago and stayed there. 

At the same time, do you believe that discrimination, either— 

never mind the legal obvious one, but even institutional discrimination, do you believe discrimination exists in America today? 

Mr. OTTING. I have personally never observed it, but many of my 

friends from the inner cities across America will tell me that it is 

evident today. 

Mr. CAPUANO. Do you believe that it exists? 

Mr. OTTING. I believe it—like I said, I have never personally observed it. People have told me it exists, and so I trust those people 

when they tell me that. 

Mr. CAPUANO. So you believe it exists? I understand you have 

never—and you are very lucky to have never experienced it. 

Mr. OTTING. That is right. 

Mr. CAPUANO. Do you believe that it exists? 

Mr. OTTING. Here is what I would say: I believe the people who 

tell me that it exists. 

Mr. CAPUANO. So discrimination in America exists today? 

Mr. OTTING. Again, I stand by my answer. 

Mr. CAPUANO. Well, that means you probably don’t believe a lot 

of things, because you haven’t personally experienced nuclear war 

either. So does nuclear war exist—I am not going to get into that. 

That is a ridiculous answer, but that is OK. 

Do you believe that discrimination exists along racial, ethnic, 

gender, socioeconomic lines? 

Mr. OTTING. I, again, have never observed that, but people who 

are close to me have said that they have experienced that. 

Mr. CAPUANO. You have never experienced it. Have you ever read 

about it? 

Mr. OTTING. Yes, I have read about it. 

Mr. CAPUANO. Do you believe that the writers are stating a truth 

or just using it for political purposes? 

Mr. OTTING. My experience with writers is they are right half the 

time. 

Mr. CAPUANO. So there is no discrimination in America? 

Mr. OTTING. No, I am not saying that. 

Mr. CAPUANO. What are you saying? 

Mr. OTTING. I am saying that I have personally never observed 

it. 

Mr. CAPUANO. Geez, that is—I don’t even know how to respond 

to that, if you want the truth. I think you finally got me. 

Mr. OTTING. That wasn’t my intent. 

Mr. CAPUANO. Well, it was OK. Not too many people can get me. 

I just—certain things stun me. 

Do you believe, in America today, that economic disparity exists? 

Mr. OTTING. I do believe that. 

Mr. CAPUANO. Do you believe it is expanding or do you believe 

it is not expanding? The difference between the wealthy and the 

poor. 

Mr. OTTING. I believe that it is not expanding now with what we 

are seeing with employment and economic opportunities in America. 


nshattuck on FSR297 with DISTILLER
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Mr. CAPUANO. You do not believe that the rich are getting richer 

and the poor are getting poorer? 

Mr. OTTING. I think what I was saying is I believe that people 

on the lower economics end of the society are seeing more economic 

opportunities with jobs. 

Mr. CAPUANO. That is not my question. I asked very simply, are 

the wealthy getting wealthier and the poor getting poorer? 

Mr. OTTING. I don’t have those statistics in front of me, so I can’t 

answer that question. 

Mr. CAPUANO. I really think you need to get out a little bit more, 

Mr. Otting. Again, you can disagree with it. I understand there are 

people that disagree with it. That is why I am trying to assess your 

beliefs. It is awfully hard to ask you questions if I don’t know what 

you believe in. I have to go right back to what I think— 

Mr. OTTING. —to your office and I will come by and we can— 

Mr. CAPUANO. No, that is—you are welcome to come by any time 

but this is a public hearing, and I figured I would ask some questions. But I guess I have to just revert to what I think of the 

Trump Administration, then, if you refuse to answer my questions 

about what you believe. Because I do believe discrimination exists. 

I do believe economic disparity is growing. I didn’t blame you. I 

didn’t blame the Trump Administration, but I believe it exists and 

I do believe it is expanding. 

Last year, do you agree or disagree with the Wall Street Journal’s assessment that the OCC made it harder—this is a quote, 

‘‘made it harder for banks to be penalized under the CRA.’’ 

Do you agree or disagree with that statement? 

Mr. OTTING. I disagree with that statement. 

Mr. CAPUANO. Great. So The Wall Street Journal, the wellknown, pro-business magazine newspaper of the world is wrong in 

their assessment about business. 

When you were at Hanover, did you ever eat at Lou’s? 

Mr. OTTING. No, I did not. 

Mr. CAPUANO. Do you know where Lou’s is? 

Mr. OTTING. I don’t. I ate at the Hanover Inn. 

Mr. CAPUANO. Well, Lou’s is right down the street. It is where 

working class people—and the Hanover Inn is where the alumnae, 

that is where they eat. When you are in school, you eat at Lou’s 

because you generally don’t have enough money to eat at the Hanover Inn, but I am glad you did. 

When you were at the Hanover Inn, did you observe the speed 

limit along South Main Street? 

Mr. OTTING. I did not drive. 

Mr. CAPUANO. It was about 30 miles an hour. 

Do you know that there were some people there—I guess I am 

going to run out of time and I am going to give it up, because I 

have to give you credit, Mr. Otting, you got me. Never having seen 

discrimination, you are a very lucky man. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair recognizes the gentlelady from Missouri, Mrs. Wagner, 

Chair of our Oversight and Investigations Subcommittee. 

Mrs. WAGNER. Thank you, Chairman Hensarling. 

Comptroller Otting, I am over here. I know that the OCC is 

working on reevaluating the Community Reinvestment Act as is 


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the U.S. Treasury Department, so let me start there. In past remarks, you noted, and I quote, ‘‘community groups don’t like the 

way CRA is today. The banks don’t like the way CRA is today, the 

regulators don’t like it.’’ 

In addition, Treasury Secretary Mnuchin said at a hearing just 

last June, banks—I quote again, ‘‘banks spend billions and billions 

and billions of dollars fulfilling their CRA obligations. I want to 

make sure it is absolutely going to help communities and isn’t just 

a check the box to satisfy regulators.’’ 

Comptroller, what is the OCC’s overlying diagnosis of the problems with the CRA? 

Mr. OTTING. I think there are three core problems that we would 

like to solve for. One is we need a more objective way to measure 

a bank’s success in CRA. Today, we have a very subjective points 

process. I have been putting forth an ability to look at a balance 

sheet item that deposits total assets or tier one capital, add up all 

the activities that a bank does. And an example of that, of $100 

million of CRA at a billion dollar bank, they would be at 10 percent. We could apply that universally across the industry and it 

would be easy to understand a bank’s commitment to CRA. 

Second of all, today, we have a very narrow description of where 

people are doing their CRA activities, and it is predominantly residential mortgages and multifamily and low- to moderate-income 

areas. I think we need to expand the definition of what qualifies. 

I think we have a cap on $1 million over revenue for a small loan. 

In East Los Angeles, if a company is $1.5 million in revenue and 

creating 30 jobs, then I think that should qualify. I also know the 

difference between State and church. But in the Black and Latino 

communities in America, that is where people go for job counseling, 

that is where they go for helping them get ahead. And so the 

minute a church is identified with the CRA thing, it is disqualified. 

I think that part should be— 

Mrs. WAGNER. And the third? Because I have other questions. 

Mr. OTTING. And the third is we have a process where we do examinations every 3 years; it takes us 6 to 24 months to complete 

the exam. If we can fix the first one where we can be more economic, we can almost perpetually be able to say a bank is in compliance with their CRA activities. 

Mrs. WAGNER. Sounds like there are many areas and avenues of 

reform and betterment to actually reach these communities that 

have occurred since the 1970’s. 

Mr. OTTING. I would agree. 

Mrs. WAGNER. In your spring 2018 rulemaking agenda, you provided the date of May 2018 as the anticipated date for an advance 

notice of proposed rulemaking, ANPR, for the CRA reforms, but we 

still have not seen anything as of today, Comptroller. When do you 

expect the OCC to finalize its recommendations for that ANPR? 

Mr. OTTING. I get up every day trying to advance that ANPR. 

Mrs. WAGNER. Timeframe? 

Mr. OTTING. A lesson learned of coming to Washington, D.C., is 

you put yourself out there a little bit, and I would tell you I am 

hopeful now in the next couple weeks that we can get that out. 

Mrs. WAGNER. Next couple of weeks. That is great. Well, we look 

forward to it also. 


nshattuck on FSR297 with DISTILLER
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Mr. OTTING. Thank you very—so does everybody else in America. 

Mrs. WAGNER. Does the OCC have plans to issue in conjunction 

with other agencies? And what has been the OCC’s involvement 

with other Federal agencies and financial regulators to this point? 

Mr. OTTING. It has been an attempt to be a multiagency effort. 

The OCC has been ready since March to issue the ANPR, and we 

are hopeful that we can make this a joint agency action. 

Mrs. WAGNER. Do you anticipate any major differences between 

the Treasury report and the OCC’s vision for CRA reform? And if 

so, what are they and why? 

Mr. OTTING. I do not. I follow the Treasury closely. Obviously, 

Secretary Mnuchin and I teamed up to have a CRA plan. We 

worked within the confines of the CRA, and we are both very energetic about creating more opportunities for banks to serve low- to 

moderate-income areas across America. 

Mrs. WAGNER. What areas for CRA reform can be accomplished 

primarily through agency rulemaking and guidance, and what 

areas of CRA reform will require congressional legislation, do you 

think? 

Mr. OTTING. A hundred percent can be done through the agencies. 

Mrs. WAGNER. Wow. That is fantastic. 

Well, as Chairman of the Oversight and Investigation Committee, I look forward to your report, I look forward to reforms that 

perhaps have been decades and decades overdue and bringing this 

up to date to make sure that we are taking good care of our lowand moderate-income communities and giving them the chance at 

the American Dream. 

I thank you for your hard work on this, Comptroller. 

Mr. Chairman, I am about to run out of time, and I yield back. 

Chairman HENSARLING. The gentlelady yields back. 

The Chair now recognizes the gentleman from Massachusetts, 

Mr. Lynch. 

Mr. LYNCH. Thank you, Mr. Chairman. 

And thank you, Mr. Comptroller, for helping the committee with 

its work. 

I want to go back to the Chairman’s earlier question, and also 

Mrs. Maloney’s. In response to the Wells Fargo situation, where 

Wells Fargo actually robbed their own customers by opening up accounts and charging them fees for which they were not authorized 

to do so, we had this horizontal review that you described in your 

opening remarks, 40 banks. And it is your estimate, based on that, 

that there are about 20,000 questionable cases. 

I was wondering, of these 40 banks, is it fair to assume that 

some of them had strong new account policies? 

Mr. OTTING. I would say yes. 

Mr. LYNCH. And some did not, right? 

Mr. OTTING. That is correct. 

And it wasn’t that we found violations; it was that there weren’t 

specific policies that were part of their risk management process. 

So I want to just be clear— 

Mr. LYNCH. Yes, I understand what an MRA is, a matter requiring attention. I— 

Mr. OTTING. Right. 


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Mr. LYNCH. —understand that. But here is what I am getting at: 

Our goal is to try to hold the bad actors accountable, if possible. 

And so you did this whole study, and then you never named anybody, even though you found 20,000—or, 10,000, I guess, were 

without authorization, but 20,000 cases in general. 

How do we hold people accountable when you treat the good 

guys—and you say there are some people that had strong policies— 

the same as the ones that had less so? 

It is just, we are trying to hold people accountable. I think doing 

the investigation and then not holding people accountable publicly 

is creating a moral hazard. We did the right thing with respect to 

Wells Fargo, with the fines and all that, and went after them, but 

I just think, in that industry, there is a lot of ‘‘me too’’-ism, and 

you will see activities in one bank, if they are successful, will be 

copied by other banks. And I am not seeing an approach from OCC 

that would curtail other banks from following in this type of conduct if we are not going to hold them responsible. 

Mr. OTTING. I don’t think you can say that the institutions did 

not hold the individuals responsible. There were actions with certain employees. And I think, does that mean that you announce 

which employees were being— 

Mr. LYNCH. I guess what I am saying is hold them publicly responsible. 

Mr. OTTING. Yes. So I think I mentioned in my comments that 

these were currently under supervisory activities, and we are following these MRAs. 

Mr. LYNCH. OK. 

Mr. OTTING. And so to announce these during that process I 

think would be inappropriate. 

Mr. LYNCH. OK. Fair enough. No, that is a good point. 

Let me ask you, there is some talk about amending, reforming 

the Bank Secrecy Act, and there is talk specifically about reducing 

the amount of information. I am talking about CTRs, cash transaction reports, and suspicious transaction reports that go to 

FinCEN. What do you think about that? 

Mr. OTTING. I think it should be open for review. 

There are nine million CTRs that are produced today from the 

national banks, and the viewpoint, the question—it is $10,000. I 

think we produce a lot of paper, and I am not sure it gets to the 

point where we are catching the right people. Often, businesses 

that have been working with banks for a long period of time get 

caught structuring at that lower dollar amount. 

Mr. LYNCH. Yes. 

Mr. OTTING. And so there is an estimate that 20 to 25 percent 

of those are good American citizens with businesses trying to move 

money back into the system illegally and they get caught in that 

current lower level of CTR. 

Mr. LYNCH. Yes. Well, I trust you are talking with FinCEN? 

Mr. OTTING. We are. We have a joint— 

Mr. LYNCH. We talk to—just so you know, we on the committee, 

we have sat with the Financial Crimes Network, and they expressed a need for the data. It gives them a—if you are looking for 

a needle in a haystack, you need the haystack, in terms of what 

they look for. 


nshattuck on FSR297 with DISTILLER
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So I am just cautious about doing that. We have a lot of bipartisan interest in protecting our banks and making sure that people 

of nefarious intent do not abuse that for terrorist purposes or 

money laundering. And I would just advise you or caution you to 

share that caution with us in terms of making it easier for someone, perhaps, to use the legitimate banking system for terrorism or 

money laundering purposes. 

Mr. OTTING. Yes, Congressman Lynch, I agree with you. I think 

there are some things around the edge that we can improve. But 

the long term, I think, is how we take a database of all the transactions and make that available to law enforcement. And what we 

are finding when there are some pilots doing that, the hit rates are 

much higher and there is less of that other activity. You may be 

familiar with some of those. 

Mr. LYNCH. I am. 

Thank you, Mr. Chairman. I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Kentucky, Mr. 

Barr, Chairman of our Monetary Policy and Trade Subcommittee. 

Mr. BARR. Thank you, Mr. Chairman. 

And, Mr. Otting, welcome to the committee. Good to see you this 

morning. 

Your predecessor began an effort to provide special-purpose charters to fintech companies, as you know, and my understanding is 

that a number of critical policy questions remain unanswered. 

Will you commit to ensure that the public, including Congress, 

has an opportunity to weigh in on these critical questions? 

Mr. OTTING. We have been on a process to review whether we 

would issue a special-purpose charter in July, and that is the track 

that we are on at this point in time. I would be happy to work with 

your staff or any other Members of Congress that would like me 

to come by and have some dialog on that topic. 

Mr. BARR. That would be great. I appreciate that. We would like 

to know what the OCC is thinking on this topic and what types of 

fintech companies might be eligible for such a charter. 

Obviously, there has been much debate and discussion concerning fintech lenders and the challenges of serving a national 

marketplace with a 50-State patchwork of confusing and conflicting 

State regulations, and this includes the topic of the OCC fintech 

charter. Yet multi-State-focused brick-and-mortar-based lending offices, which also use financial technology, seem to have been left 

out when discussing solutions and the need to modernize regulations. 

These so-called click-to-brick lenders cover a market segment 

that online lenders cannot fully serve, especially for those consumers who have the greatest need for more hands-on underwriting and servicing. And these consumers include many hardworking families as well as entrepreneurs and small-business 

startups. 

So it seems to me that, to the extent that the OCC does move 

forward on a national charter, that we would need a comprehensive 

approach so that we don’t leave out important market segments 

that continue to struggle with an antiquated regulatory model. 


nshattuck on FSR297 with DISTILLER
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How can the OCC or any Federal regulator, for that matter, address the need for modernization of the nonbank lending regulatory 

environment, especially for those delivering their services across 

multiple State lines and having to contend with this patchwork of 

conflicting and sometimes contradictory regulations? 

Mr. OTTING. So, Congressman Barr, regarding nonbank, that is 

generally not an area that the OCC is involved in. The Bureau is 

involved in that. Those that would want to become a bank through 

any kind of charter application would have to go through capital 

liquidity and serving their community. So I think to answer your 

question, I am not sure I am in a position to do that. 

Mr. BARR. So is it your position that the OCC is not the appropriate regulator for nondepository institutions? If Congress, for example, were to offer that opportunity for you to expand your regulatory jurisdiction, would that be something that you would say 

would be outside of the expertise or capabilities of your agency? 

Mr. OTTING. I wouldn’t say it is outside the expertise. And I do 

think, Congressman Barr, that some fintechs will elect not to have 

deposit-taking capabilities; they will fund through another source. 

And we do think that some of those institutions have sufficient liquidity and capital to do that. 

Mr. BARR. Well, to the extent that there would be a national 

charter, whether it would be OCC or the Bureau or another regulator— 

Mr. OTTING. Well, the Bureau would not have the authority to 

issue a charter. 

Mr. BARR. Under current law, correct. Right. 

Would it be important in terms of leveling the playing field with 

an optional national charter to include not just the click-to-click 

but also the so-called click-to-brick? Would that, in your mind, be 

an appropriate response to addressing the national charter concept? 

Mr. OTTING. That they could apply for a national banking charter? Yes. 

Mr. BARR. And, obviously, the special-purpose fintech charter has 

received lukewarm interest because of a number of factors, including the threat of litigation from States and the fact that a charter 

won’t offer the ability to raise cost-effective funding through deposits. But, at the same time, the special-purpose charter would offer 

substantial benefits in preempting these conflicting State laws. 

If the OCC does not move forward with a charter, what can it 

do to support innovators that make loans over the internet and either have an interest in becoming a bank or partnering with a 

bank? 

Mr. OTTING. So a number of the State banking agencies have 

been in to talk to us, and a lot of them are trying to create coalitions where they can standardize the State banking laws. 

We see that with the MSBs, with a number of States coming together and standardizing their MSB laws. So if somebody wants to 

operate in multiple States, they don’t just have one choice, which 

is a national banking charter, but they can actually operate within 

those States with common laws. 

Mr. BARR. Thank you. I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 


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The Chair now recognizes the gentleman from California, Mr. 

Sherman. 

Mr. SHERMAN. Mr. Chairman, I would like to respond just a little 

bit to the economic picture you painted in your opening statement. 

And I focus on annual statistics. Monthly statistics just jump up 

and down. 

In terms of jobs, since Dodd-Frank became effective or was enacted, the first full year was 2011, we have had 7 years of strong 

economic growth, and we have created in that 7 years 17 million 

new jobs, 2 million of them created while Mr. Trump was in the 

White House. That is 2 out of 17. 

Economic growth last year was 2.3 percent. That is somewhat 

lower than the average of the prior 3 years. It is still good to have 

some economic growth. We look forward to higher levels of economic growth. 

And, of course, our trade deficit with China last year was at an 

all-time high of $375 billion. 

We all hope that America is successful, but, in evaluating a Presidency, a President like President Obama, who inherited a plane 

that was careening toward the ground and turned it around so it 

is headed up, deserves substantial credit. A President who inherits 

a national economy that is on its way up and is able to continue 

that increase at perhaps a slightly lower rate than he inherited 

does not, thereby, win a Nobel Prize. 

I will ask Comptroller Otting: Back when I was young, banks 

didn’t always just lend to triple-A-rated giant institutions, they 

took some risks. They didn’t take risks on subprime, financially engineered, super-default-swaparoo things; they lent to the small 

businesses in our community. And they didn’t even get a government guarantee to do it. 

And in order to take those risks, they charged prime-plus-2, 

prime-plus-3, prime-plus-4 on loans to smaller businesses because 

there is always a 1- or 2-percent chance that such a business goes 

under. 

In more recent times, banks have been able to take enormous 

and catastrophic risks on the giant, financially engineered products, but they tell me that they are constrained in taking the moderate risk associated with a loan to a local pizzeria unless they can 

get it SBA-approved. 

How will your auditors react if they see that a bank has 5 or 10 

percent of its portfolio lent to small businesses in its community at 

rates of prime-plus-3 or prime-plus-4 precisely because those very 

businesses have a credit risk that justifies a prime-plus-4 loan? 

Can they devote a chunk of their portfolio to that kind of loan, or 

is it basically a world in which they can’t take those kinds of risks? 

Mr. OTTING. As long as it is within their risk tolerance and their 

risk statement, then the examiners would not offer any issues associated with that portfolio. 

Mr. SHERMAN. Within their risk—I have been told by every 

small-bank officer that I have talked to that if they had primeplus–4 loans your folks would come down on them very, very hard. 

Do you find that banks are able to make non-government-guaranteed loans, without demanding the owner pledge his or her 

house, to small businesses? 


nshattuck on FSR297 with DISTILLER
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Mr. OTTING. Well loans are made based upon a primary and secondary source of repayment, and that is the way the risk rating is 

determined. So if a small business has cash-flow that can cover 

their obligations plus— 

Mr. SHERMAN. What if the business’ economic position was such 

that it would be fair to charge them prime-plus-4, even prime-plus5? Does that disqualify—that means that there is some risk with 

the loan. 

Mr. OTTING. Pricing is not the factor when we are looking at the 

safety and soundness of the loan. It is— 

Mr. SHERMAN. So, basically, you are saying that the loan has 

to— 

Mr. OTTING. There has to be a primary and secondary source of 

repayment on the loan. 

Mr. SHERMAN. And if there is a 5-percent risk or a 2-percent risk 

that it will not be repaid according to its terms, what do your people do? 

Mr. OTTING. You are saying the loss given defaults and the losses 

associated with that loan? Is that what you are saying? 

Mr. SHERMAN. I am saying that there is a significant risk that 

the loan will not be repaid according to its terms, the 2- to 5-percent risk that is— 

Mr. OTTING. Well, I think it would be the level of reserves that 

someone has against that particular loan based upon the expected 

default and loss factor. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Florida, Mr. Ross. 

Mr. ROSS. I thank the Chairman. 

When it comes to CRAs—I was just reviewing your testimony 

again—you note in your testimony the stakeholders involved are 

extremely dissatisfied with both process and results. 

What is the underlying problem with CRAs? 

I also note that you mention in there about incentivizing banks 

to take more interest in their neighborhoods. And as we move to 

more and more online banking and less and less branch banking, 

my concern is that there are neighborhoods, communities under the 

CRA that are going to be overlooked. And I know you have addressed this. 

And so my first question is: What is the problem with the CRA 

as we know it today with allowing for this incentive for banks? 

Mr. OTTING. Yes. I am not sure I said incentives for banks— 

Mr. ROSS. Encourage banks. You used the word ‘‘encourage.’’ I 

am sorry. 

Mr. OTTING. Yes. So I think today we have a subjective way that 

we measure banks’ success under CRA. Second of all, we have a 

very narrow product that is being deployed to achieve CRA results. 

And the third issue is that we have a very complex examination 

process every 3 years that is difficult to turn that around. 

Mr. ROSS. When do you think the OCC will begin its formal process for revising the CRA on behalf of national— 

Mr. OTTING. I arrived on November 27, and on November 28 I 

began the process. 

Mr. ROSS. Thank you. Thank you. 


nshattuck on FSR297 with DISTILLER
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One of the things I also noticed was, you are going through a 

rulemaking process that would allow banks to provide short-term, 

small-dollar loans, I guess payday loans. Is that what we are talking about? 

Mr. OTTING. No, we are not going through a rulemaking. We 

issued a bulletin. There are two segments. There is the 0 to 45 

days, which is normally defined as a payday loan, where there is 

one source of repayment. We issued a bulletin to encourage banks 

to get into the market that is 46 days or longer— 

Mr. ROSS. OK. I appreciate that clarification. 

Mr. OTTING. Yes, which generally is paid from multiple paychecks over a period of time. And banks had exited that business 

in 2013, and we have encouraged them to go back into that space. 

Mr. ROSS. Would that also include overdraft lending? 

Mr. OTTING. It would not. 

Mr. ROSS. OK. 

With regard to the Bank Secrecy Act and anti-money-laundering 

legislation, one of the ways in which you have phrased the current 

BSA/AML examination is a ‘‘gotcha’’ system, in which an institution’s compliance regime can be deemed deficient based on a single 

or isolated incident. 

What steps is the OCC going to take to ensure that the BSA 

compliance is geared primarily toward deterring illicit activities 

and not just assessing fines? 

Mr. OTTING. Well, first of all, I don’t know if you were here when 

I made the comment— 

Mr. ROSS. I was not. 

Mr. OTTING. —that the OCC led an interagency effort, which included the Fed and the FDIC. Our staffs and the principals that 

got together, and we came up with 14 items that we thought could 

improve the current system that banks are using. We submitted 

that to FinCEN at the beginning of May. 

Last Friday, they came back to us with some edits. We plan to 

use that as our control document and create a group of people that 

will work on BSA and similar matters. There are some things that 

we can do, some things we will need— 

Mr. ROSS. It is more proactive? 

Mr. OTTING. That is right. Right. 

And I would say our viewpoint is we have a very cumbersome, 

paper-oriented process, producing lots of documents that I am not 

sure gets to the core of stopping people from using our banking system inappropriately. 

Mr. ROSS. Under the current BSA framework, do you believe that 

financial institutions are required to collect information on their 

customers that are of no use to law enforcement? 

Mr. OTTING. They are required to comply with the currency 

transaction reports. And when they identify suspicious activity, 

they are required to complete SARs. 

Mr. ROSS. Right. But, otherwise, collection of information other 

than for that purpose would be inappropriate under the Bank Secrecy Act. 

Mr. OTTING. You would have to give me a specific example, but, 

yes, as a general rule, I would agree with you. 

Mr. ROSS. OK. 


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Is the OCC currently working to improve the type and amount 

of information required to be collected and how that information is 

communicated to law enforcement or regulators? 

Mr. OTTING. I think through the initiative with the BSA, I think 

we can get there. 

One of the key things, I think, is an important element of stopping bad people is that we make that information available. I think 

it is really critically important for us to be able to have dialog with 

what is important to law enforcement to be able to stop an illegal 

activity. 

Mr. ROSS. And what protects the privacy of the customer. 

Mr. OTTING. That is correct. 

Mr. ROSS. Thank you. 

That is all I have. I yield back the balance. 

Chairman HENSARLING. The gentleman yields back. 

The Chair now recognizes the gentleman from Georgia, Mr. 

Scott. 

Mr. SCOTT. Thank you, Mr. Chairman. 

Mr. Otting, let’s go back. I want to talk to you about the possibility, first, of the fintech special order. Are you going to offer it, 

or are you not? 

Mr. OTTING. We have not concluded a decision at this point. 

Mr. SCOTT. You are aware that, when your predecessor offered 

that, that the Conference of State Banking Supervisors filed suit 

against you, against the OCC. What is the disposition of that? 

Mr. OTTING. My disposition is that the National Banking Act 

gives us the authority to issue that charter. 

Mr. SCOTT. So, legally, where is that suit? Has it been dismissed? 

Mr. OTTING. No. The judges in those cases found that there was 

not cause at this particular point in time on those lawsuits because 

we had not actually entertained any applications. 

Mr. SCOTT. Well, for the very nature of that suit, and when you 

look at it from the standpoint of the fintechs themselves, unless we 

can find a way to satisfy some of the concerns that the State banking regulators—who certainly have first call on this. Because these 

fintechs don’t call just one State home; they operate across the Nation in 50 States. So there is a role for the State banking supervisors. If that is not resolved, then we are putting the fintech companies in a very untenable position. 

Now, that is one point. The other point is that—you came by my 

office, and thank you for that. We had a wonderful visit. And at 

that office, I shared with you legislation that my staff is working 

on, in conjunction with both the Democratic staff on this committee 

and the Republican staff, to come up with a bipartisan piece of legislation that clearly needs to be put forward first. 

These fintechs are faced with a plethora of regulators. You have 

yourself, and you have this problem with the State supervisors. 

You also have the FDIC. Some fintechs may even go for that charter for industrial loan companies. And if they do that, they fall 

under a very serious benefit of being able to compete in a way that 

puts the smaller banks at a disadvantage because they won’t have 

to jump through the same hoops to get that Federal Reserve insurance for their deposits. You have that. And then you have the 

CFPB with project catalysts, and they have offered only one letter 


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of action—of no action over all their period. And then you have 

LabCFTC. 

My whole point is that it is my hope that you have had a chance 

to—as we said, you were going to chat with my staff and get the 

idea of the legislation that we are proposing. It is so important 

that, as we move to find out how we are going to regulate this burgeoning industry, that we don’t move so haphazardly that we suffocate the innovation of this industry. 

And so did you get a chance to contact my staff and get a look 

at it? 

Mr. OTTING. Yes. Our Office of Innovation staff met with your 

staff as a follow up to that meeting. 

Mr. SCOTT. So they have that. So what do you think? 

And just as a prelude, the legislation would require something 

first before we really get in this, which—we know all these different agencies are biting at the bit to regulate this industry. So 

our legislation will be to set up and require that these regulatory 

agencies harmonize and coordinate, make that a requirement going 

forward. Because you got so many wanting to get into them. If not, 

we are going to be very destructive to this burgeoning industry. 

And I asked you, I said, I hope that you will be with us on this. 

So you agree with us, right, for the record, that that is what we 

want to do? 

Mr. OTTING. I don’t disagree with you, but it really depends upon 

where the fintech decides they want to be domiciled, in what regulatory agency. If they are going to operate in a particular State, 

then most will choose to be regulated by that State banking group 

or a multi-State— 

Mr. SCOTT. And that is why another part of the bill will be to 

get the fintechs a point of entry. 

So I am just saying we have to look at it from the standpoint of 

how do we effectively regulate this new, burgeoning industry. 

Chairman HENSARLING. The time of the gentleman has expired. 

Mr. OTTING. I would be happy to come by and have further dialog with you. 

Mr. SCOTT. All right. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Illinois, Mr. 

Hultgren. 

Mr. HULTGREN. Thank you, Chairman. 

Thank you, Comptroller Otting. Appreciate you being here. 

Mr. OTTING. Thank you. 

Mr. HULTGREN. As you noted in your written testimony, S. 2155 

includes a provision requiring the Federal banking regulators to 

permit for a short-form call report every other quarter for institutions with less than $5 billion in assets. Obviously, Congress would 

not have called for this change if we were satisfied with the relief 

from the call report being considered via the EGRPRA process. 

I sponsored the stand-alone bill in the House with Terri Sewell 

and also Andy Barr. So I am very interested in your plans on implementation of this legislation. What is a reasonable timeline for 

banking regulators to propose and finalize regulations? And I wondered if you have thought at all about what a short-form call report 

might include. 


nshattuck on FSR297 with DISTILLER
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Mr. OTTING. First of all, earlier in my comments, I said we have 

organized a group of people within the agency, a task force, to focus 

on the entire bill. We have narrowed things into what can we do 

short-term very quick, what are medium-term that we have to 

write a rule, and then what will require interagency. 

This is an area that we think we can implement very quickly— 

Mr. HULTGREN. Great. 

Mr. OTTING. —and I can tell you that we have all of our resources moving fast on this particular issue. I can’t give you an 

exact timeline, but I would be happy to follow up as we get further 

along the path. 

Mr. HULTGREN. Thanks. That would be great. 

I also would ask or would recommend you and those who are specifically tasked with that to take a closer look at what the Independent Community Bankers of America has proposed as a reasonable short-form call report. This includes ‘‘Schedule RI—Income 

Statement,’’ ‘‘Schedule RI-A—Changes in Equity Capital,’’ and 

‘‘Schedule RC—Balance Sheet.’’ 

If I can move a little bit, I wanted to ask briefly and see if I could 

ask you to discuss with you the treatment of centrally clear options 

as it relates to our risk- and leverage-based capital rules. 

The Treasury Department’s October 2017 report on capital markets notes, and I quote, ‘‘The CEM may be responsible for a corresponding reduction in banks’ ability and willingness to facilitate 

access for their market-maker clients, who are the primary liquidity providers in these markets,’’ end quote. 

I understand this concern was realized by some market makers 

during some of the volatility incurred by the markets earlier this 

year. I have talked with dozens of market participants and many 

of my friends on the other side of the aisle, and there seems to be 

strong agreement that our capital rules should be tweaked in order 

to improve liquidly in listed options markets. Our challenge has 

been getting the undivided attention of the banking regulators to 

address this. 

I wondered, would you commit to work with your colleagues at 

the Fed and FDIC to address this issue? 

Mr. OTTING. Yes, I would. 

Mr. HULTGREN. Great. Thank you. 

I also want to thank you for your work to reconsider aspects of 

section 619 of the Dodd-Frank Act, the so-called Volcker Rule. One 

specific topic I would like to raise with you is the Volcker Rule’s 

detrimental impact to venture capital funds and the startup companies that they support. 

Before the Volcker Rule, banks provided 7 percent of dollars invested in venture capital funds and were a reliable source of funding for smaller venture capital funds, as they are not as attractive 

to larger, institutional investors. 

I wonder, do you believe that venture capital funds should fall 

within the definition of private equity funds, first? And has the 

OCC studied how a change to the covered-funds prohibition that 

exempts venture capital would permit for more investment in startup companies and overall economic growth? 

Mr. OTTING. I do believe it does fall under the current definition. 

I personally have sat on two boards of financial institutions that 


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did those type of equity investments. I did view it as a legitimate, 

stable source of proceeds to funds that invested in small companies 

across America. And we did put out in a notice of proposed rulemaking at least for people to comment on the definition. 

Mr. HULTGREN. Great. Yes, I would agree that this really is the 

backbone, and we want to continue to encourage small companies 

to grow but also to go public. It is something that we talk about 

all the time here, of really the harm that is done to mom-and-pop 

investors by not having more of these smaller companies grow to 

become public and choose to become public. 

Also, I am sure as you are probably aware, this change that I 

have talked about is recommended by the Treasury Department’s 

October 2017 report on capital markets. 

And, again, thank you. I would just continue to ask that you and 

your colleagues at the other financial regulators prioritize this 

when considering changes to the Volcker Rule. 

Last question, in the last few seconds: The OCC has begun consideration of a special-purpose charter for fintech companies. This 

was a priority of Comptroller Curry. However, this process seems 

to have stalled over the last year. 

Where is the OCC on the process? And how do you envision a 

fintech charter working? Do you believe your views differ from 

Comptroller Curry on this? 

Mr. OTTING. Once I arrived on November 27, I have spent a significant amount of time internally with a number of the agencies’ 

people. We have done a lot of work. 

We have publicly said that in July we will make a decision 

whether we will formally allow applications to come in for a fintech 

charter, which we call a special-purpose charter. It is our expectation that that will require capital liquidity and serving the community like any bank across America. 

Mr. HULTGREN. Thanks again. Appreciate your time. 

My time has expired. I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Missouri, Mr. 

Cleaver, Ranking Member on the Housing and Insurance Subcommittee. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

Comptroller Otting, here in Congress, we can choose, pretty 

much, what we are going to be, and I have chosen to be respectful. 

I have to say your earlier response to Mr. Capuano was stupefying, 

even jaw-dropping, as it relates to discrimination. 

If you believe polling data, the Washington Post-Harvard study 

shows, first of all, that the level of racial animus is at the highest 

level today that it has been since 1997. 

And it is a little disconcerting to me, because the United States 

has never eliminated any of its problems by denying that it existed. 

You did not deny that it existed; you said you just had never seen 

it. 

I was wondering if you were aware of what happened recently in 

Charlottesville. 

Mr. OTTING. I only observed that from what I was able to see in 

the news. 


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Mr. CLEAVER. So you wouldn’t be in a position to know whether 

or not there were people who were wrong or right, or the supremacist who spoke, who acted. Based on what you saw on TV, I guess, 

and read, you don’t attribute one side as having way more than 

discriminatory feelings. What did you witness? 

Mr. OTTING. To be honest with you, I don’t watch TV. If it is not 

on ESPN or CNBC—I am not a TV watcher. I saw what was across 

the headlines, but I didn’t spend specific time to study or analyze 

what took place. 

Mr. CLEAVER. So you didn’t read any of the articles in the newspaper? 

Mr. OTTING. I don’t read a newspaper. 

Mr. CLEAVER. This is very difficult for me. One of questions the 

I wanted to ask was about the charter and whether or not you believed that there needed to be something in the charter about minority inclusion. But there would be no reason for minority inclusion if there is no exclusion. So I am assuming that that is not 

going to be anything you would address, since you are not aware 

that it even exists on the planet. 

Mr. OTTING. Well, no. I would say I am a big believer in minority 

inclusion. I think my track record through my banking industry— 

there are many people who would say that Joseph Otting spent 

more time in the inner cities of America than most banking executives across the world. 

Mr. CLEAVER. Yes, well, that is—yes. 

Mr. OTTING. But on a particular example like you are describing, 

I don’t have a personal opinion on that. 

Mr. CLEAVER. And you don’t have a personal opinion on whether 

there has been any discrimination in banking? 

Mr. OTTING. Again, I have not personally observed that. 

Mr. CLEAVER. Mr. Chairman, I yield back. I can’t go any further. 

Chairman HENSARLING. The gentleman yields back. 

The Chair now recognizes the gentleman from California, Mr. 

Royce, Chairman of the Foreign Affairs Committee. 

Mr. ROYCE. Thank you, Mr. Chairman. 

On May 23, you issued a bulletin encouraging banks to make responsible short-term installment loans. Are you tracking whether 

banks have reentered the market since the bulletin came out? 

Mr. OTTING. Congressman Royce, we communicated with banks 

shortly after my arrival that this was one of my priorities. 

Most banks had shelved any products that they had after 2013. 

I have personally met with all of the large-bank CEOs and asked 

them to take a look at being involved in this. And I think it will 

take a period of time. 

Most of the regional banks, I think, are reacting quicker, because 

they had products that they thought they could bring to market. 

It will take a longer period of time for banks to work through their 

products and then go through their risk process before they offer 

those products into the market. 

Mr. ROYCE. Maybe we could look at what metrics there are to 

date in a week or 2, and you could get back to me with some more 

specifics on that. 

Mr. OTTING. Yes. I would be happy to. I think it is going to take 

a period of time to— 


nshattuck on FSR297 with DISTILLER
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Mr. ROYCE. Yes, I understand your argument there. I see your 

point. 

One area where there has been some confusion based on the recent bulletin are bank-fintech partnerships, such as marketplace 

lending programs. Some have construed a provision clearly targeted—it looks to me like it is targeted to rent-a-bank schemes. 

But they view that as undermining bona fide partnerships between 

banks and fintech lenders. 

And some have wondered about a clarification on this—I think 

there was some in the press—that this is not the intention of the 

small-dollar guidance, but I was hoping we could hear you out 

today on the OCC’s views on these arrangements. 

Mr. OTTING. We are supportive of these arrangements with 

fintechs, where they are bringing technology to financial institutions that can do outreach to communities, customers, prospects. 

And so we are supportive of that. 

We would expect them to go through their normal vendor management programs to assess the risk associated with those entities, 

but we are supportive. 

Mr. ROYCE. OK. OK. 

When looking at reform of the Community Reinvestment Act, you 

said that you are a big believer that we should stretch it to more 

small business, more community development. 

The local bankers who I met with last week in southern California are frustrated that more small-business lending is not included. The classification of some loans doesn’t get a complete picture of the impact banks are having in their communities, including, of course, in job creation. 

So could small-business loans with a community-development 

purpose be classified as a community-development loan? Would 

that be an option, where you have that or as a loan under the general test? 

Or maybe, going to some of the remarks you made this morning, 

when you talked about we need to develop a metrics-driven approach to evaluating performance, would adding these in a way 

into the standard metrics that you are trying to develop, would 

that be a way for the small banks and others to meet that test? 

Mr. OTTING. Congressman Royce, I think the measurement element is different than the qualification element. 

Mr. ROYCE. OK. 

Mr. OTTING. And it is my belief we should broaden the category 

that includes— 

Mr. ROYCE. Broaden the category. 

Mr. OTTING. Right. 

Mr. ROYCE. All right. And I will yield back then. I appreciate— 

Mr. OTTING. You are welcome. 

Mr. ROYCE. —that information. 

Chairman HENSARLING. The gentleman yields back. 

The Chair now recognizes the gentleman from North Carolina, 

Mr. Pittenger. 

Mr. PITTENGER. Thank you, Mr. Chairman. 

And thank you, Mr. Otting, for being with us today and for your 

testimony and expert witness. 


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I would like to ask you, what could be done today by regulators 

to encourage banks to offer short-term credit to our constituents? 

Mr. OTTING. I am sorry, I missed your— 

Mr. PITTENGER. What could be done by the regulators to help encourage banks to offer more short-term credit to our constituents? 

Mr. OTTING. I think the guidance that we have been discussing 

goes a long way in doing that. I think the next big chunk of that 

is to look at the 45-day-and-under that is currently controlled by 

the rule that is going to go into place in the BCFP. And we would 

like to work toward—can we come up with a solution in that space 

that would allow banks to get back in there and do that in a fair 

and, I think, economic way for consumers. 

Mr. PITTENGER. Could you speak, in addition, some more to what 

could be done to help increase greater transparency and investments in our communities that need it the most? 

Mr. OTTING. You are talking about low- to moderate-income communities? 

Mr. PITTENGER. Yes. 

Mr. OTTING. What could be done more? 

Mr. PITTENGER. In terms of just increasing transparency in this, 

the investments in these communities. 

Mr. OTTING. Well, two things that I think are important is to 

identify more categories that can qualify by broadening the products that would receive credit under CRA. And, as I said earlier, 

I think there are parts of church activities that should qualify for 

CRA. I think in a lot of communities, people go to their church to 

get financial counseling. 

Mr. PITTENGER. I agree. 

Mr. OTTING. I think, also, our assessment areas, the way that 

they are often defined restrict a bank to a particular area. And I 

have seen examples where on one side of the street it qualifies as 

CRA and the next side of the street it doesn’t qualify for a bank. 

So I think taking a hard look at how we narrowly define the assessment areas would broaden banks’ perspective of where they 

can do their investment and lending activities. 

Mr. PITTENGER. I appreciate your clarification on that. 

In your testimony, you said, quote, ‘‘Bank regulators, law enforcement, national security personnel, and bankers must continually adapt to increasingly sophisticating criminals and other illicit 

actors who take advantage of the Nation’s banks and financial system,’’ end of quote. 

If developments and advancements are critical to success, then 

why has the current BSA regime failed to undergo any significant 

changes since the 1970’s? 

Mr. OTTING. Why has it not? 

Mr. PITTENGER. Yes, sir. 

Mr. OTTING. I think it has. We have added to the process. And 

I think, with current technologies today, there are ways that we 

can take databases and scan those databases and use artificial intelligence to be able to go through them that are better than individuals looking at a currency transaction report and then filling out 

a SARs. 

If you think about it, if you have one bank in a vertical and you 

are providing that SARs, but that bad person goes bank to bank 


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to bank, we don’t tie that all together. And I think with technology 

we can start to tie that together and it is not a paper flow. 

Mr. PITTENGER. In terms of compliance cost and related privacy 

issues that are of concern to many, would you think that the system would be better served if the government provided access to 

those accounts, that data that they are most concerned about, to 

banks, financial institutions, in lieu of the tremendous amount of 

SAR reporting that is required? 

Mr. OTTING. It is probably halfway—that would be, I think, a 

valuable thing, if we knew what entities or individuals that are 

under the microscope that we could help. 

But I do think that then you get into some issues along the lines 

of—there has been some legislation proposed that hold the bank 

harmless in the event that they continue those relationships with 

those accounts that they are not unduly criticized— 

Mr. PITTENGER. Sure. They need a safe harbor. 

Mr. OTTING. Yes, as long as they are holding those accounts open 

for the benefit of law enforcement. 

Mr. PITTENGER. Yes, sir. 

It seems to me that the process would be better served if the 

banks were responding to the concerns of law enforcement, rather 

than just providing innumerable numbers, millions, to the effect of 

SARs reports. And for responding, instead, to what they are looking for, we would have, it seems to me, a much better grasp of the 

privacy and security and civil liberty concerns by the public. 

Do you have a comment on that? 

Mr. OTTING. Well, today, we produce all this information. As I 

said earlier, there are about 10 million documents—9 million 

CTRs, a million SARs—that are produced. Generally, when there 

is a hit by law enforcement, they do go seek that additional information out from the banks today. So banks generally are contacted 

when there is some event associated with an individual. 

But I think to your point is 97 or 98 percent of the information 

that we produce, very rarely do the banks hear back from law enforcement on the data that they are providing. 

Mr. PITTENGER. Thank you. My time has expired. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlelady from New York, Ms. 

Velazquez. 

Ms. VELAZQUEZ. Thank you, Mr. Chairman. 

Comptroller Otting, when the House considered S. 2155, I expressed concerns on many aspects of the legislation, particularly 

the increase in the SIFI threshold from $50 billion to $250 billion. 

One of my concerns is that this new threshold continues to fail 

to take into account the actual risk posed by the largest institutions. Some over this new line continue to pose little risk to the 

system, while some below could pose substantial risk. This has 

been shown time and again by the Office of Financial Research 

under both President Obama and President Trump. 

How do you propose to tailor regulations to a firm’s actual systemic risk on both sides of the new $250 billion threshold in order 

to continue to protect our Nation against systemic risk? 


nshattuck on FSR297 with DISTILLER
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Mr. OTTING. I am actually supportive of those new guidelines 

that were issued. I do think banks’ risk management is the best 

it has ever been in the 35 years. 

It doesn’t mean just because that guideline has been lifted that 

banks will not continue to perform some of those functions, and we 

will review those in our annual examinations of those financial institutions. 

Ms. VELAZQUEZ. So I expect that you regulate banks on both 

sides of the $250 billion with equal weight and scrutiny, those that 

are above 250 and those that are below. That would include most 

of the banks. 

Mr. OTTING. We use a risk-based system to do the annual examinations. And so we look at all of those institutions and understand 

where we think there is risk, and based upon that, we provide resources to those supervised institutions. 

So, to your point, if we observed significant risks being imminent 

or deployed in an institution, we would allocate resources to that 

institution appropriately. 

Ms. VELAZQUEZ. OK. 

I understand that leverage lending often serves as an important 

financing tool for many businesses across the country. However, I 

also believe that banks shouldn’t be left without a regulatory roadmap to guide how such transactions can be made without compromising the safety and soundness of our financial system. 

Earlier this year, you commented that, and I quote, ‘‘institutions 

should have the right to do the leverage lending they want as long 

as it doesn’t impair their safety and soundness.’’ 

Can you elaborate on that statement and talk about what steps, 

if any, the OCC and other Federal banking regulators are taking 

to revise the 2013 interagency guidance on leverage lending, particularly in light of the GAO’s (Government Accountability Office’s) 

determination that the guidance was a rule for the purposes of the 

Congressional Review Act? 

Mr. OTTING. First of all, thank you for allowing me to clarify my 

comments. 

What was left out of that quote was the lead-up to it, where I 

said that banks would have to have the appropriate level of capital, 

they would have to have the people to properly analyze that risk, 

they would have to have a risk statement that was approved both 

by management and the board. And those were left off before they 

put the punch line in there, so to speak, so— 

Ms. VELAZQUEZ. Was that CNN that reported that? 

Mr. OTTING. No, it was not. 

Ms. VELAZQUEZ. Oh, OK. Oh, so, then, you watch CNN. 

Mr. OTTING. I don’t watch CNN. 

Ms. VELAZQUEZ. So how do you answer? OK. 

Mr. OTTING. I know the particular— 

Ms. VELAZQUEZ. All right. 

Mr. OTTING. —news agency that produced that. 

So your second question regarding the OCC’s guidance on leverage lending, I am sorry, I missed the point you wanted me to address on that. 


nshattuck on FSR297 with DISTILLER
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Ms. VELAZQUEZ. Well, the GAO determination, particularly in 

light of the GAO’s determination that the guidance was a rule for 

the purposes of the Congressional Review Act. 

Mr. OTTING. Yes. We have gone out of our way since that ruling 

to educate and make sure that our examiners understand the difference between rules and guidance. And we have issued documents within the OCC that clearly spell that out. And as part of 

that comment that you were quoting me on, I made that comment 

as well. 

Ms. VELAZQUEZ. So are you going to appeal the guidance? 

Mr. OTTING. No. We had put that guidance out for comment. 

Maybe you are saying are we going to reproduce that guidance for 

comment, and at this point we are not. 

Ms. VELAZQUEZ. I yield back. 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from Pennsylvania, Mr. 

Rothfus. 

Mr. ROTHFUS. Thank you, Mr. Chairman. 

Welcome, Comptroller. I want to thank you for your continued 

help and support for our Federal Savings Association Charter 

Flexibility legislation. 

As you mentioned in your testimony, the reform that Congressman Himes and I have championed will provide Federal savings 

associations with the flexibility to operate with the same rights and 

duties as a national bank without having to go through a costly 

and time-consuming rechartering process. 

This was recently signed into law as part of the bipartisan financial regulatory reform package. 

Why is this specific provision so important? 

Mr. OTTING. That provision, from my perspective—you may know 

that when I went to OneWest Bank we were a thrift, and part of 

my mission was to diversify the balance sheet for the institution. 

And so we grew our commercial loans and commercial real estate, 

and we quickly hit the cap at that point in time. And so we felt 

we were servicing the community. 

And so our ability, like those particular entities, are looking to 

service their communities in a diversified manner, and often they 

hit those caps in a relatively quick period of time. 

Mr. ROTHFUS. So, looking at the impact of this reform, what do 

you see happening in a community that has a thrift? 

Mr. OTTING. I think they will broaden their support of the communities to which they operate. 

Mr. ROTHFUS. Could you provide an update on the timeline for 

implementation? 

Mr. OTTING. Earlier, I said we have created a bucket of things 

we think we can do quickly, things that we need to write rules on. 

And the third being, where we have to have interagency, that falls 

into the first bucket, that we think we can move very quickly on 

that. 

Mr. ROTHFUS. Great. Thank you. 

In your testimony, you discussed a number of possible avenues 

for reforming our outdated BSA/AML regime. Our committee has 

held several hearings on this issue, and I have had the opportunity 

to meet with a wide range of financial institutions and practiVerDate Sep 11 2014 13:20 Nov 05, 2018 Jkt 000000 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 G:\GPO PRINTING\DOCS\115TH HEARINGS - 2ND SESSION 2018\2018-06-13 FC OCC\31

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tioners. It is clear that this system needs to be modernized to account for the ever-evolving nature of the threat. 

New technologies, like artificial intelligence, show considerable 

promise in helping financial institutions and regulators better combat illicit finance. I am proud that western Pennsylvania institutions like Carnegie Mellon University are leading the way in this 

field. 

Could you explain how new technologies, like artificial intelligence, can help improve our approach to disrupting illicit finance? 

Mr. OTTING. Sure. I think the way new technologies are going to 

work is that we are going to be able to go through interbank 

connectivity between bad-person activity. 

Today, if you think about our CTR and other SARs process, it is 

generally a vertical within one institution. The bad guys are smart. 

They know the rules. They move money in, they move it amongst 

the organizations, and then they flush it out the door. If we can 

track that interconnection with those proceeds, I think technology 

will play a big, important role there. 

Mr. ROTHFUS. Do you think there is anything that regulators or 

law enforcement can do to facilitate the continued development and 

adoption of these new technologies? 

Mr. OTTING. I think there has been a lot of discussion about 

whether that should be a government or a private enterprise venture. And I think what you are seeing now is movement toward 

that being a private enterprise, and I think that will accelerate the 

activity. 

Mr. ROTHFUS. I understand the OCC is continuing to study ongoing developments in the fintech space. What are some of the key 

principles that guide the OCC’s approach to ensuring that we facilitate pro-consumer innovation while protecting the safety and 

soundness of the financial system? 

Mr. OTTING. It is our expectation that a fintech would have similar capital liquidity requirements to serve their community as a 

regular national bank. 

Mr. ROTHFUS. How can we guard against regulatory arbitrage? 

Mr. OTTING. The way that I think we would guard against that 

is that those that want to serve multiple markets either have a 

choice, A, being that they go and they find States that will synchronize their regulation process, or that people will have to use 

the national bank. 

Mr. ROTHFUS. In your testimony, you discuss the need to reexamine assessment areas for the purposes of bank compliance with the 

CRA. As you know, the current approach is largely based on an institution’s retail branch footprint. 

Mobile banking products are becoming increasingly popular. How 

should this development impact the way we evaluate future CRA 

compliance? 

Mr. OTTING. Yes. I would argue, in some regards, the assessment 

areas have restricted banks’ ability. As an example, when I ran 

OneWest Bank, we were in L.A. County; L.A. County was our assessment area, but we had branches in Inland Empire, Riverside, 

and Orange County. But those particular areas were not part of 

our assessment area, but we wanted to make investments in those 

areas, and we had to satisfy our Los Angeles needs first. 


nshattuck on FSR297 with DISTILLER
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So I think looking at, more broadly, where are your customers, 

which would include mobile banking, and asking institutions to 

support those communities where their customers are, or their employees, I think will be important going forward. 

Mr. ROTHFUS. I was intrigued with your conversation with Congresswoman Wagner about any kind of interplay or integration 

with faith-based organizations and CRA. Can you go over that a little bit? 

Mr. OTTING. Could you ask that question again? 

Mr. ROTHFUS. Whether faith-based organizations—how they can 

be integrated or helpful. 

Mr. OTTING. I have lots of experience with faith-based organizations across the Nation. My observation is in the Black and Latino 

communities. Most of the families go to those church organizations 

for their financial counseling, job development— 

Mr. ROTHFUS. My time has expired. I may want to follow up with 

you offline on that. 

Mr. OTTING. I would be happy to do that. 

Chairman HENSARLING. The time of the gentleman has expired. 

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

Mr. TIPTON. Thank you, Mr. Chairman. 

Comptroller Otting, a pleasure to be able to see you here, and 

thanks for appearing before the committee. 

One thing that you and I have had the opportunity to be able to 

visit about was—and I know you do understand this well, is the 

time from your time in the private sector is a need for certainty 

in terms of regulation and supervisory expectations for the banks 

that are under your supervision. And if you would, I would like you 

to be able to take a moment to speak about some of the controls 

that are in place to prevent that uncertainty from entering the examinations process in the event of a negative economic impact, and 

what steps your agency takes to prevent the potential of supervisory retaliation. 

Mr. OTTING. Yes. We have very well defined controls. We have, 

obviously, an examination process that takes place. Generally outside that direct examination we have resident experts that also review the data associated with any examination. Then we have a 

deputy company comptroller that is generally involved in that. At 

any point in time that a bank would feel that they are not being 

treated fairly or their regulations are not being applied appropriately, they have a formal appeal process. And if they are 

unsatisfied with that formal appeal process, they can come through 

the ombudsman process, and that person reports directly to me and 

I meet with him on a weekly basis and we cover any of the items 

that have been brought up. 

Mr. TIPTON. OK. Thank you for that. 

I did want to express, one banker from my home State of Colorado observed that the regulatory environment of the past, specifically between the OCC and what we call the Consumer Protection 

Bureau, now the BCFP, presented the risk of double jeopardy, and 

has concerns that the regulatory agencies didn’t coordinate with 

each other in terms of examinations. 


nshattuck on FSR297 with DISTILLER
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Would you describe briefly how your conversations with the Federal Financial Institutions Examination Council informed you and 

the examiners’ decisionmaking and how they determined that supervisory action is needed? 

Mr. OTTING. First of all, I do meet with the FDIC and the Fed 

on a weekly basis, and we talk about all kinds of issues like this. 

And then I also meet with Acting Director Mulvaney. And where 

we have had actions that it has been generally at the principal 

level with staff and principal to resolve issues like that. And I 

would encourage you if any CEOs or banks that you are familiar 

with or interact with that have that issue, that they can call me 

directly, and I would be happy to have dialog and discussion with 

them on that. 

Mr. TIPTON. Great. And so you are comfortable that the agency’s 

ombudsman that handles the appeals process for the supervisory 

decisions regularly communicates and coordinates with the other 

regulators on the appeals to prevent double jeopardy? 

Mr. OTTING. I knew you were going to ask me that question and 

there is a formalized structure where they meet frequently to have 

dialog about any particular issues as well. 

Mr. TIPTON. OK. 

Mr. OTTING. And as I indicated, I meet with OCC Ombudsman 

Larry Hattix every week and we talk about any items like this. 

Mr. TIPTON. OK. And when we are talking a little bit about the 

in-house dialog that is going on, and I know that you can appreciate this from the private sector end of it; from a business standpoint, when you were in the private sector, would you have found 

it agreeable to be able to appeal a material supervisory determination that you felt was unfairly or erroneously determined back to 

the same agency that handed down the determination in the first 

place? 

Mr. OTTING. I think it depends upon the leadership and the 

agency. But I would definitely feel comfortable in today’s environment for a CEO to want to do that. And like I said, he would have 

the option to call me directly if he felt impaired by that process. 

Mr. TIPTON. OK. And I guess just to follow up on that, I have 

a piece of legislation called the Examine Fairness Act, that I think 

you are probably aware of, to be able to have some independent examination for an appeal process. Is there a conflict? And again, I 

would just like to emphasize that point from when you were in the 

private sector, to appeal back, you may not always be in this position. 

Mr. OTTING. Yes. I found when I was regulated by the OCC, I 

was totally comfortable with that process and always received, I 

think, satisfactory results when I appealed a decision of the EIC 

up into the agency. I never, at any time, had to go to the ombudsman because I felt that generally it was fair and complete, and oftentimes it was my misunderstanding of the rules or the regulations. 

Mr. TIPTON. OK. Thank you. I appreciate your comments. 

Mr. Chairman, I yield back. 

Mr. HILL [presiding]. The gentleman from Colorado yields back. 

The gentleman from Maine is recognized. 

Mr. POLIQUIN. Thank you, Mr. Chairman very much. 


nshattuck on FSR297 with DISTILLER
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Thank you Mr. Otting very much for being here. I appreciate it. 

I congratulate you on your new position. I am sure it is stressful, 

and I want to remind you that Maine is Vacationland and this is 

a great place to go and have a summer vacation. I am sure your 

family would appreciate going up there and enjoying our 3,000 

miles of coastline, blueberry pie, and lobster and moose and everything else. So when you want to go up there, make sure you give 

us a call, we will set you up. 

Mr. OTTING. OK. Thank you. 

Mr. POLIQUIN. You are very welcome. 

Sir, I represent the rural part of Maine. Now, some people think 

that that is unusual, but there are parts of Maine that are not 

rural, not much, but there are parts. In the Second congressional 

District, we have about 400 small towns. We are a district of small 

businesses, small savers for the most part. And what I am concerned about is identity theft and other types of cybersecurity. 

When you have folks in Maine living their lives and they have 

a credit card and a checking account, a savings account, maybe an 

IRA, and they are buying some property and casualty insurance, 

and it seems like every place they go, Mr. Otting, they are giving 

out their personal information. And this is a real issue, for the families that I represent, if something happens and there is a breach. 

Now, I know that there are financial institutions throughout that 

sector of our economy that are regulated by different agencies. And 

sometimes you have the same financial institution that is regulated 

by the—by multiple agencies, like you folks at the Comptroller of 

the Currency or the CFPB or maybe the Federal Reserve. It is expensive. It is time consuming for these smaller financial institutions to do that work and at the same time making sure they are 

fighting those that are trying to rip off their personal information. 

So do you folks coordinate with other regulators that are focusing 

on the same institution such that we can become very efficient and 

coordinated and not shore up time and resources you need to catch 

bad actors? 

Mr. OTTING. I would say probably not as good as we should— 

Mr. POLIQUIN. Why not? 

Mr. OTTING. —would be the right answer. I would say, I think 

at the Federal level we have a much better level of coordination in 

conjunction with Treasury. There is a lot of activity. Obviously that 

when we go out and we do our examination on an annual basis, 

part of the normal exam is to look at the security parameters, look 

at the hardware, look at the software, make sure patches are up 

to speed. And we also do assessment of the recovery. As you know, 

somebody might have a product with us and have a product with 

a State bank, and the question that you have there often is coordinating when entities are not interconnected. 

Mr. POLIQUIN. How do you fix that? 

Mr. OTTING. I have heard the mention of national standards, and 

that is probably the way I think you ultimately get to that is some 

kind of national standard. 

Mr. POLIQUIN. Has this been attempted in the past, Mr. Otting? 

Mr. OTTING. Not that I am aware of. 

Mr. POLIQUIN. And have you received these sort of inquiries in 

the past? 


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Mr. OTTING. I wouldn’t say I have received inquiries in the past. 

I would say that the Treasury Department is trying to coordinate 

an approach amongst the Federal financial agencies to make sure 

that there is interconnectivity across the agencies. 

Mr. POLIQUIN. And is this an ongoing loose, informal discussion 

or do you actually have an agenda item that you are working on 

to make sure this is addressed? 

Mr. OTTING. I do not have an agenda item. 

Mr. POLIQUIN. What would it take to get one? 

Mr. OTTING. Probably knock out CRA, BSA, knock out small-ticket lending. And I would be happy, once we get the capital and the 

Dodd-Frank issue done, to put it in the queue. 

Mr. POLIQUIN. I appreciate very much that forthrightness and 

also the interest in working with us on that. Thank you very much 

on that, Mr. Otting. 

You mentioned earlier today on a different topic that you are 

considering a new charter for fintech, and you mentioned that that 

decision will be made in July. Are you comfortable and confident 

that all the stakeholders have had the time they need to weigh in 

on this issue? 

Mr. OTTING. I think there has been a lot of dialog and discussion 

on this particular topic. Am I comfortable at all? I don’t know if I 

could define the word ‘‘all’’ correctly, but I think a lot is the way 

I would describe that. 

Mr. POLIQUIN. Are you comfortable enough to make a decision? 

Mr. OTTING. Yes, I would be comfortable enough to—and we 

haven’t made the decision yet, because this is somewhat unique 

that if you think about it, if they don’t have deposits and we would 

be the resolution of a failure of one of those institutions. So we 

have had to look at the whole linear approach to that process. But 

we have also said that we expect capital liquidity in serving the 

community to be part of any charter. 

Mr. POLIQUIN. Thank you very much, Mr. Otting. I appreciate 

very much you being here, sir. 

I yield back my time. Thank you. 

Mr. HILL. The gentleman from Maine yields back. 

The gentleman from Minnesota, Mr. Emmer, is recognized for 5 

minutes. 

Mr. EMMER. Thank you, Mr. Chair. 

Thank you, Mr. Otting, for being here. I don’t know if we crossed 

paths while you were in Minnesota. 

Mr. OTTING. I don’t believe so. 

Mr. EMMER. I think you were on your way out a few years ago, 

but 2010 maybe? 

Mr. OTTING. Yes, that is correct. 

Mr. EMMER. Well, you are welcome back any time. Mr. Poliquin 

waxes poetic about this mystery land up in the northwest—east 

part of our country, but Minnesota is— 

Mr. OTTING. I have been northern fishing up there. 

Mr. EMMER. I just want to ask you a couple of questions in a couple different areas. One, first, because of your background in banking in the financial services industry, is it safe to assume that you 

are familiar with the concept of de-risking? 

Mr. OTTING. Yes. 


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Mr. EMMER. To what extent does the complexity or uncertainty 

surrounding our current Bank Secrecy Act/anti-money laundering 

regulatory regime contribute to the practice of de-risking? 

Mr. OTTING. I am not sure that that regime necessarily contributes to it. I think what it does is it identify—helps identify entities 

that are conducting those kind of activities. 

Mr. EMMER. And then from your experience, where does it go 

from there? 

Mr. OTTING. And then, generally, a financial institution will 

evaluate the risk and the controls of a particular entity and a segment of the industry. And I think where we have had some problems is the amount of controls that they need, perhaps the company won’t provide those, or they can find another alternative that 

doesn’t require those controls, or the cost in the institution to provide oversight is greater than what the revenue is being generated 

off of the account. 

Mr. EMMER. I am interested in the second one that you mentioned, which is they find an alternative— 

Mr. OTTING. That is right. 

Mr. EMMER. —that doesn’t require those controls. Because, in 

fact, when you start doing this de-risking, the people that we are 

trying to discover are going to find other ways to deal with the cash 

they are trying to move. That is your experience? 

Mr. OTTING. I would say more frequently they work it out with 

their existing financial institution, but there are exceptions where 

they will leave that financial institution and seek alternatives. 

Mr. EMMER. How can we coordinate or improve the coordination 

between FinCEN, who is writing the BSA regulations, and the examiners like OCC, like yours, to streamline the regulatory landscape of our current BSA/AML structure to ultimately address 

issues like de-risking and improve the transparency of certain financial transactions? 

Mr. OTTING. It is my number two priority behind CRA. And I will 

tell you, I have dedicated an enormous amount of time in the last 

5–1/2 months to BSA. I think we are at the table now with the 

right issues identified. And I think with the working group we are 

creating with FinCEN, the FDIC, the Fed, and the National Credit 

Union Association, I think that we will move that dial over the 

next 3 to 6 months. 

Mr. EMMER. Fantastic. Last, although I might have something 

that leads from this, in your opening remarks today, you mentioned 

exploring the expanded use of technology as a means to lessen the 

reporting burden and improve the efficiency of our BSA/AML efforts. 

How do you see technological innovations like blockchain? And 

artifical—you have talked about artificial intelligence a little bit in 

your testimony today. And people have asked the question, but nobody has gone directly at it. Blockchain technology has some—appears to have major promise in terms of the transparency and the 

ability to track where things are going. And I am just wondering, 

how do you see a technological innovation like blockchain technology impacting this space? 

Mr. OTTING. I agree with you, it does have promise. The question 

will be how we use it in applications going forward. 


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Mr. EMMER. This is—and I guess what I am going to ask, it is— 

there is an issue here in Congress, not enough people with election 

certificates understand what this is. They seem to be focused totally on cryptocurrencies every time they talk about this technology, and that is an issue. But blockchain is a lot more than 

cryptocurrencies, which is why folks in your position, the more that 

you are learning about it, the more that you are looking at the potential applications. 

Have you done any of that yet or is this part of the group that 

you are getting together? 

Mr. OTTING. It is not part of that initiative. We focused on 14 

items that we thought could improve the efficiency of financial institutions complying with BSA and AML. We have not focused on 

blockchain. I, like most people, am learning more about this as it 

evolves. I had not even heard the word ‘‘blockchain’’ 6 months ago. 

And now, it is almost— 

Mr. EMMER. Now it is the rage. 

Mr. OTTING. That is right. 

Mr. EMMER. I guess going forward, I would love to be in touch 

with you about the group that you put together for the BSA/AML 

effort. And then also, as you get up to speed on blockchain, how 

it might apply. Thank you very much. 

I yield back. 

Mr. HILL. The gentleman from Minnesota’s time has expired. 

The gentleman from Georgia, Mr. Loudermilk, is recognized for 

5 minutes. 

Mr. LOUDERMILK. Thank you, Mr. Chairman. 

Thank you, Mr. Otting, for being here. As you and I have discussed before, one of my key issues is cybersecurity and the protection of data. And I appreciate my colleague from way up north 

bringing up the blockchain as we have discussed. I think it is imperative that we decouple the conversation of blockchain from 

cryptocurrency. And it is something that we need to investigate as 

a method of secure communications and data transactions. 

But what I would like to focus on as far as cybersecurity goes, 

can you briefly explain what are you doing in the OCC and private 

sector to ensure that the data that, quite frankly, the government 

forces businesses and individuals to pass along and maintain, what 

are we doing to ensure the safety and security of that data? 

Mr. OTTING. On an annual basis as part of our annual examination of financial institutions—and generally, these are the larger 

because we have some exemption for the smaller institutions, we 

actually, as part of that, do an examination of their data security 

and their technology. And there is a formulaic approach to that examination. I would be happy to have some of our people come over 

and walk you through that so you understand it. 

But, for the most part, we are checking security parameters, we 

are checking hardware, we are checking their software, their patchwork. All of that activity goes into that final analysis. And then, 

if there are obvious actions that need to take place, mostly they 

would result in an MRA, where we would request certain actions 

associated with that institution. 

Mr. LOUDERMILK. OK. And I appreciate that. 


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One of the issues that I think hurts us, ultimately hurts the 

American people, is we have a multiplicity of regulations regarding 

cybersecurity. There doesn’t seem to be a consistency. Are we doing 

anything to actually coordinate with other banking agencies to ensure that we are operating from the same rule book basically? 

Mr. OTTING. The Department of Treasury is coordinating 

amongst the agencies. In fact, I have a meeting this Friday afternoon. They have taken on a role to coordinate and lead amongst 

the agencies. We have been studying, analyzing, providing data, 

and trying to get some more consistency to the process within the 

agencies today. 

So I would say, I have been here 5 or 6 months and I don’t know 

if that was going on before I arrived, but I would tell you it is like 

full steam ahead at this point. 

Mr. LOUDERMILK. Well, I appreciate that. And one thing to keep 

in mind as we move forward, and I would like to continue our engagement that we have already had with this issue, is one of the 

areas of weakness I see is how many points of data we have within 

the Federal Government. When you look at the PII of individuals, 

do we have that same information in various different agencies, 

which means the more instances you have of the same data, the 

more likelihood that it is going to be released? Is there something 

that we can do to centralize that to give common access to that? 

If I could shift gears real quick in the time we have remaining 

and talk about the Bank Secrecy Act for a moment. I know I have 

been advocating that since, what, the 1970’s is when we set the 

$10,000 limit for the currency transaction report. And if we were 

to span that out over the course of time with the rate of inflation, 

it should be at about $60,000 today, which is something I have 

been advocating for. But we do have legislation that brings it to 

that from $10,000 to $30,000. 

Can you briefly explain why it is so important we modernize the 

BSA by increasing these thresholds? 

Mr. OTTING. Well, the issue is we found 9 million currency transactions reports on an annual basis out of the U.S. banking system. 

Often, what we are finding is real legitimate businesses that banks 

have been doing business with for a long period of time, are tripping the currency structuring filters. And that structuring then 

causes us to produce paper that I think in the end really is unwarranted. 

Mr. LOUDERMILK. More paperwork, red tape as the people know 

it, and little of it actually leads to— 

Mr. OTTING. Right. 

Mr. LOUDERMILK. —actually accomplishing the goal at hand. So 

are you comfortable—final, with the 30 seconds I have, do you 

think the threshold of $30,000 will provide adequate relief of the 

overburdensome paperwork? 

Mr. OTTING. I think it is a great step in the right direction. 

Mr. LOUDERMILK. We could go a little further? 

Mr. OTTING. I think that is a fair place to start. 

Mr. LOUDERMILK. OK. All right. Thank you. 

And I yield back the remainder of my time, Mr. Chairman. 

Mr. HILL. The gentleman from Georgia yields back the balance 

of his time. 


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The gentleman from Tennessee, Mr. Kustoff, is recognized for 5 

minutes. 

Mr. KUSTOFF. Thank you, Mr. Chairman. 

And thank you, Comptroller Otting, for being here this morning 

and this afternoon. If I could, I would like to follow up with some 

questions asked by Congressman Emmer as it relates to the BSA/ 

AML reform. I agree with your testimony where you said that we 

need to reform the BSA/AML to be more efficient, while improving 

the ability of the Federal banking system and law enforcement to 

safeguard the Nation’s financial system from criminals. 

If you could, could you discuss some of the most burdensome 

components that banks face under the current BSA/AML structure? 

Mr. OTTING. Yes, I think there are three I would say core things. 

It is the number of CTRs that need to be filed, which is around 9 

million. It is the SARs which is about 1 million. And then today, 

the way we do examinations, we do not have a risk-based examination process; it is a one size fit all. And you may have missed it, 

but I said, if you have a management team that is highly rated 

with a very strong compliance department, a very strong BSA, and 

a low-risk customer base, we examine that entity the same as we 

have a weak management, a weak compliance, a weak BSA, and 

a high-risk. And we need to bring balance, because when these entities are showing we have good solid programs in place, to put 

them through all of those same activities, in my mind, is duplicative. 

Mr. KUSTOFF. As it relates to the SARs, do you have a recommendation? If you could wave a magic wand, what that level 

would be? 

Mr. OTTING. Well, on the currency transaction report or the 

SARs? 

Mr. KUSTOFF. Let’s talk about the SARs first. 

Mr. OTTING. OK. So I think the question that we have with SARs 

is there is a million SARs being filed a year, and I think a lot of 

the SARs, we have gotten banks to the point where they are so 

nervous that they file a SARs on anything just to get—so no one 

ever can come back. 

I think we need to be able to introduce some flexibility in there 

that we are not—if we are only looking at a very small percentage 

of the SARs, then having a high standard of 100 percent accuracy 

is difficult. So there are some estimates that 15 to 20 percent of 

all SARs being filed, which would be 200,000 SARs, are just being 

filed because people are saying I don’t want the risk of the regulator coming in and saying I didn’t fill the SARs out. And I just 

think we need to have a little bit more flexibility with financial institutions in that regard. 

Mr. KUSTOFF. Thank you. 

I know that there have been a fair number of questions today 

about the Community Reinvestment Act, and you have certainly 

testified about that. And I do appreciate and applaud your commitment to updating these policies. 

When it comes to reforming CRA, can you address or describe 

some of those most pressing needs that you see in terms of reforming CRA? 


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Mr. OTTING. Yes. First of all, I want financial institutions to do 

more in the communities across America that need it. And I think 

in some regards, we haven’t created the on-ramp for them to do 

that. And we have done that by not allowing certain products and 

services to be counted as CRA, and they just fundamentally should. 

That is number one. 

Number two is I think we have to create a measurement system 

that, in my mind, allows us to look at financial institutions and be 

consistent across the size and complexity of the system of what is 

their commitment to the communities to which they operate. 

And then the third is we have to be able to turn exams and processes around quicker. And if we can standardize the measurement 

process, then we can almost have perpetual observation. I believe 

in the future people will choose—just like they do entities that are 

green or do something specific, I think people will choose to bank 

with people that they think are investing in their communities. 

Mr. KUSTOFF. Well, as it does relate to the exams, that is probably one of the biggest complaints that I hear from my financial 

institutions back in my district. What can you do to reduce the 

time that it takes to complete the examination or— 

Mr. OTTING. I think if we can simplify the measurement method. 

And you may have been out of the room but, we are proposing a 

framework where you either take deposits tier one capital or total 

assets. And then you take all the CRA activities that someone is 

doing and you just divide that. So you have $100 million in CRA 

activities, you have $1 billion balance sheet, that says that you 

have 10 percent of that activity committed. And we can take a 

small community bank or a large JPMorgan and be able to make 

a determination. That, I could do in about an hour. Instead, we 

spend these 120 days doing the CRA exams that are very complex, 

very subjective, and are relative as opposed to absolute in their 

ability to define what a company is doing in CRA. 

Mr. KUSTOFF. Thank you very much. And I yield back the balance of my time. 

Chairman HENSARLING [presiding]. The time of the gentleman 

has expired. 

The Chair now recognizes the gentlelady from New York, Ms. 

Tenney. 

Ms. TENNEY. Thank you, Mr. Chairman. 

And thank you, Mr. Otting, for being here. We appreciate your 

work you are doing. And unfortunately, I get to be last, so many 

of my questions have been already asked. But I do want to just say 

a little bit about the Community Reinvestment Act to get into and 

finish up what my colleague, Mr. Kustoff, was talking about. And 

we do appreciate your looking at finding alternatives and moving 

banks more in the realm of investing in their communities and also 

focusing on, not just on the residential side, but on the community 

side. 

Can you tell me just a couple of the issues where—enhancing 

what your answer was to Mr. Kustoff—where we can—as you 

know, we have national and community banks—but where we can 

focus some of those banks on reinvestment in our local communities, especially in my region where agriculture is our No. 1 industry and dealing with small business development? Because we acVerDate Sep 11 2014 13:20 Nov 05, 2018 Jkt 000000 PO 00000 Frm 00051 Fmt 6633 Sfmt 6633 G:\GPO PRINTING\DOCS\115TH HEARINGS - 2ND SESSION 2018\2018-06-13 FC OCC\31

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tually have—almost 98 percent of our businesses in our district and 

our community are small, and how you would do that from your 

position as the Comptroller? 

Mr. OTTING. Well, I think it is often making what people are 

doing in the community to be CRA qualified. And as you know, the 

CRA plan also extends itself into the agricultural community. So 

I think when you think about—I have used examples where 

churches are doing things for certain people that is not religious 

but it is community building. I think those should qualify. I think 

businesses that are above $1 million in revenue, that today are 

blocked by being qualified, that we can make those available to 

CRA. So I think—and then there are a lot of activities that institutions do around financial literacy, that I think those should be included and counted as in the service test as well. 

Ms. TENNEY. OK. Thank you. 

And when it comes to the Bank Secrecy Act and the anti-money 

laundering act, I know one of the biggest complaints that I get, and 

you have talked about this a little bit, but if you could just enhance—we have a lot of small and community banks, and this is 

a burden, this compliance cost. They don’t look—they look very 

small on the larger scheme of things, but when you are dealing 

with a small bank, you have suggested there are other ways that 

we can maybe pool these resources or come up with a solution to 

make it more affordable in terms of compliance. 

Can you just elaborate on some of that that you might have mentioned? 

Mr. OTTING. Yes. I think there are the short-term things that we 

can do to make it less burdensome without reducing our ability to 

catch the bad people, and that is probably what we are working on 

with the interagency group. And then I think long term, we have 

to think through the large banks have their own infrastructures 

and they can combine data pools with other banks. But most of the 

small banks use actually third-party servicers. And my thought is, 

is that third-party servicer can begin to look at ways that they can 

help banks look across a multitude of institutions to help them 

identify when there are bad people using a multitude of banks, and 

then alert those banks the reverse—alerting those banks that we 

see irregular activity amongst your customer base, as opposed to 

waiting for a CTR or a SARs to cause that to be identified. 

Ms. TENNEY. That would be great. Now, in terms of determining 

what would be a SAR, do you agree or disagree—I am curious 

about your opinion on should we have arbitrary numbers that determine whether we are investigating or looking into suspicious activity reports? And what is your opinion on that? Should it be an 

arbitrary number or should we look at more, like, the activity, the 

other—the frequency— 

Mr. OTTING. There is a floor on the SARs of $5,000. There is not 

a floor for any employee-related activity, and we have talked within 

the agency about raising the floor. If a teller who takes $200, 

should you really have to fill out a SARs for that? But above that 

floor, generally what we are asking people to do is if there is foreign money coming into an account, and if all of a sudden somebody opens up an account and money starts flowing in from one of 

the countries that we have concerns about; I am not sure when you 


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say there are good descriptors of what is expected to be high risk. 

People look at that and when you see those kind of activities, that 

is what justifies a SAR. 

Ms. TENNEY. I am just thinking frequency. Sometimes they 

might be smaller dollar amounts and maybe suspicious in another 

realm, which, again, these are all compliance issues. But I appreciate your willingness to look in and help our smaller regional— 

and especially in New York where we have not too many New York 

banks left that are really able to function in this highly regulated 

space because we have a very aggressive regulatory regime coming 

out of the State. 

But I appreciate your work in trying to help us and give us some 

relief on the Federal side, because we really are—as we see the 

economy getting a little more vibrant, we are definitely looking to 

our banks for more loans and lending and adding jobs. So we appreciate your hard work over there. 

Mr. OTTING. Thank you very much 

Ms. TENNEY. Thank you so much. I yield my time. 

Chairman HENSARLING. The gentlelady yields back. 

The Chair now recognizes the gentleman from Arkansas, Mr. 

Hill. 

Mr. HILL. I thank the Chairman. 

As a former community banker for over 2–1/2 decades in my 

home State of Arkansas and also a former Treasury official in the 

ancient days of the Bush 41 Administration, I want to thank you 

for accepting this appointment and serving us as our Comptroller 

of the Currency. I want to commend you for your effectiveness in 

developing your budget and looking out for, not only the goals of 

the agency, but taxpayers, by actually proposing a reduction in how 

much money you are able to spend, yet carry out the mission of the 

OCC. And I want to commend you for the ideas you have on CRA 

reform and regulatory burden, generally, by tailoring regulatory 

burden. So thanks for being with us. 

First thing I want to raise is, as you know, I am not a fan of the 

rule that has now been promulgated, the so-called CDD rule that 

is to enhance the disclosure of information on beneficial ownership. 

I think it still has a long way to go. I think I have made those 

views clear. I think it is going to be the most costly rule probably 

promulgated in the Trump Administration this year, potentially. 

So one thing that I noted that was concerning that FinCEN 

issued some relief from was this idea of rollover CDs. So you come 

in the bank, you buy a CD, you fill out, Know Your Customer rule 

requirements, but then it is on a rolling basis every 6 months annually. FinCEN granted temporary relief from having to refill out 

and reascertain the beneficial ownership. 

Would you support that being considered a permanent change in 

the rule or permanent waiver, if you will, to that on a rollover CD 

that was properly opened? 

Mr. OTTING. It would seem to be prudent, especially if they did 

the documentation on the front end of that. 

Mr. HILL. Right. My question assumes absolute appropriate documentation for the account. Thank you for that. 

Something else that you and I have talked about, just putting 

our banker hats back on, philosophically, do you agree that banks, 


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when they set an interest rate for a credit, either a consumer credit 

or commercial credit, they are trying to price that credit for risk, 

the credit risk embedded in that transaction, you agree with that? 

Mr. OTTING. I do. 

Mr. HILL. And do you agree that local economic conditions are a 

factor, a parameter in which a bank loan committee or loan officers 

would take into account in order to set that pricing? You think that 

is—would that be generally true? In other words, local economic 

conditions are relevant to the pricing for risk for a loan? 

Mr. OTTING. They do in the event that it would impair the source 

of repayment. 

Mr. HILL. Right. Yes, I agree too. And yet I would really urge 

you, in your new role as our Comptroller of the Currency, to look 

at that in the context of consumer compliance laws on lending 

where I don’t believe that pricing for risk is really permitted. And 

I am talking about geographic risk or a local industry risk on those 

sources, where the sources of repayment really could be compromised. I think there is a lot of demand by the regulatory agencies that you can only have one loan price, no matter how big the 

territory of the bank for a consumer loan. I would invite you to look 

at that. 

On the Volcker proposal, we have also talked about that before, 

and you know my strong feelings about harmonizing the interpretation of the Volcker act. I was very pleased in 2155, enacted into 

law now, that we exempt our community banks from the vagaries 

and confusion and complexity and inconsistency of Volcker for our 

community banks. And I know you will be adjusting your Volcker 

Rule as it proceeds for that new law. 

But when I read the Volcker 2.0 proposal summary section by 

section, I have to tell you, I found it more complex, less clear. In 

fact, it posed over 1,000 different court of inquiries for more information or questions, meaning that our regulators are just as confused as they were 8 years ago about trying to come up with a commonsense definition for Volcker. Things like the revised definition 

on the trading account. I didn’t find that more clear. Covered 

funds, which was the whole point, really, if you go back to the legislative intent, it just seemed their proposed rule punted on that 

and basically said it is in the too-hard stack that people have and 

it couldn’t be solved. And then their metrics and reporting and recordkeeping look more burdensome to institutions subjected to it. 

So we don’t have time to discuss it today. I know we will have 

a chance to talk about it, but I really urge you as you review these 

comments, I don’t think you are on the right track. 

And thank you, Mr. Chairman. I yield back. 

Chairman HENSARLING. The gentleman yields back. 

The Chair observes no other Members in the queue, thus we are 

prepared to release the witness. 

I want to thank the witness for his testimony today. 

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

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without obVerDate Sep 11 2014 13:20 Nov 05, 2018 Jkt 000000 PO 00000 Frm 00054 Fmt 6633 Sfmt 6633 G:\GPO PRINTING\DOCS\115TH HEARINGS - 2ND SESSION 2018\2018-06-13 FC OCC\31

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jection, Members will have 5 legislative days to submit extraneous 

materials to the Chair for inclusion in the record. 

I would ask, Mr. Otting, that you please respond promptly as you 

are able. 

Now this hearing stands adjourned. 

[Whereupon, at 12:40 p.m., the committee was adjourned.] 


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nshattuck on FSR297 with DISTILLERInsert offset folio 8 here 31475.008
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nshattuck on FSR297 with DISTILLERInsert offset folio 9 here 31475.009
63 


nshattuck on FSR297 with DISTILLERInsert offset folio 10 here 31475.010
64 


nshattuck on FSR297 with DISTILLERInsert offset folio 11 here 31475.011
65 


nshattuck on FSR297 with DISTILLERInsert offset folio 12 here 31475.012
66 


nshattuck on FSR297 with DISTILLERInsert offset folio 13 here 31475.013
67 


nshattuck on FSR297 with DISTILLERInsert offset folio 14 here 31475.014
68 


nshattuck on FSR297 with DISTILLERInsert offset folio 15 here 31475.015
69 


nshattuck on FSR297 with DISTILLERInsert offset folio 16 here 31475.016
70 


nshattuck on FSR297 with DISTILLERInsert offset folio 17 here 31475.017
71 


nshattuck on FSR297 with DISTILLERInsert offset folio 18 here 31475.018
72 


nshattuck on FSR297 with DISTILLERInsert offset folio 19 here 31475.019
73 


nshattuck on FSR297 with DISTILLERInsert offset folio 20 here 31475.020
74 


nshattuck on FSR297 with DISTILLERInsert offset folio 21 here 31475.021
75 


nshattuck on FSR297 with DISTILLERInsert offset folio 22 here 31475.022
76 


nshattuck on FSR297 with DISTILLERInsert offset folio 23 here 31475.023
77 


nshattuck on FSR297 with DISTILLERInsert offset folio 24 here 31475.024
78 


nshattuck on FSR297 with DISTILLERInsert offset folio 25 here 31475.025
79 


nshattuck on FSR297 with DISTILLERInsert offset folio 26 here 31475.026
80 


nshattuck on FSR297 with DISTILLERInsert offset folio 27 here 31475.027
81 


nshattuck on FSR297 with DISTILLERInsert offset folio 28 here 31475.028
82 


nshattuck on FSR297 with DISTILLERInsert offset folio 29 here 31475.029
83 


nshattuck on FSR297 with DISTILLERInsert offset folio 30 here 31475.030
84 


nshattuck on FSR297 with DISTILLERInsert offset folio 31 here 31475.031
85 


nshattuck on FSR297 with DISTILLERInsert offset folio 32 here 31475.032
86 


nshattuck on FSR297 with DISTILLERInsert offset folio 33 here 31475.033
87 


nshattuck on FSR297 with DISTILLERInsert offset folio 34 here 31475.034
88 

Æ 


nshattuck on FSR297 with DISTILLERInsert offset folio 35 here 31475.035