U.S. GOVERNMENT PUBLISHING OFFICE

31–508 PDF WASHINGTON : 2018

EXAMINING CAPITAL REGIMES FOR 

FINANCIAL INSTITUTIONS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS 

AND CONSUMER CREDIT 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

JULY 17, 2018 

Printed for the use of the Committee on Financial Services 

Serial No. 115–109 

( 


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(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

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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(III) 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

BLAINE LUETKEMEYER, Missouri, Chairman 

KEITH J. ROTHFUS, Pennsylvania, Vice 

Chairman 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

BILL POSEY, Florida 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANDY BARR, Kentucky 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

MIA LOVE, Utah 

DAVID A. TROTT, Michigan 

BARRY LOUDERMILK, Georgia 

DAVID KUSTOFF, Tennessee 

CLAUDIA TENNEY, New York 

WM. LACY CLAY, Missouri, Ranking 

Member 

CAROLYN B. MALONEY, New York 

GREGORY W. MEEKS, New York 

DAVID SCOTT, Georgia 

NYDIA M. VELA ́ ZQUEZ, New York 

AL GREEN, Texas 

KEITH ELLISON, Minnesota 

MICHAEL E. CAPUANO, Massachusetts 

DENNY HECK, Washington 

GWEN MOORE, Wisconsin 

CHARLIE CRIST, Florida 


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(V) 

C O N T E N T S 

Page 

Hearing held on: 

July 17, 2018 ..................................................................................................... 1 

Appendix: 

July 17, 2018 ..................................................................................................... 37 

WITNESSES 

TUESDAY, JULY 17, 2018 

Baer, Hon. Greg, President, Bank Policy Institute ............................................... 5 

Fromer, Hon. Kevin, President and Chief Executive Officer, Financial Services Forum ............................................................................................................ 4 

Holtz-Eakin, Douglas, President, American Action Forum .................................. 7 

Noreika, Keith A., Partner, Simpson Thacher & Bartlett .................................... 10 

Stanley, Marcus, Policy Director, Americans for Financial Reform .................... 9 

APPENDIX 

Prepared statements: 

Baer, Hon. Greg ................................................................................................ 38 

Fromer, Hon. Kevin .......................................................................................... 67 

Holtz-Eakin, Douglas ....................................................................................... 78 

Noreika, Keith A. .............................................................................................. 84 

Stanley, Marcus ................................................................................................ 101 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Clay, Hon. Wm. Macy: 

Comment letters from Americans for Financial Reform (AFR) .................... 109 

Written statement from Better Markets, Inc. ................................................ 153 

Written statement from the Center for American Progress ......................... 184 

Written statement from Stephen G. Cecchetti and Kermit L. Schoenholtz 234 


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(1) 

EXAMINING CAPITAL REGIMES FOR 

FINANCIAL INSTITUTIONS 

Tuesday, July 17, 2018 

U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

AND CONSUMER CREDIT, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The subcommittee met, pursuant to notice, at 2:02 p.m., in room 

2128, Rayburn House Office Building, Hon. Blaine Luetkemeyer 

[chairman of the subcommittee] presiding. 

Present: Representatives Luetkemeyer, Rothfus, Lucas, Posey, 

Ross, Pittenger, Barr, Tipton, Williams, Trott, Loudermilk, Kustoff, 

Tenney, Clay, Maloney, Scott, Green, Heck, and Crist. 

Chairman LUETKEMEYER. The committee will come to order. 

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

committee at any time. This hearing is entitled, ‘‘Examining Capital Regimes for Financial Institutions.’’ 

Before we begin, I would like to thank the witnesses for appearing today. We appreciate your participation. And, quite frankly, everybody is jealous of our panel today. We have a very, very distinguished panel. Thank you, all, for being here, and we certainly look 

forward to and anticipate your testimony. 

I now recognize myself for 5 minutes for purposes of delivering 

an opening statement. 

Last April, this subcommittee held a hearing to examine the 

state of Federal financial regulation and the impact regulators and 

their perspective regimes were having on institutions, their customers and the U.S. economy. Sitting on the front row of the dais 

were stacks of paper representing 20,000 to 30,000 pages the average bank submits to the Federal Reserve for its annual CCAR 

(Comprehensive Capital Analysis and Review) review process. That 

is 20,000 to 30,000 pages per bank per year just for CCAR. 

Fast forward a little more than a year, and I am pleased to report that the first time, in a long time, progress has been made and 

some relief has been granted. Thanks, in large part, to the effort 

of the Members of this committee and our colleagues in the Senate 

and a President who champions regulatory reform. 

CCAR doesn’t burden nearly as many institutions as it did 1 year 

ago. While some relief has been seen, it is widely recognized that 

there is more work to be done. 

In a January speech, the newly minted Federal Reserve Vice 

Chairman for Supervision, Randy Quarles, outlined his vision by 

stating that, and I quote, ‘‘simplicity of regulation is a principle 


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that promotes public understanding of regulation, promotes meaningful compliance by the Industry of Regulation,’’ and reduces unexpected negative in synergies among regulations. Confusion that 

results from overly complex regulation does not advance the goal 

of a safe system. End quote. 

Vice Chairman Quarles went on to indicate support for changes 

to the resolution planning process and stress-test programs, acknowledging substantial progress made by financial institutions in 

the last few years. 

His quasi predecessor, Governor Dan Tarullo, said in his departure speech last year, and I quote, ‘‘the time may be coming when 

the qualitative objection in CCAR should be phased out and supervisory examination work around stress testing and capital planning 

completely moved into the normal, year-round supervisory process, 

even for G-SIBs.’’ End quote. 

While we didn’t agree on much during his tenure, Governor 

Tarullo and I had at least one thing in common, the idea that capital is a good thing. Capital protects institutions and for—and, 

more importantly, consumers against loss and guards the financial 

system against threats of collapse. While I believe in robust capital 

requirements, I don’t think capital should be required to the point 

that it consolidates risk and eliminates choice in the marketplace 

for commercial individual clients. 

The reality is that we still live in a world where the financial 

regulatory regime stifles growth and limits the availability of financial products. The new crop of Federal financial regulators, in an 

effort to right-size regulation, are considering additional measures, 

including tailoring to provide relief to institutions of all sizes. As 

they do so, I would first urge them to implement the statutory 

changes, included in Senate bill 2155 without delay and do so while 

closely adhering to what is clear congressional intent. 

It is time for the Federal Reserve to also conduct a holistic review and acknowledge that the world has changed since the enactment of Dodd-Frank and the finalization of the capital requirements on the books today. Such review should include a consideration of equal and reasonable treatment for institutions with more 

than $250 billion in assets and for immediate holding companies— 

or intermediate holding companies of international banks operating 

in the United States. 

These institutions should be subjected to tailored regulation that 

reflects the risk they pose to the financial system. Such steps 

would not only reflect the intent of Congress but also the Administration, evidenced most clearly through the recommendations 

issued by the Treasury Department since President Trump took office. 

It is time to take the guessing out of capital planning and regulation. I press leadership at each of the Federal financial regulatory 

agencies to recommit to greater transparency and adherence to the 

requirements in the Administrative Procedures Act. We need 

smarter streamlined regulatory regimes that promote not just 

transparencies, but also effective tax payer and systemic protections. 


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We have a very distinguished panel of witnesses before us today. 

Each of these gentlemen has an honorable background, and we appreciate their testimony. 

The Chair now recognizes the Ranking Member of the subcommittee, the gentleman from Missouri, Mr. Clay, for 5 minutes 

for an opening statement. 

Mr. CLAY. Thank you, Mr. Chair, and thank you for conducting 

this hearing. At this time, I am going to be going back and forth 

to a business meeting in the Oversight and Government Reform 

Committee. We are expecting votes, so I will designate Mr. Scott, 

of Georgia, as the ranking Democrat on the panel. And I yield to 

him on his opening statement. 

Chairman LUETKEMEYER. Very good. We will recognize Mr. Scott 

for an opening statement. 

Mr. SCOTT. Thank you, Mr. Chairman. Thank you, Mr. Clay. 

As was pointed out by the Chairman in his opening remarks, it 

is important for us to remember that stress tests are an important 

tool that we armed our regulators with in the aftermath of the terrible financial crisis. And we did that so that regulators can test 

the health of our country’s biggest banks. 

And I was, back then, very proud of the fact that I was an original co-sponsor of Dodd-Frank. And I am proud to say this, that if 

it weren’t for the most stringent capital leverage requirements that 

we put in place, our financial system wouldn’t be as safe as it is 

today. These changes have also made our banks more resilient. 

And they have led to increased bank lending, which helped spur 

our great economic growth that we are experiencing today. 

These changes also have made our banks more active in getting 

the necessary capital out into the marketplace. But as I have been 

saying for quite a while in our numerous committee meetings, no 

law is perfect. And that is to say Dodd-Frank is not perfect. 

And we, as lawmakers, cannot be unwilling to look at these 

Dodd-Frank rules, simply because they are too politically difficult 

to discuss. Our banking system needs us to do that. That is why 

I became the Democratic leader of Mr. Zeldin’s Stress Test Improvement Act HR4293. 

We have a distinguished panel. We are looking forward to your 

interesting and helpful comments. And thank you, Mr. Chairman. 

I yield back. 

Chairman LUETKEMEYER. The gentleman yields back. With that, 

we go to the testimony of our witnesses. Today, we welcome the 

Honorable Kevin Fromer, President and CEO of Financial Services 

Forum; the Honorable Greg Baer, President and CEO of Bank Policy Institute; Dr. Douglas Holtz-Eakin, the President of American 

Action Forum; Dr. Marcus Stanley, Policy Director of Americans for 

Financial Reform; and Mr. Keith Noreika, Partner at Simpson 

Thacher & Bartlett. 

Each of you will be recognized for 5 minutes to give an oral presentation of your testimony. Without objection, each of your written 

statements will be made part of the record. Just a quick tutorial 

on the microphones in front of you. Please pull—that whole thing 

will come forward. All you do is just pull the whole thing forward. 

And make sure you are—the microphone is close. It is very sensitive. Red means—or green means go, yellow means you have a 


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minute to wrap up, and red means we need to close down all together. 

So, with that, Mr. Fromer, your recognized for 5 minutes. Welcome. 

STATEMENT OF HON. KEVIN FROMER 

Mr. FROMER. Thank you, Mr. Chairman, and Congressman Scott 

and Members of the subcommittee. Thank you for having this hearing and thank you for the opportunity to testify today. 

My name is Kevin Fromer, and I am President and CEO of the 

Financial Services Forum. Our members are the eight largest and 

most diversified financial institutions headquartered in the United 

States. And we welcome the opportunity to discuss our support for 

a broad review of U.S. capital regulations, as well as a more targeted review of the capital planning process, the leverage ratio, and 

the capital surcharge which applies to only our members. 

The Forum’s member firms provide vital services in support of 

the U.S. economy. In the first quarter, Forum institutions held 

more than $4 trillion in loans, accounting for 44 percent of total 

lending to businesses and households. 

Our members also underwrite nearly three-quarters of debt and 

equity transactions among other large U.S. institutions, providing 

critical services that other institutions cannot provide on a similar 

scale. 

Our institutions have significantly enhanced their resiliency and 

resolvability over the past decade. And they are strongly positioned 

to support economic growth throughout the economic cycle. Notably, they maintain more than $900 billion in tier one capital, a 

more than 40 percent increase since 2009. 

Our member institutions also have significantly improved their 

liquidity positions, holding nearly $2 trillion in high-quality liquid 

assets, an increase of more than 85 percent since 2010. Our members maintain strong capital levels, and they support capital standards that promote both stability and economic growth. 

Since capital is a more expensive form of bank funding, unwarranted increases in capital standards lead to increased costs of borrowing and reduced availability of loans for consumers, businesses 

and communities. To foster economic growth, it is imperative that 

capital standards be appropriately calibrated to effectively balance 

costs and benefits. 

Regulators worldwide have issued many new requirements at a 

significant pace in recent years, necessarily focusing on each measure individually. With nearly a decade of change and experience 

and data behind us, now is the time for a holistic review of the 

interaction of these important but separate actions. Regulators 

here and abroad have already begun that process of reviewing and 

adjusting the post-crisis regulatory system to make key rules operate with greater transparency and efficiency. 

An important initial step in this regard was a series of recommendations made by the Treasury Department last year. In my 

testimony, we call for a broad review and highlight our views on 

targeted near-term steps. The Federal Reserve, this year, proposed 

to integrate its capital regulatory rule with its capital planning and 


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stress testing regime, while establishing a new stress capital buffer. 

In addition, two Federal banking agencies proposed to revise the 

enhanced supplementary leverage ratio which applies to only our 

members. These efforts, which we appreciate, seek to maintain 

strong capital adequacy while reducing the complexity, cost, and 

unintended consequences of the regulations. 

The Forum has offered suggestions for improving these proposals. First, the Forum believes that the stress capital buffer proposal should be modified to ensure that boards of directors at financial institutions can clearly and appropriately make capital 

management decisions. A firm with capital in excess of the Federal 

Reserve’s requirements should be permitted to make capital distributions in the way its board deems most productive. The Federal 

Reserve should also improve the transparency of its scenario and 

model designs by, for example, soliciting public comment on its 

stress scenarios. 

Finally, the Federal Reserve should conduct full set analysis of 

the effective costs and benefits of the proposed stress capital buffer 

proposal that accounts for the full range of its economic costs. 

Secondly, with respect to the enhanced supplementary leverage 

ratio proposal, we have recommended that the agencies exclude 

risk-free assets to eliminate the economic incentive to reduce participation in low-risk, low-return businesses. 

These changes would also serve the agencies’ stated goal of ensuring that leverage requirements serve as a backstop to risk-based 

capital as opposed to a binding constraint. 

Finally, both the stress capital buffer and leverage proposals import the G-SIB (global systemically important bank) capital surcharge which, again, only applies to our members. This surcharge 

was finalized in 2015, 3 years ago, in the absence of several very 

important improvements to the regulatory system. 

In conjunction with our colleagues at the Bank Policy Institute, 

we have analyzed the level of the G-SIB surcharge and find that 

it is overstated by at least 1 percent because of subsequent additional regulatory requirements, which both reduce the risk and the 

impact of default to the financial system. 

Accordingly, we believe that the G-SIB surcharge should be reconsidered. This is an initiative that would be wholly consistent 

with the stated intent by regulators to reexamine and reevaluate 

the efficacy and efficiency of the proposed crisis regulatory regime. 

We look forward to continued engagement with the Congress, 

with regulators, and other stakeholders to achieve a balanced system that seeks the goals of a safe and sound system with one that 

best supports economic growth and job creation. 

Thank you. 

[The prepared statement of Mr. Fromer can be found on page 67 

of the Appendix.] 

Chairman LUETKEMEYER. Mr. Baer, you are recognized for 5 

minutes. 

STATEMENT OF HON. GREG BAER 

Mr. BAER. Thanks. Chairman Luetkemeyer and Members of the 

subcommittee, today is my first testimony on behalf of the New 


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Bank Policy Institute (BPI). Our new organization will conduct research and advocacy on behalf of America’s leading banks, which 

will also serve the interest of consumers who desire innovative 

products at competitive prices and businesses who seek funding for 

their growth. The stakes are high as our members make 72 percent 

of all loans and 44 percent of all small business loans. 

Turning to capital regulation, U.S. banks now hold substantial 

amounts of high-quality capital. Since the global financial crisis, 

BPI’s 48 members have increased their collective tier one common 

equity from nearly $400 billion to almost $1.2 trillion. 

As a barometer for just how much capital the largest banks are 

carrying in 2018, consider this year’s CCAR results. I should note 

that BPI’s smaller non-CCAR banks have even higher capital ratios 

than the largest. The scenario included a sudden increase in the 

unemployment rate of 600 basis points. In the stock market crash 

of 65 percent, housing prices plunged 30 percent. And a similar 

shock hit capital markets. 

Using the Federal Reserve’s own monetary policy projections, we 

calculate that such a rapid increase in the unemployment rate 

alone, leaving aside all the other shocks, has only about a 50-50 

chance of occurring once every 10,000 years. And yet, in this year’s 

CCAR exercise, banks ended up highly solvent, holding a ratio of 

tier one common equity risk-based assets ranging from 4.0 to 16.2 

percent. 

Over-capitalization of the bank sector matters because every 

major evaluation of the cost and benefits of capital requirements, 

including those done by the Basel Committee, the Federal Reserve, 

the Bank of England, and the IMF find, it is lending to clients with 

higher capital requirements. The only debate is how much? 

Another underestimated adverse consequence of capital regulations stems from volatility. We frequently hear from bank CFOs 

that capital planning is extremely difficult when capital requirements vary dramatically year to year, whether from CCAR stress 

testing scenarios and model changes or examiner pressure. 

The final overarching concern is the credit allocation inherent in 

today’s regime. One bank CFO recently remarked to a colleague 

that he is no longer in the banking business but rather in the regulatory optimization business. In other words, choosing business 

lines not based on the bank’s own estimate of the risk adjusted returns, but rather on how they are treated by capital or liquidity 

regulations. 

At the moment, the Federal banking agencies are considering a 

variety of rules that could ameliorate or exacerbate these issues. 

One pressing concern is how the agencies will adopt the new 

CECL, or Current Expected Credit Loss, accountable methodology 

for loan loss reserving. 

CECL was originally proposed by the FSB as a counter-cyclical 

measure. However, the strong sense of our banks, now validated by 

a study we have just published this week, is that it will have precisely the opposite effect. As a result, any future recession will be 

far less, unless the bank regulators take offsetting action. 

More immediately, as 2155 revises the thresholds for imposing 

enhanced prudential standards in three ways. First, the instituVerDate Sep 11 2014 13:42 Nov 15, 2018 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 G:\GPO PRINTING\DOCS\115TH HEARINGS - 2ND SESSION 2018\2018-07-17 FI CCAR\3

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tions under 100 billion are no longer subject to enhanced prudential standards, full stop. 

Second, institutions between 100 and 250 billion in assets will 

become exempt from most of those standards in 18 months, unless 

the Federal Reserve determines otherwise by rule or order. This review should include living wills. And, as Vice Chair Quarles recently indicated, the LCR. 

Third, 2155 requires the Federal Reserve to differentiate how it 

applies any enhanced prudential standard, based on the firm’s complexity. We believe that as the Fed considers how to implement 

2155, it should suspend application of many of the enhanced standards while it decides what to do. 

I should also note the tailoring should include international 

banks headquartered overseas and doing business in the United 

States. Their U.S. regulation presents unique issues as such a firm 

might be a G-SIB in Europe but a regional bank in the United 

States. Yet, current regulation does not consider those issues in a 

nuanced way. 

In April, the Federal Reserve and OCC (Office of the Comptroller 

of the Currency) proposed to revise the enhanced supplementary leverage ratio. We generally support that proposal as it would return 

the leverage ratio to serving as a backstop. 

We also generally support the Federal Reserve’s recent proposal 

to simplify capital requirements whereby any stress capital buffer 

is added to a steady statement on capital requirement, rather than 

being run as an annual pass/fail exercise. 

Nonetheless, we believe that before the Fed finalizes such a proposal, it must remedy fundamental problems with its stress testing 

regime and resolve significant methodological problems with a GSIB surcharge. 

In particular, the Fed operates CCAR using a mono-model, monoscenario approach, which we believe produces an inaccurate picture 

of risk, provides—produces unjustifiable volatility, concentrates 

risk and allocates capital, principally away from small businesses, 

LMI borrowers and capital markets’ activity. 

All in all, it is a lot for regulators in this community to consider. 

We hope to help and welcome your questions. 

[The prepared statement of Mr. Baer can be found on page 38 of 

the Appendix.] 

Chairman LUETKEMEYER. Thank you, Mr. Baer. Dr. Holtz-Eakin, 

you are recognized for 5 minutes. 

STATEMENT OF DR. DOUGLAS HOLTZ-EAKIN 

Dr. HOLTZ-EAKIN. Thank you, Mr. Chairman and Congressman 

Scott and Members of the committee. It is a privilege to be here 

today. I want to applaud the committee’s efforts at continuing to 

optimize the capital regimes that face U.S. banks. Unquestionably, 

Dodd-Frank produced a better capitalized banking sector and one 

that is safer, but it did so at some fairly well-documented costs. 

It is an enormously expensive regulatory initiative. It costs about 

$40 billion to comply already and that tab goes up every year. In 

part, because of those costs, we have seen only a handful of new 

banks enter the market in the United States. Something that I 


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have considered a very troubling development from the point of 

view of the competition in the banking sector. 

On top of that, we have seen a documented decline in the access 

of small businesses to credit and that has a spill-over impact on the 

capacity of those businesses to grow, to hire people, and to provide 

the wages of our labor force. 

At the other side of the market, we have seen a loss in some consumer benefits, like free checking accounts. And I think, overall, 

there is an increasing body of evidence that suggests that DoddFrank came at too high of a cost for the benefits that it produced. 

So, I applaud the recent efforts of this committee and the Congress in the Economic Growth, Regulatory Relief, and Consumer 

Protection Act, which tailored the regulatory regime to take some 

of those costs off smaller banks, which will reverse some of the impacts that we have seen. 

But I don’t think that leaves us with no work left to do. I think 

there are some things that I have highlighted out of my written 

testimony. Number one, among the attributes that Dodd-Frank emphasized in thinking about capital regimes was macroprudential 

regulation or systemic risk issues. To my eye, there has been no 

real success in identifying a good measure of systemic risk that 

regulators can target and appropriately manage. 

Instead, that regime has turned into simply a second layer of 

prudential regulation. I would encourage the committee to think 

about holistically reviewing all of those efforts, from the point of 

view of having only a single layer of prudential regulation that actually works. 

And in that regard, I want to commend the Federal Reserve for 

its use of stress tests. Stress tests are a very powerful tool to look 

at the capacity of institutions to weather financial stress and economic downturns. When done well, that is to say with a sufficient 

transparency, reliance on more than a single scenario, they can accomplish great prudential regulation by allowing the stress test to 

reveal the complexity of a bank’s activities in its capacity to weather those difficulties. 

So, I would encourage them to use more stress testing as a bulwark of the regime, not less. And certainly, at least to my eye, this 

has the additional advantage of bringing market discipline as a 

complement to the regulatory regime. 

If stress tests reveal that an institution is weak, markets will 

identify that weakness. They will price it appropriately. And they 

will bring pressure on that institution to correct its capital backing. 

And there is no substitute for good capital to survive downturns. 

So, I think that is a place to focus going forward. And I also 

think that those tests should be conducted not as part of having 

the Federal Reserve tell banks how they can use their money. They 

should be tested to say, is this bank sufficiently capitalized to operate safely in the United States. And past that, they should be able 

to do with whatever dividends and other cash distributions they 

see fit with their money. 

And so, we have made enormous progress. That progress has 

come with somewhat of a price, in terms of growth and benefits to 

consumers of small businesses. We can continue to make progress 

and I would encourage the committee to continue to work on that. 


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[The prepared statement of Dr. Holtz-Eakin can be found on 

page 78 of the Appendix.] 

Chairman LUETKEMEYER. Thank you, Dr. Holtz-Eakin. I appreciate your comments. Dr. Stanley, you are recognized for 5 minutes. Welcome. 

STATEMENT OF DR. MARCUS STANLEY 

Dr. STANLEY. Thank you, Chairman Luetkemeyer and Members 

of the subcommittee, for the opportunity to testify today. 

Today’s hearing examines capital regimes for financial institutions. In thinking about regulatory capital requirements, I believe 

it is important to start with, first, the principles. This begins with 

understanding that large banks receive extensive backing from the 

Federal Government. 

According to the Federal Reserve Bank of Richmond’s latest bailout barometer, almost 80 percent of the liability of all banking institutions or $15 trillion benefits from an explicit or implicit promise of support from the taxpayer. This support ranges from deposit 

insurance to the kind of long-term emergency assistance that was 

provided by the Federal Reserve and Treasury during the financial 

crisis and continues to be authorized under the Dodd-Frank Act. 

Public guarantees are a cornerstone of the modern financial system. I guarantee you that if any Member of this committee advanced legislation that significantly cut back on those public guarantees for the financial system, the very same people who ask you 

for less regulation today would be in your office tomorrow opposing 

that bill. 

Given the government guarantees provided the for-profit entities 

in the financial sector, it is important to require that these private 

entities put up significant resources of their own, especially by investing their own private equity capital. In the absence of such capital requirements, companies could take advantage of low-cost 

funding made possible by guarantees—government guarantees and 

take the profit upside while leaving losses to be covered by the taxpayer. That is what we saw in the 2008 crisis. 

Even with post-crisis regulatory capital requirements in place, 

banks are able to borrow much more than any other private sector 

business could. A private nonfinancial firm might be able to borrow 

an amount equal to half its assets. An aggressive financial firm 

outside the public safety net, like a medium-sized hedge fund, 

would typically borrow 60 to 80 percent of the value of its assets. 

But the large banks at the center of our financial system today all 

routinely borrow amounts over 90 percent of their total asset value. 

Simple math says that the less capital these banks are required 

to invest, the greater their profit return on each unit of equity. So, 

the easiest way for large banks to increase their return on equity 

is to convince you, the legislators, to reduce their required levels 

of capital. 

To do this, they make two arguments. The first argument is that 

you should be complacent. Because the current requirements for 

capital and other loss absorbency are so far in excess of any possible losses from a financial crisis that there is no way that 2008 

could ever happen again. Of course, no one expected 2008 to happen before 2008 either. 


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The second argument is that you should be alarmed because the 

current regulatory capital requirements impose severe costs on the 

economy. Both of these arguments are mistaken. First, you should 

not be alarmed. Bank lending, especially business lending, is growing significantly faster than general economic growth which indicates that the banking sector is not acting as a drag on economic 

growth. 

Capital is a resource that is actively deployed. Capital supports 

lending, making lending safer and more durable. Better capitalized 

banks lend more during downturns. 

To the extent capital does increase bank costs, reasonable estimates of the economic cost of increased capital are already routinely taken account by right—into account by regulators and setting bank capital requirements. 

Multiple impartial studies show that current requirements are, 

if anything, too low compared to their economically optimal level. 

You should also not be complacent. While bank loss absorbency has 

increased from the disastrously inadequate levels observed before 

the financial crisis, it is still far from clear that it is sufficient to 

fully protect against the risk of another financial crisis. However 

dramatic the microeconomic variables used by the Federal Reserve 

in stress test scenarios, the underlying stress test models that 

project scenario losses are still showing estimated loss is much less 

than those actually experienced by banks during the financial crisis. 

And most of all, you must not be complacent because of the devastating economic impacts of financial crises. The last crisis produced some—created some $10 trillion in direct economic cost to 

the U.S. alone. Nine million lost jobs. Millions of families foreclosed 

from their homes. And shook the legitimacy of both our economic 

and political system. It must not be permitted to happen again. 

[The prepared statement of Dr. Stanley can be found on page 101 

of the Appendix.] 

Chairman LUETKEMEYER. Thank you, Dr. Stanley. Mr. Noreika, 

you are recognized for 5 minutes. Welcome. 

STATEMENT OF KEITH NOREIKA 

Mr. NOREIKA. All right. Mr. Chairman, Ranking Member Scott, 

and Members of the subcommittee, thank you for having me here 

today. During 2017, I had the honor to serve as the Acting Comptroller of the Currency. Today, I hope to give you my perspective 

as someone recently familiar with both the concerns of the public 

and private sectors. 

I will focus my remarks on the need for tailoring two important 

segments of the financial system. First, regional banks with between $100 and $250 billion in total consolidated assets. And, second, international banking organizations that have a banking and 

capital markets presence in the U.S. 

In Dodd-Frank, Congress stated that the Federal Reserve, quote, 

‘‘may differentiate among companies on an individual basis by category, taking into consideration their capital structure, riskiness, 

complexity, financial activity, size and any other risk-related factors.’’ 


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Despite this invitation to tailor, the vast majority of the Federal 

Reserve’s enhanced prudential requirements have been applied to 

all firms based on simple asset measures. In a recent enactment 

of the regulatory relief legislation in May, Congress has now directed the Federal Reserve to tailor its requirements to the riskiness of the institutions that it supervises. 

With respect to regional banks, the Act first presumes that all 

firms with less than $250 billion in total consolidated assets are no 

longer covered by enhanced prudential requirements. And to apply 

them, the Federal Reserve must affirmatively demonstrate that the 

requirements are appropriate to prevent risks to financial stability 

or to promote safety and soundness, and there have been no such 

risks currently identified for such firms. 

Second, the Act requires that the application of any enhanced 

prudential requirement to a firm with at least $100 billion in total 

consolidated assets must take into account a statutory multi-part 

conjunctive test. Third, Congress has required separate analyses 

for assessing the application of each enhanced prudential requirement. 

And, finally, as the Federal Reserve proceeds to implement the 

Act, the substantive requirements of each of the enhanced prudential standards should also be revisited, reexamined, and tailored to 

ensure that the substance of each requirement is appropriate based 

on the risk posed by the subject firm. 

With respect to the application of enhanced prudential requirements to international banking organizations, since the passage of 

the International Banking Act in 1978, the regulation of international banks operating in the U.S. has been guided by a nondiscrimination principle of, quote, ‘‘national treatment and equality 

of competitive opportunity.’’ 

Congress’ commitment to national treatment was reaffirmed in 

Dodd-Frank. The implementation of enhanced prudential requirements has not always lived up to Congress’ mandate of national 

treatment, most notably through the implementation of an intermediate holding company requirement on firms with more than 

$50 billion in U.S. non-branch assets; and a variety of prescriptive 

governance, risk management, capital, liquidity, stress testing, and 

resolution planning requirements on the U.S. operations of international banks. 

The U.S. ring-fencing requirements and reactive foreign-ring 

fencing requirements cause a net increase in capital costs on international firms and U.S. firms operating abroad as countries apply 

stand-alone capital and liquidity requirements. This may have the 

perverse effect of making banks with cross-border activities less 

safe because if a crisis in one geography burns through the firm’s 

local prepositioned resources, the firm may be precluded from using 

its resources located elsewhere to bolster the part of its operation 

under stress. 

There are a number of actions that the Federal banking agencies 

should take to reintroduce national treatment into their regulation 

of the U.S. operations of international banks. First, the agencies 

should better account for the global resources of international firms 

when calibrating capital, liquidity, and stress testing requirements 

applied to the U.S. operations of these firms. 


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Second, consistent with the June 2017 Treasury Report recommendations, the requirements applicable to the U.S. operations 

of international banks should be commensurate with the risks 

posed by their U.S. footprints. 

Finally, the current CCAR framework disadvantages international firms, whose U.S. operations are primarily capital markets 

in nature and does not take into account the benefits of global diversification that exists for these international banks. 

Thank you and I look forward to your questions. 

[The prepared statement of Mr. Noreika can be found on page 84 

of the Appendix.] 

Chairman LUETKEMEYER. Thank you, Mr. Noreika. I appreciate 

your testimony today and all of the gentlemen here that are on our 

panel today. 

With that, we will begin the questioning. I will recognize myself 

for 5 minutes. 

I guess, Mr. Noreika, we can start with you. With regards to implementing Senate Bill 2155, do you see any ambiguity in the way 

that the $250 billion threshold was set? 

Mr. NOREIKA. Could you repeat that? 

Chairman LUETKEMEYER. Yes. Do you see any ambiguity in the 

way that the $250 billion threshold was set or is the statute pretty 

clear? 

Mr. NOREIKA. I think the—yes. No, thank you. 

Chairman LUETKEMEYER. Because you were talking about this in 

your statement here just now and talking about concerns on how 

this should be done. Have you seen any concerns at this point with 

it not being done? 

Mr. NOREIKA. Well, look, I think the statute is clear. The statute 

presumes that these banks are out unless a determination is made, 

both that there is a risk of financial stability of the United States 

or safety and soundness of the institution. And a multi-part statutory test is applied to each prudential standard to reapply to those 

banks. 

Now, I think we heard from the Chairman of the Federal Reserve today in his testimony, in an exchange with Senator Warner, 

that they are working on this. And I think the effort is to urge the 

Federal Reserve to apply the statute as it is written to, I think, immediately lift the enhanced prudential requirements on these 

banks until and unless they can empirically demonstrate that there 

is a need for each of the prudential requirements to apply to each 

of the institutions in this asset range. 

Chairman LUETKEMEYER. Well, and I know the procurement period on this is disclosed. And I am sure they are listening, so has 

anybody got a comment they would like to make to the Fed that 

say, hey, we suggest this? Nobody has a comment to make to the 

Fed today? Really? OK. I have a lot of them. But we will stop 

there. 

With regards to—Dr. Holtz-Eakin, you were talking about the 

stress test and the importance of it. And I think you made a comment, something to the effect that it was—you don’t think it is 

quite as good as it could be because it doesn’t quite accurately 

measure the stress that banks are under. Can you elaborate a little 

on that? 


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I would agree with you, probably to a point. You can’t—it is difficult to guess what kind of stress can come—where it can come 

from and all of the different variables so who knows what is going 

to happen. But what would you see as some extra things that the 

Fed could do or perhaps, that we could do to enable this to be a 

better situation? 

Dr. HOLTZ-EAKIN. So, I think there are really two areas. The first 

is the transparency and the public nature of the information revealed by the stress test. If you think back to the first stress tests 

when they were done, the original plan was not to make the results 

public. And markets were in turmoil and there was an enormous 

amount of fear and uncertainty. 

And when they decided to actually reveal those stress tests, it allowed market participants to identify healthier versus less healthy 

institutions pretty clearly. It allowed them to price those risks 

more effectively. And it allowed them to bring market discipline to 

the operation of those banks. It is important that that continue 

going forward. 

I am concerned, my comment to the Fed, about this plan to simply move away from having stand-alone stress tests, put everything 

into a CCAR process that doesn’t look terribly transparent to me. 

I think that is giving up the opportunity to have market discipline 

as a complement to good regulation. And you need both. So, that 

is point number one. 

The second point is, I am not a big fan of a single scenario stress 

test. Stress tests are done by lots of institutions for their own purposes and they involve multiple kinds of scenarios to test, genuinely, their exposure to different kinds of downturns, different 

kinds of commodity price fluctuations, different kinds of housing 

market impacts. I would encourage the Fed to think more about 

bringing that kind of a regime into play. 

Chairman LUETKEMEYER. Well, along that line, Governor Tarullo 

in my comments, I indicated that he made the comment that stress 

testing programs should move to the normal examination cycle. 

And, to me, I think that is where it needs to go. I don’t know if 

the banks need to be filling out forms to have the regulators see 

if they have guessed right on whether this is actually going to 

work. 

To me, the regulators should have a set of scenarios that they 

believe could happen. They go into a bank and they apply those 

scenarios to the business model and the actual bank members and 

see if it works. Is that something that makes sense to you? 

Dr. HOLTZ-EAKIN. I whole-heartedly concur. I think that is exactly the right way to use them. And reveal those results and that 

would be a good way to do prudential regulation. In the end, you 

want good safety and soundness regulations and stress tests can be 

an important part of that. 

Chairman LUETKEMEYER. My time has almost expired. With 

that, I will yield back the balance of time and I will go to the distinguished gentleman from Georgia. Mr. Scott is recognized for 5 

minutes. 

Mr. SCOTT. Thank you very much, Mr. Chairman. Mr. Baer, let 

me start with you. I wanted to ask your thoughts—ask you for your 

thoughts on stress tests because, as I mentioned earlier in my 


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opening remarks, my bill with Mr. Zeldin makes structural changes 

to the stress test regime in the—in this way. Our bill made such 

structural changes as saying the Fed couldn’t fail a bank for their 

qualitative portion of their test. And we also eliminated the adverse scenario from the test requirements, among other things. 

But recently, from the Fed, as we all saw for the first time, handed out a passing grade when a passing grade wasn’t deserved. The 

Fed referred to this as, quote, ‘‘a conditional nonobjection’’ It is interesting to know what that means. 

But I also view the amendments we made in my bill with Mr. 

Zeldin as a way to reduce the burden without fully gutting these 

critical, important tests. But I viewed these recent actions from the 

Fed as a way to smooth out our markets negative and often overly 

harsh a reaction to the news of a bank receiving a Federal grade. 

So, Mr. Baer, let me ask you this first part. What sort of reforms 

do you think are more important? 

Mr. BAER. I would—thank you, Congressman. I would agree with 

you that the qualitative portion of the CCAR should be part of the 

regular examination process just the way they examine anything 

else from credit underwriting to the markets’ businesses. The adverse scenario is proving useful because it simply never binds and 

it has just become an exercise that does not have a lot of benefit 

and is probably not as robust as some of the scenarios that Dr. 

Holtz-Eakin was talking about that the bank, itself, runs. 

With respect to the results and pass or fail. I think where we 

need to get is where we have confidence that those results are actually meaningful and where the Fed can be comfortable saying 

there is really no way to give an exception. 

Right now, and I think you have already heard it, we are in a 

mono-scenario, mono-model world where you have extreme stresses 

in certain areas and level stresses in other. That is not necessarily 

the result that is going to—or the process that is going to—that is 

going to make the banks safest. Banks should not just be testing 

for, and I assure you they do not, very high increases in employment. They should be looking at what happens if there is a problem with foreign debt, something in China, something in Russia, 

European issue, hyperinflation, deflation. 

So, banks that are really managing their risk, they look at all 

those different scenarios and then they make a judgment about 

what their capital needs are. And so, we support the notion of the 

Fed running multiple scenarios, perhaps averaging them—averaging them over time, expressing the volatility. 

Mr. SCOTT. Very good. Now, Dr. Holtz-Eakin, I hope I pronounced your name correctly. 

Dr. HOLTZ-EAKIN. Exactly right, sir. 

Mr. SCOTT. Thank you. You made some interesting comments in 

your testimony. First of all, you said that competition in the banking system is getting less. You said there are fewer and fewer 

banks. You said there are fewer and fewer checking accounts at 

these banks. You also said systemic risk regulation is now questionable. 

And then you said this. You said, we need more stress testing 

and not less. Now, we have five distinguished gentlemen there. 

How many of you agree with Mr. Eakin that we need more stress 


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testing, not less? All right, we have two out of three? Tell me, give 

me—those of you—somebody—one of you who disagree, tell me 

why? Why do you think—now, Mr. Eakin has said why we need 

more. One of you that raised your hand said we need less. Tell me 

why you disagree. Yes, Mr. Fromer. 

Mr. FROMER. Yes, I will start. Let me just say that the issue is 

not the stress test, per se, because the stress test process is a useful process. The issue is parts of the process that have proven to 

be not transparent, whether it is the models, as Mr. Baer has referred to, or the economic scenarios, that Mr. Holtz-Eakin has referred to. So, the improvements that we believe are necessary are 

focused on the transparency of both of those components of the 

stress test. 

So, it may involve more scenarios as they have discussed. But I 

think it is the quality of the scenarios and the understanding of 

what is inside the model of the Federal Reserve versus the real experience of the institution itself? 

And then, the quality of the actual economic scenarios. Are they 

extreme? Are they plausibly extreme? And when do the firms experience that information for purposes of their capital planning, in 

order to reduce the volatility that has been mentioned? 

Mr. SCOTT. All right, very good. Thank you, Mr. Chairman. 

Chairman LUETKEMEYER. Thank you. The gentleman yields back. 

With that, we go to the Ranking—or the Vice Chairman of the committee, Mr. Rothfus. The gentleman from Pennsylvania is recognized for 5 minutes. 

Mr. ROTHFUS. Thank you, Mr. Chairman. Mr. Baer, as you know, 

Basel III takes a fairly punitive approach to mortgage servicing 

rights compared to other intangible assets. This is particularly 

challenging for U.S. banks since our mortgage market relies on 

securitization while banks in other jurisdictions tend to follow the 

originate-and-hold model. 

Can you describe how Basel III’s approach to mortgage servicing 

rights affects U.S. banks? 

Mr. BAER. Sure. Thank you, Congressman. Now, clearly, there 

was a very large change made post-crisis to mortgage servicing 

rights. The level at which a capital deduction occurred, the threshold was much lower. And then, the capital deduction, I think, rose 

from 100 percent to 250 percent. So, it is a substantial penalty. 

It is also interesting that that came out of the Basel Committee 

where, really, it is the United States. This is really a uniquely U.S. 

issue so—because we have a large securitization market. And I 

think it is fair to say that most countries around the world don’t 

really have this issue as much. So, that may not have been the best 

place to have it debated. 

It is fair to say that during the crisis, mortgage servicing rights 

did not become a readily salable asset. So, clearly, there should be 

some restrictions on their ability to count toward capital. And I 

think it is a very good question whether the post-crisis reaction 

that came out of Basel was too extreme. 

And yet, I think it would be a very good idea to recalibrate that. 

And, almost certainly, downward to give more credit for it. Certainly not as much credit as common equity. But more—I think it 

is now five times the capital deduction for residential loans. 


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Mr. ROTHFUS. Well, can you offer some insights on how capital 

rules applicable to mortgage servicing rights affect the consumers? 

Mr. BAER. Sure. Well, it affects consumers in two ways. One, it 

increases the cost of the servicing. But, also, what you have seen 

post-crisis, as a result of the very high capital charge, is that a lot 

of this business has migrated away from regulated banks to 

nonbank servicers. 

I think there was a time when that was considered to be a good 

thing. I think experience has taught us that consumers are probably better off if that is at a regulated financial institution with a 

lot of other relationships with that customer and a lot of incentives 

to do right by that customer. 

Mr. ROTHFUS. Mr. Fromer, over the last decade, the Federal 

banking agencies have built a complex regulatory regime with 

wide-ranging consequences for regulated industries and the broader economy. While our committee has led the way on historic regulatory reform, we should all recognize that there is always an opportunity to build a stronger and more efficient regulatory system. 

In order to do that, we need an honest and thorough account—thorough accounting of the rules in place today. 

In a speech earlier this year, Vice Chairman Quarles said the following. Quote, ‘‘now is an eminently natural and expected time to 

step back and assess past regulatory efforts. It is our responsibility 

to ensure that they are working as intended and given the breadth 

and complexity of this new body of regulation, it is inevitable that 

we will be able to improve them, especially with the benefit of experience and hind sight.’’ 

Do you agree with the—do you agree that the Fed should undertake a holistic review of our regulatory regime and, if so, why 

would this be important? 

Mr. FROMER. Thank you for the question. First of all, I would 

wholeheartedly agree with that statement. And I believe it is a 

statement that is at least conceptually shared, not only here but 

amongst regulators outside the U.S. And that is to say, after you 

have a decade of experience in data, not only amongst the regulators but the firms themselves, that you—that the responsible 

thing to do here is to take a holistic approach. 

As perfect example of why you need to do that, we have something called the G-SIB surcharge that applies to the Forum institutions. That G-SIB surcharge is put in place for the purposes of putting capital into the system, in the event that there is a heightened 

risk of default or failure of a large firm and the impact that could 

have, the social cost that could have. 

But it was put in place at a time when a series of other improvements had not been implemented. Those improvements have been 

implemented. And as a consequence, the surcharge is, to some degree, redundant of the improvements that have been made. 

So, that is an example of the kinds of things that, I think, the 

regulators need to take a broad look at in the context of the framework. 

Mr. ROTHFUS. Mr. Noreika, in your testimony, you wrote that 

regulators should be transparent in rulemaking and supervisory 

process and not become overly reliant on unofficial rulemaking 


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through guidance. Of course, this backdoor approach to regulation 

was all too common in the previous Administration. 

You recently finished a stint as the Acting Comptroller of the 

Currency. Have you seen a shift in the attitude and actions of regulators in recent months on this topic? 

Mr. NOREIKA. Well, I have, Congressman. And I think it is a welcomed change. And I think we are starting to see some of this reviewed by Congress as a congressional Review Act, such as we saw 

with the indirect auto lending guidance. And I think there is an effort underway at each of the banking agencies to catalogue their 

so-called guidance and see what needs to be put out for notice and 

comment. And then, also, what might be subject to a congressional 

review as well. 

So, I think it is a welcomed guidance. I think rules will get more 

rules, which will get more rules in how they are implemented. And 

guidance, obviously, is useful up to a point but it has to remain 

guidance. And when it becomes a binding effect, then there are certain legal protections that are there for the—for those that are regulated and that has to be—the government has to be mindful of 

that. 

Mr. ROTHFUS. My time has expired. I yield back. 

Chairman LUETKEMEYER. The gentleman’s time has expired. I 

call the gentleman from Texas who is recognized for 5 minutes, Mr. 

Green. 

Mr. GREEN. Thank you, Mr. Chairman. I thank the witnesses for 

appearing as well. I remember when we were talking about longterm capital. Anybody remember that name, long-term capital? 

You—OK, thank you. And we were talking about events and how 

things just couldn’t happen. But before there was long-term capital, 

we had people who were very skeptical about regulations. And nobody anticipated that long-term capital would occur but it did. 

I remember when the banks would not, NOT—would not lend to 

each other. And I remember why we had to resort to Dodd-Frank. 

Dodd-Frank was necessary and, in my opinion, it has served us 

well. I think the living wills, the stress tests are important. For a 

multiplicity of reasons, I might add. 

But we have two persons who have indicated that they think we 

should have more stress tests and didn’t get a chance to hear your 

responses as to why. So, let me start with the first person who 

would like to respond. Which of you will that be, please? 

Mr. BAER. I will go. It is a very broad question. I think for firms 

that are subject to stress testing, and I think that should include 

large complex firms, those that have a variety of businesses perhaps internationally, you are always going to be better off running 

more stress scenarios rather than fewer. You don’t want them only 

preparing for one type of impact as opposed to a variety. That is 

not to say, though, that for every firm, stress testing is appropriate. 

And I believe Congress got it right in 2155 when it moved from 

annual periodic with respect to regional firms. Those are, generally, 

firms that have a pretty homogenous book of mortgage loans, C&I 

(commercial and industrial) loans, generally not any international 

exposure, probably have a more complex liability structure. 

So, I think it really varies, depending on the bank. But once you 

are saying, yes, stress testing is appropriate for this bank, I am 


nshattuck on FSR297 with DISTILLER
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very worried about the current regime where you have a monomodel, mono-scenario approach to determining the capital adequacy of that bank. 

Mr. GREEN. Mr. Stanley, I think you were among the two. 

Dr. STANLEY. Yes, I think what is going on here is that I agree, 

conceptually, with Dr. Holtz-Eakin and Mr. Baer that there are a 

wide variety of types of stresses and stress scenarios that could impact a bank. And regulators have to be—both regulators and banks 

have to be creative and aggressive in seeking out what might be 

on forecast risks or risks that are difficult to forecast that might 

harm the bank. 

So,you have to test a greater range of scenarios. But I would just 

point out that this goes, in my view, completely opposite to this 

claim by industry that we can’t have volatility in stress testing results, and stress testing impacts and stress tests can’t change from 

year to year. The very fact that markets change so often that you 

have to check multiple scenarios, to me, means that there should 

be an unpredictable element in stress tests. They should change. 

And if you have had a stress test that was totally predictable, it 

wouldn’t really be stressful and it wouldn’t really be a test. 

Mr. GREEN. I think that I see someone who would like to respond 

to your response so I will yield to you. And give your name, if you 

would. Is it Mr. Baer? 

Mr. BAER. Yes. 

Mr. GREEN. Thank you. 

Mr. BAER. I think to the extent that markets are actually changing, bank’s capital requirements should change. If all that is changing is the stress test that is chosen by the regulator, that really 

shouldn’t be causing large changes in a bank’s capital position. 

It is important because banks have to make long-term business 

plans: 1, 2, 3, 5 years out. And if you don’t know what the capital 

charge is going to be for that business, it is very difficult to do that. 

And that does not help consumers or businesses. 

Again, if there is a real change in the bank’s risk, yes, and it is 

to the upside, the bank’s capital prime should go up. If it is—if it 

is to the downside, it should go down. And this doesn’t necessarily 

mean, I would say to Dr. Stanley, lower capital requirements. To 

the extent that you average them, either averaging a variety of scenarios or averaging the results over a couple of years or whatever 

that stress scenario is, that would still suppress volatility. It 

wouldn’t really necessarily— 

Mr. GREEN. I think Mr. Stanley would like to have a final retort 

so I am going to allow this debate to continue for this last round. 

Mr. Stanley. 

Dr. STANLEY. Well, I have very little time but I guess I would 

just point out that we—in terms of capital planning and long-term 

planning, we actually don’t want banks over-adjusting and trying 

to track the regulatory capital requirements. We—that element of 

unpredictability, I think, could be important, precisely so that 

banks don’t take excessive account of regulatory requirements in 

their future planning, and instead look more at the business environment. 


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Mr. GREEN. Mr. Chairman, if I may, Ranking Member Clay has 

asked that I offer some materials for the record with unanimous 

consent. 

Chairman LUETKEMEYER. Without objection. 

Mr. GREEN. The Center for American Progress has a rather 

lengthy document and letter to be submitted; Better Markets similarly situated; the Americans for Financial Reform. I ask that, if 

there are no objections, that all be submitted into the record. 

Chairman LUETKEMEYER. Without objection. 

Mr. GREEN. Thank you. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

Now, we go to the gentleman from Oklahoma. Mr. Lucas is recognized for 5 minutes. 

Mr. LUCAS. Thank you, Mr. Chairman. And I would like to revisit a couple of issues with my colleagues here. But first, I always 

remind folks that coming from a capital-starved region, the oil and 

gas industry, agriculture, Main Street in rural Oklahoma, capital 

is always a challenge for us. By the same token, I acknowledge to 

you that I come from a long line of debtors, so I have a certain perspective from that perspective. 

Let us visit Mr. Baer. I have heard my constituents, in the wake 

of S2155, say that they are confused about legislative intent when 

it comes to stress testing. Some of my banks, most of which are 

very small and are well under the $100 billion threshold, believe 

that 2155 was meant to do away with all stress tests for banks 

under those numbers, not just the test called for in Dodd-Frank. 

I realize you don’t speak for FDIC, but is this a view that is widely 

shared by—among the industry? 

Mr. BAER. Yes. I think, Congressman, that if you are under that 

threshold, it is the assumption and the only way I would read the 

statute is that that is the end of having to do these types of stress 

tests. And I would say we are actually quite concerned that regulators these days are very fond of what we call horizontal reviews, 

which we sometimes call examinations management consulting, 

where they will look at a variety of banks and come in and say, 

you know what? We don’t like your practices. We want you to do 

what some other banks are doing. 

So, to the—we are very concerned that these same requirements 

that have been ended by 2155 will actually come back in through 

the examination process. And I really think that is something for 

this committee to keep an eye on. 

Mr. LUCAS. That was my next question: How we clarify the situation so that the intent behind 2155 is obvious to everyone. 

Mr. BAER. Again, Congressman, I think it is a real concern. We 

have a whole—we could have a whole separate hearing on the examinations as far as the regulatory process. Because I think, particularly for smaller banks, a lot of this isn’t about stress testing 

or G-SIB surcharges or any of that. It is really about a fundamental shift, post-crisis, away from examinations focusing on safety and soundness issues that are material to the health of the firm 

and toward more minor criticisms and consulting and horizontal reviews. 

I do think it is going to be a long process. But I hope that the 

new leadership of the agencies can refocus the exam teams on matVerDate Sep 11 2014 13:42 Nov 15, 2018 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 G:\GPO PRINTING\DOCS\115TH HEARINGS - 2ND SESSION 2018\2018-07-17 FI CCAR\3

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ters that are material to the financial institution and not just 

wanting them to do it a different way. 

Mr. LUCAS. So, you don’t disagree. When the bankers say they 

read what they read which is how I read the bill. It sounds like 

the way you read the bill. 

Mr. BAER. Yes, that is what I understand. I think Mr. Noreika 

eluded to guidance where, for years now, banking agencies have 

been issuing guidance. And they say it is only guidance but every 

banker you talk to, every compliance department says, no, we treat 

that as a binding regulation in every case because that is the way 

the examiners treat it. So, it is a cultural thing. I think it is going 

to be difficult to resolve but it is an important issue. 

Mr. LUCAS. Mr. Noreika, let us touch on that subject of the issue 

of mortgage servicing rights and the treatments under the capital 

rules. I have a couple of constituent institutions in Oklahoma that 

have been very successful in servicing things like FHA loans. There 

other institutions across the country that are very successful in 

dealing with V.A. and USDA loans. 

And they are very concerned, as we have discussed earlier, that 

under the Basel III cap, combining with the risk of these assets 

hinders their ability to engage in the activity, and they tell me that 

they are seeing literally the business being driven to nonbank lenders where their regulation is lighter. 

Could you touch on that for just a moment? Is this a legitimate 

concern by my constituents? 

Mr. NOREIKA. Yes. And it is something that I faced at the OCC 

and we put out a proposed rule that hasn’t yet been finalized. But 

certainly the capital charges for servicing rights are overly punitive. It disproportionally impacts regional community banks and reduces the availability of loans in our communities. Holding mortgage servicing rights is often part of a sound strategy for banks 

that originate and sell loans while retaining the right to service 

these loans. 

The practice permits banks to make loans in our community and 

develop stronger customer relationships while appropriately managing risks to their balance sheets. 

As I mentioned, when I was at the OCC, we put out a capital 

rule to streamline and loosen the punitive requirements on these 

requirements in, I believe, September 2017. I think the time has 

come for the agencies to finalize that rule, with respect to mortgage 

servicing rights, and take away some of the punitive effects that 

comes from holding these assets. 

Mr. LUCAS. Thank you, sir. I yield back, Mr. Chairman. 

Chairman LUETKEMEYER. The gentleman yields back. With that, 

we go to the distinguished gentleman from Kentucky, Mr. Barr. 

The Chairman of the Monetary Policy Committee is recognized for 

5 minutes. 

Mr. BARR. Thank you, Mr. Chairman. I will start with Dr. HoltzEakin. The question about the legislation that was recently signed 

into law, Economic Growth, Regulatory Relief, and Consumer Protection Act. What do you believe will be some of the most pronounced impacts on bank lending, now that that law has been 

signed? 


nshattuck on FSR297 with DISTILLER
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Dr. HOLTZ-EAKIN. I think the most pronounced impacts are going 

to be in the relatively small loans: $50,000, $100,000, $200,000 to 

small businesses in the area—in those areas. We know there has 

been a big geographic dispersion in the quality of the economic recovery. It looks a lot like the geographic dispersion in the access 

to credit. And so, I think that is an important economic benefit. 

Mr. BARR. Can you elaborate a little bit more on your testimony 

about market discipline as an additional factor in strengthening 

the financial system, in addition to capital requirements? 

Dr. HOLTZ-EAKIN. There is nothing better than capital for honing 

incentives, right? The thought of losing your own money is a powerful motivator. And if you have investors who are looking at institutions carefully and correctly trying to price the risks that those 

institutions face, that is a tremendous source of discipline to the 

operation of those institutions. 

So, wherever possible, it is useful to try to bring that into the 

process. And that is one of the reasons I, at least, think that the 

stress tests are so valuable. They provide information to market 

participants about how firms react in different situations. That is 

useful for pricing. 

Mr. BARR. Is there a lack of transparency anywhere in the law 

right now that could be corrected, in terms of transmitting greater 

levels of information to consumers? 

Dr. HOLTZ-EAKIN. I just echo a lot of the things that Mr. Baer 

said about the current stress testing regime not having sufficient 

robustness to convey all of the risks that these institutions will face 

and can weather or not weather. And that is what you want to 

know. 

Mr. BARR. Mr. Noreika, thank you for your service at the OCC. 

And let me just ask you, now given your background in both the 

private sector and the public sector, your thoughts about the role 

and importance of regional banks in the traditional lending model 

and how does over-regulation contribute to curtailing lending in 

economic growth? 

Mr. NOREIKA. Well, thank you, Representative Barr. Look, failing 

to properly tailor the enhanced prudential requirements, with respect to regional banks or all banks, will continue to increase the 

price and limit the availability of credit in the United States and, 

ultimately, stifle economic growth. Poorly tailored requirements 

also hurt access to credit, usually for those at the margin, those in 

underserved communities which are often served by regional 

banks. Poorly calibrated requirements also unintentionally 

incentivize unnatural and risky behavior and they make the market less safe. 

Mr. BARR. Can I jump in really quickly? 

Mr. NOREIKA. Yes. 

Mr. BARR. Your—the thrust of your testimony was that the $50 

billion asset threshold was an arbitrary threshold. 

Mr. NOREIKA. Yes. 

Mr. BARR. And that the new regime is a preferred approach, 

based on these multi-factor tests. 

Mr. NOREIKA. Yes. 

Mr. BARR. The presumption is that if a—if an institution has as- sets less than $250 billion, it is—it doesn’t warrant that enhanced 


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prudential supervision. But it does give discretion above 100 billion 

for that—for the application of those enhanced supervisory rules. 

What is so—what is magic about the $250 billion threshold? Is 

there an argument to be made that that threshold should go up as 

long as the regulators have the discretion to apply a similar multifactor test to institutions between, say, 250 or 500 billion or, for 

that matter, any institution that is not categorized as a G-SIB. 

Mr. NOREIKA. Sure. That is a very good question. Look, I think 

the way the world is divided now, in light of the regulatory relief 

legislation, is that everything under 250 billion is presumed to be 

out. And everything under 100 billion is absolutely out by statute. 

Above 250 billion, Congress now has required, directed the Federal Reserve to apply its enhanced prudential standards based on 

this multi-par test. One of those factors is asset size. But the other 

factors are not asset size. And so, even for the banks above $250 

billion, the Federal Reserve has to go back and they have to look 

at each of their—and it says any prudential standard so it is for 

each one. They have to look at them and they have to look at the— 

those factors with respect to the individual institution. 

And I think this dovetails nicely with what we are hearing out 

of the new leadership of the Federal Reserve as far as tailoring 

goes. Congress has provided a roadmap for tailoring. 

Mr. BARR. I have more questions but my time has expired. 

Thank you. 

Mr. NOREIKA. Thank you. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

With that, we will go to Mr. Tipton. He is from Colorado. He is recognized for 5 minutes. 

Mr. TIPTON. Thank you, Mr. Chairman. I thank the panel for 

taking time to be able to be here. And Mr. Noreika, maybe you 

would like to go back a little bit more, in terms of some of the questions that Mr. Rothfus had brought up, in regards to, are we actually seeing the needle move after 2155 is being signed into law 

with the regulators. Some of the comments that I have had from 

some of my local banks is when—you were just talking about some 

of the tailoring end of it. 

Mr. NOREIKA. Right. 

Mr. TIPTON. They said they really haven’t seen any real impact. 

It is business as usual. So, could you drill down a little bit more 

in where you are seeing that movement starting to go? 

Mr. NOREIKA. Sure. And, look, I am on the outside looking in 

now. And I was recently on the inside looking out. I don’t disagree 

with your statement. I think that Congress has provided fairly 

clear guidance to the agencies. 

I think that the agencies did take immediate steps for the banks 

below $100 billion to inform them of certain changes. Maybe that 

hasn’t filtered out entirely. But I think that whatever those are, 

they should be in constant contact with their regulator to work out 

those issues because what Congress did was fairly clear. 

I think the real issues immediately facing the agencies are with 

below 250 billion, this presumption that they are out, unless there 

is a finding made that there is a threat to financial stability or 

safety and soundness and the application of a multi-par test. And 

then, above 250 billion, there is the application of the statutory 


nshattuck on FSR297 with DISTILLER
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multi-par test that now is directed by statute. And I think that is 

one we haven’t yet seen the agencies come out and talk about. And 

hopefully we will soon. 

But I do have an appreciation for the way things work in the 

public sector as opposed to the private sector. I suppose 2 months 

in the private sector—in the public sector isn’t quite as fast as perhaps I would like. But—or you would like. 

But I am sure they are working on it diligently. And I think 

hearings like this help give valuable input on helping them to come 

to a formulation of how they are going to deal with these different 

groups of banks. 

Mr. TIPTON. Right. And I think Mr. Barr’s comments in terms of 

setting arbitrary thresholds and how that impacts. Do you have 

some recommendations specifically rather than just having arbitrary thresholds? I know they are working on it. But is there something more that Congress could be doing? 

Mr. NOREIKA. Well, look, I think you are doing exactly the right 

thing like holding hearings like this. And I think you can step in 

with targeted legislative actions if the agencies go in the wrong direction or read the law the wrong way. Hold their feet to the fire. 

And that is exactly what you should be doing. 

I think right now, the goal is for the agencies, and with congressional direction, to go reexamine everything they did before. And 

so that not only is the scope, but also the substance as well. 

I think you have to also look at each of the requirements and see 

whether they are narrowly tailored or whether it is a broad-brush 

approach to applying something to one of the largest banks, then 

being falling downhill, if you will, as I think Senator Corker once 

told me toward the Main Street banks and having an overly punitive effect which has ramifications for the economy. 

Mr. TIPTON. Mr. Baer, would you like to comment a little bit on 

this? And I thought it was interesting, you were making the comment regards to some of the horizontal type of examinations that 

are going on. And I came from the private sector and we were constantly doing a review in business, almost every day, had the flexibility, the nimbleness to be able to make some changes, if necessary to be able to do it. 

Would you address some of that regulatory process? 

Mr. BAER. Sure, Congressman. It is actually quite—I think, quite 

interesting, from a bank regulatory policy perspective. That clearly, 

and I think they would agree post—in recent years, the Fed and 

the OCC are going in opposite directions, in terms of how they examine. The OCC is reemphasizing the importance of the examiner 

in charge and having a resident team that knows and understands 

that bank. 

The Federal Reserve is moving toward a more centralized approach with cross-reserve bank, cross-functional teams and a lot of 

folks in Washington. I could actually make a good argument for or 

against either approach. I think either could work, either could fail. 

But I do think the risk of the latter approach is that you get to 

having the cross-functional team as, sort of, judge and jury. Where 

they are looking at multiple banks and they are picking the one 

they like the best. 


nshattuck on FSR297 with DISTILLER
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I have heard this from multiple firms that they were told, well, 

yes, on the liquidity front, you are in compliance with the OCR. 

You passed CLAR. Your own work is pretty good. But we just completed a horizontal review, and we like what somebody else is doing 

better. 

Will we give you access to that? No, we will not. That is confidential supervisory information. But we would like you to up this or 

change this. And I think that is very unfair to the banks and also 

I just think it is a bad idea. 

There are real benefits—ultimately, banks compete on the ability 

to manage risk. And if you can have all banks manage risk the 

same, obviously that is something of an overstatement. But to the 

extent that you are pushing back some to measure risk the same 

way and manage it the same way, that is not a great thing. 

Mr. TIPTON. Thank you. My time has expired, Mr. Chairman. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

With that, we have the Ranking Member has returned. And with 

that, we recognize him for 5 minutes’ worth of questions. Mr. Clay. 

Mr. CLAY. Thank you, Mr. Chairman. And Dr. Stanley, regulators under the Trump Administration have said that since it has 

been a decade since the financial crisis, and it is time to review and 

revisit all of the post-crisis financial rules to seek improvements, 

what is your early assessment of their proposals? Are their proposed modifications to post-crisis reforms one-sided with the focus 

on deregulating the financial industry? 

Dr. STANLEY. Well, you answered the question for me. They absolutely are one-sided. And we have no problem with reviewing. We 

do believe that it is entirely appropriate to review our regulatory 

framework. 

But this is a review that seems exclusively focused on weakening 

the regulations that came out of the financial crisis. And, in fact, 

in several cases, we had proposed rules that were ready to go, that 

would have strengthened regulation, regulation of bonus—bank bonuses, regulation of commodity activities at banks. And these rules 

were just dropped as though they never existed because they didn’t 

go in that deregulatory direction. 

Mr. CLAY. Yes. And do you think lessons from the financial crisis 

have faded in the minds of some policymakers? I know that when 

I look at the housing market, just like African-American borrowers 

were steered into high-priced loans for no reason other than the 

complexion of their skin, that now we have reverted back to that. 

That there is still a disproportionment—disproportionate number of 

people who are applying for 30-year mortgages that are being denied. Do you think those memories have faded already after 10 

years? 

Mr. STANLEY. Well, I think that memories may have faded in 

Washington D.C. I don’t think that memories have faded outside 

of Washington D.C. Middle-class wealth is still significantly lower 

than it was before the financial crisis. Are the impacts of financial 

crisis, in terms of loss of housing, in terms of increases in poverty 

have not really—are still with us outside of Washington D.C. 

Mr. CLAY. Yes. Do you believe the Fed failed, as many of us do, 

at implementing and enforcing our consumer financial protections 


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lost prior to the creation of the CFPB (Consumer Financial Protection Bureau)? 

Dr. STANLEY. Well, I think it is very clear that the Fed failed. 

The Fed was warned and the Fed did not take action on predatory 

subprime lending, on predatory lending that targeted minority 

communities. And in the case of the OCC, we had the OCC actively 

stepping in to preempt and reverse State laws that would have 

taken action against some of this predatory lending. 

So, they were actually weighing in to expand predatory lending. 

And that is why it has been so important to create an independent 

consumer agency. 

Mr. CLAY. And then, they knew the Countrywides and the other 

predators were out there preying on consumers and they enhanced 

it and helped them. Unbelievable. 

Was it important to impose enhanced prudential standards on 

the Nation’s largest banks as Dodd-Frank did, including requiring 

more capital, less leverage and regular stress tests? 

Dr. STANLEY. Well, I—absolutely. Things went terribly wrong before the financial crisis. You had entities, weeks before they failed, 

reporting that they were perfectly fine and they exceeded regulatory capital requirements that existed before the financial—before 2008, weeks before they failed. 

So, the prudential requirements before 2008 were just manifestly 

inadequate and permitted all kinds of abuses and really had to be 

reformed. 

Mr. CLAY. Do you support the Volcker Rule’s prohibition on proprietary trading so that banks that benefit from the Federal’s safety net do not gamble with deposits? 

Dr. STANLEY. Yes, we do. And a lot of people say that the Volcker 

Rule proprietary trading ban is somehow disconnected to the crisis. 

But the truth is that banks lost hundreds of billions of dollars from 

assets held in their trading books, firm trading inventories. They 

lost well over $100 billion in 2008 and that was a major contributor 

to the financial crisis. 

And Volcker, I think, could be improved in a variety of ways but 

it takes that on and that is a critical issue. 

Mr. CLAY. All right, thank you for your responses. And, Mr. 

Chairman, my time is up. 

Chairman LUETKEMEYER. The gentleman’s time is up. With that, 

we have a second round. Mr. Barr would like to ask a few additional questions. He is recognized for 5 minutes. 

Mr. BARR. Thank you. And I appreciate the second round, Mr. 

Chairman. And to Mr. Fromer or Mr. Baer. The question is about 

this mono-model of stress testing. And I think, Mr. Baer, you specifically touched on this. I am interested in this because I have 

heard Randy Quarles talk about this as a risk for regulators to 

focus on a mono-model testing. 

And I am curious to know your thoughts on how the Fed and 

other regulators can avoid—best avoid a mono-model stress testing 

regime. And how can we avoid a situation where banks and participants in the financial services sector are moving in the same direction, creating and concentrating risk, as opposed to allowing an organic diversification of risk that is—that is fueled by a diversity of 

stress testing scenarios? 


nshattuck on FSR297 with DISTILLER
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Mr. BAER. Sure. You may—I think one potential answer is to 

provide full transparency around the model which would also allow 

for notice and comment, from a whole wide range of folks all on 

this panel, about whether that is a good model or not. It would 

allow backtesting and real consideration of it. I know there have 

been concerns expressed by some that that would let the banks 

know the test. 

But, I think of an analogy of, if the EPA decided to regulate pollution controls and said, we are not going to tell you the regulation. 

We are just going to run the secret model, and, at the end of the 

year, we are going to tell you whether you passed or not. And if 

you didn’t pass, then you can’t operate next year. No one would 

think that that is a fair system. When the government has rules, 

we, as citizens, have the right to know the rules. 

Now, if the concern is so great, though, that we aren’t allowed 

to know the test, then I think it is a perfectly good option to allow 

bank models to be used as part of the stress test. Those models are 

not made up. They are rigorously backtested. 

And the Federal Reserve now reviews and approves every one of 

those models. So, if they can’t provide transparency, then I think 

there is a ready alternative. 

Mr. BARR. Right. So, I think it is purposeful from the standpoint 

from financial stability. It is also a due process issue, of course. 

Mr. Fromer, let me just shift gears, actually, to another question. 

In recent testimony before this committee, Randy Quarles, Vice 

Chairman of Supervision, testified that because of the improvement 

in the resolvability of firms realized over the past few years 

through the living will process, it is appropriate now to assess—to 

reassess the G-SIB surcharge calculation. 

The G-SIB surcharge applied to U.S. banks has nearly doubled 

that of the international standard, placing our institutions at a 

competitive disadvantage in the global marketplace. But now, we 

hear about this stress capital buffer that, effectively, doubles down 

on what has already been acknowledged to be a miscalibrated requirement by enshrining the G-SIB surcharge in this new rule. 

I know you share the same concern. Can you elaborate on why 

that is a problem from a—from the standpoint of international 

competitiveness? 

Mr. FROMER. Sure. First of all, the G-SIB surcharge, as I stated 

earlier, was put in place to deal with the systemic risk, potential 

for a default, the impact of default in the system. As Governor 

Quarles and others have indicated, there are a number of other 

steps that took place after the implementation of the G-SIB surcharge of the establishment which, to some degree, have made the 

G-SIB surcharge redundant. And that is why we believe it is necessary—it is crucial, in fact—to go back and look at it. 

The problem with the G-SIB surcharge is with respect to international competitiveness. It has to do with the fact that, in the 

United States, the regulators applied a higher standard, known as 

method two. And method two is, essentially, a higher charge for 

these U.S. G-SIBs. 

In our view, that actually creates a built-in disadvantage for U.S. 

institutions vis aAE1 vis their foreign peers. First of all, if you feel 

like the—if you believe that the system has improved through a vaVerDate Sep 11 2014 13:42 Nov 15, 2018 Jkt 000000 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 G:\GPO PRINTING\DOCS\115TH HEARINGS - 2ND SESSION 2018\2018-07-17 FI CCAR\3

nshattuck on FSR297 with DISTILLER
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riety of different improvements, whether it is TLAC or clearing and 

margin or living wills, you should go back and look at the G-SIB 

surcharge. And then, specifically you need to look at method two 

because of the built-in disadvantages it provides for the U.S. GSIBs versus their foreign peers. 

And it is amplified, as I think you are getting to, by the fact that 

the G-SIB surcharge now has been imported into two other 

schemes, one of which is the supplementary leverage ratio for the 

largest banks, and the second is the stress capital buffer proposal. 

Mr. BARR. And so, I think we all should be interested in the competitiveness of U.S. institutions, relative to the—to our foreign competitors. And, yet, at the same time, to Mr. Noreika’s testimony, we 

also know that foreign banks are an indispensable conduit for foreign investment in the United States, which is a source of a lot of 

high-paying jobs. Frankly, higher foreign direct investments is responsible for higher paying jobs, in many cases, than domestically 

produced jobs. 

My question to you is, according to a 2016 Federal Reserve report, a substantial percentage of loans provided in the—in—my 

time may have expired already. Well, I didn’t get to that question 

but we will continue the discussion, Mr. Noreika, at another time. 

Thanks. 

Mr. NOREIKA. Happy to. 

Chairman LUETKEMEYER. The gentleman from Kentucky is full 

of questions. So, we can be here until midnight, and he will still 

be asking questions. But good questions. 

The Ranking Member, Mr. Clay, has some second questions as 

well and he is recognized for 5 minutes. 

Mr. CLAY. Thank you, Mr. Chairman. And, Mr. Noreika, during 

your tenure as Acting Comptroller of the Currency, you moved to 

weaken the agency’s examination policy for the Community Reinvestment Act (CRA) with respect to discriminatory or other illegal 

credit practices. Can you explain to the committee how this policy 

helps combat discriminatory lending? 

Mr. NOREIKA. Well, first of all, no, I didn’t. Second, what I did 

do was we instituted guidance that put the Community Reinvestment Act back in— 

Mr. CLAY. Hope that is not an omen— 

Mr. NOREIKA. Hopefully it is not for one or the other of us, right? 

Exactly. So, what I did do was reinstituted a policy so that, basically, community reinvestment is evaluated for community reinvestment purposes. So, there had been a trend in the prior Administration toward penalizing banks for things that had nothing to do 

with investment in their communities and the type of lending activities that they used to claim credit for their CRA exams. 

And so, what we did was we went back to basics of the Community Reinvestment Act. So, at the outset, each bank is reviewed, 

under the current rule at least, for its lending operations, its service activities, and its investment activities. 

And what we did is we said, with respect to the activities for 

which a bank claims lending credit, if those activities are done in 

a way that harms consumers, then that will be the basis for a 

downgrade. There has to be a logical nexus for the noncompliant 

consumer-harming activities to affect the CRA rating. Because, 


nshattuck on FSR297 with DISTILLER
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again, CRA, the whole purpose of it is to make sure banks are 

lending in their communities. 

We don’t want to be overly punitive because then a bank might 

decide, hey, we have such big problems. We are not going to do 

anything. We are going to get our problems settled and not invest 

in the communities. I did not want that to happen. 

And what I worried about was that the so-called downgrades, 

which expanded more broadly than the activities that were used to 

claim credit, would actually act as a deterrent to investment on 

communities. 

Mr. CLAY. And thank you for that response but I was—I am wondering, did you dig into the numbers to see that, OK, in economically disadvantaged parts of that service area, did they do 30-year 

mortgages? Did they expand 30-year mortgages? Did they do home 

improvement loans? Did they do small business loans? And did 

that data help you determine the grade? 

Mr. NOREIKA. Well, look, I think you can never decide something 

going forward. Obviously, afterwards, you have to look back and 

see how it did. And I think that is the general context of this entire 

hearing is looking back at things that may have been perfectly reasonably put in place at the time but may have a deleterious effect 

or just the market changes over time. 

With respect to Community Reinvestment Act. Look, I think the 

original purposes of the Act were, again, clearly to get banks to not 

abandon their local communities. A very laudable effect. I think the 

worry was that a lot of other baggage was getting placed on that 

that, ultimately, would deter lending in communities. 

And that is what, frankly, concerned me the most in why I instituted that examination guidance was to, again, get back to the basics and encourage banks to lend in their community and not deter 

them from doing that. 

Mr. CLAY. But think about the challenges that impact economically disparate communities, economically disadvantaged communities. Those are the ones that need the financial stimulus the 

most. 

Mr. NOREIKA. Oh, I absolutely agree with you. 

Mr. CLAY. And so, I mean, that is what— 

Mr. NOREIKA. I absolutely— 

Mr. CLAY. I always thought the CRA was. 

Mr. NOREIKA. No, I absolutely agree with you. And I do somewhat worry CRA was getting highjacked as just another way to penalize banks for general things they did wrong to consumers. And 

I think there has to be that absolute laser focus of CRA on the underserved communities, themselves, and getting banks to invest in 

them. And that was why I did what I did. 

Mr. CLAY. And that is why we have the CFPB as to be the cop 

on the beat, I would think. Thank you. I yield back. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

With that, we have the gentleman from Georgia. Mr. Loudermilk 

has returned and he is recognized for 5 minutes. 

Mr. LOUDERMILK. Thank you, Mr. Chairman. And I would like to 

start off by yielding a portion of my time to my friend from Kentucky, Mr. Barr, so he can continue that very intriguing and interesting line of questioning that he was— 


nshattuck on FSR297 with DISTILLER
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Mr. NOREIKA. You are not going to get me out of the question 

here are you? 

Mr. BARR. I want to thank my friend. And I will be brief since 

I have already consumed too much time. 

But to follow up to Mr. Noreika. Just as the G-SIB surcharge 

could put U.S. banks at a competitive disadvantage, what I was 

getting at in my question was that, similarly, unfair treatment of 

U.S. subsidiaries of foreign banks could also be a problem, from the 

standpoint of U.S. economic growth. Because it could in—could 

incentivize those foreign banks to decrease their U.S. operations 

and could lead to a withdraw of foreign funds. Many of which are 

contributing to foreign direct investments which, again, is a source 

of a lot of jobs and economic growth. 

So, the question is, from a competitive equity standpoint, how 

can we approach regulations to make sure that U.S. subsidiaries of 

foreign banks operate on a level playing field with our counterparts? 

Mr. NOREIKA. Sure. And that is the statutory directive. But I 

must say, from my time in office, having seen these foreign banking organizations come talk to me, they were dramatically pulling 

outside—out of the United States, especially with respect to the 

capital markets’ type activities. That before the intermediate holding company requirement had been the subject of functional regulation under the Gramm-Leach-Bliley Act. Due to the international— 

intermediate holding company act had been pulled into banking 

regulation and subject to these enhanced prudential standards. The 

cost of doing business apparently went through the roof and drove 

that capital outside the United States. 

And I think, to the detriment of our country, as you are pointing 

out, in the sense of the markets are less liquid, the activity is 

pushed out into less-regulated spheres. And, obviously, there is the 

real-world impact on people who may be employed or not employed 

anymore by these institutions. 

Mr. BARR. And I better reclaim Mr. Loudermilk’s time. Thank 

you, my friend. 

Mr. LOUDERMILK. All right, thank you. And, Mr. Noreika, we will 

continue with you since we have you there. My question really is 

around the SIFI (systemically important financial institution) designation. And under Dodd-Frank, it specified between $100 and 

$250 billion in assets. Those financial institutions are entitled to 

complete relief from regulation as a SIFI institution after an 18- 

month transition period. 

My understanding is, also, that after that period, that the law 

gives the Fed the ability to restore the regulations if the bank becomes a systematic risk. But under the current conditions, the recent CCAR results and G-SIB surcharge risk data shows that 

banks with less than 250 billion in assets do not present this type 

of risk. I, as well as others, think they should be exempt from all 

the regulations associated with being SIFI unless there is significant change to risk profile. 

My question is, do you agree that these banks do not currently 

pose that type of systemic risk? 

Mr. NOREIKA. I do, Congressman. Certainly, if those are the 

Fed’s own findings, with respect to systemic risk, I don’t think 


nshattuck on FSR297 with DISTILLER
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there is any reason to wait to exempt them from the enhanced prudential standards while the Fed then goes and reviews how the 

standards need to be revised in light of the new law. 

Mr. LOUDERMILK. OK, thank you. Mr. Baer, with the short time 

that I have remaining. I understand that some of the biggest challenges of the CCAR stress test, in addition to the sheer burden of 

these Dodd-Frank requirements, is the fact that the stress test 

models used by the Fed are relatively secret. In a 2016 GAO report, it showed that CCAR process is overly qualitative, offered too 

little communication for regulated banks, and that the scenarios 

were designed without appropriate analysis. Can you shed light on 

why that is such a problem for institutions such as yours? 

Mr. BAER. Sure. It is difficult even to explain how complicated 

the CCAR process has become. What a data drain it is. What a resource drain. I think even for banks in the 100 to 250 billion who 

we expect to no longer be doing this, there are probably dozens of 

people, maybe up to 100 at the bank doing this full time. At the 

larger institutions, it is hundreds of people doing this full time. It 

is a very intensive data exercise. 

And then, of course, as I got to earlier, they really don’t know 

a lot about the model that they are trying to manage to them. You 

can try to reverse engineer some things and we have actually tried 

to derive the implicit risk weights from what that model produces. 

And you can get some indications. 

But it is a very difficult process. Again, I do support stress testing for large complex institutions that have really complex risks. 

But, particularly for a $100 to $250 billion institution, we have traditional supervision. Without that, it is unnecessary, I believe. 

Mr. LOUDERMILK. Thank you. With that, I yield back. 

Chairman LUETKEMEYER. If you have some additional questions, 

gentlemen, you can be certainly recognized because we have a little 

time here. 

Mr. LOUDERMILK. In other words, I am the only one left, Mr. 

Chairman, is that right? 

Chairman LUETKEMEYER. It is raining outside and the game 

hasn’t started yet tonight so we are OK with it. 

Mr. LOUDERMILK. Well, I think with the last thunder clap, everybody ran. I don’t—I hope they are not going two by two to a big 

wooden boat somewhere. Maybe we should— 

Well, then, I do have—I will also defer to Mr. Fromer to answer 

the same question if you would like. 

Mr. FROMER. I think what I will add to what Mr. Baer said was 

that for banks of all sizes, it is a difficult process. It is a complex 

process. It is resource consumptive. But the other thing is that it 

makes it extraordinarily difficult for the boards and the management of these institutions to go through this thoughtful process of 

planning the deployment and the distribution of their capital. 

And to the extent that you have opacity in the models, and to 

the extent that you get scenarios presented to you in February for 

a process that is supposed to conclude and does conclude in June, 

and then you live with the results for the next quarters and have 

no flexibility in terms of your further distribution of capital. Even 

though there may be things going on in your firm or things going 

on in the economy at large which affect the operation of your firm, 


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affect the plans that you have made and your ability to dynamically change the nature of your business with those events. 

The process right now is very constraining. And, in effect, it says, 

even though you have met your minimum requirements, even 

though your institution is safe and sound, you have all your minimum requirements in place, you as a board, you as a management 

are still restricted, in terms of the way you can deploy and distribute your capital. 

And that is sort of an erosion of fiduciary responsibility that we 

think needs to be addressed as part of the overall review. 

Mr. LOUDERMILK. So, does this inhibit your ability to properly 

serve your customers? 

Mr. FROMER. Inevitably, it does. If you have gone through a 

thoughtful planning process, as our institutions all do, and you are 

constrained by information that you do not have, because you just 

don’t have access to it. None of us can sit here and tell you what 

goes on, with respect to these models and how the scenarios are actually put together. Because it is opaque. 

So, the degree that you can’t make decisions about the operation 

of your institutions, it inevitably affects the kinds of services that 

you are going to provide to your customers and the pricing as well. 

Mr. LOUDERMILK. And Mr. Baer? 

Mr. BAER. If I could just say, there is also a really important 

credit allocation component to this. We did—our research team 

went back and looked and derived the implicit risk weights for 

CCAR compared to the standardized approach and then compared 

to the bank’s own modeled approach through DFAS. And what they 

showed was that the implicit risk weights, that is the capital 

charge, were dramatically higher for certain asset classes. Most notably, small business, prime mortgage, and market making. 

It is actually about the same for C&I. But, so, implicitly in this, 

though, is that it is driving banks in certain directions and driving 

all the banks in the same directions. And it is interesting, we, then, 

took the next step and said, well, can we see that in the actual 

data in how banks behave? 

And what you know, if you look, and I think some of this is in 

my testimony, which I know some of this is in my testimony, if you 

compare banks subject to CCAR banks versus banks not subject to 

CCAR, and look at their behavior, you will see the banks that are 

subject to the test are moving out of the asset classes that are most 

affected by the test. 

Mr. LOUDERMILK. OK, thank you. Mr. Chairman, I don’t have 

any further questions. I could—be glad to yield to you or I yield 

back. 

Chairman LUETKEMEYER. We are already on our second round, 

so you get your second round of questions. So, if you are done, well, 

we will move on. 

Mr. LOUDERMILK. I am done. 

Chairman LUETKEMEYER. The gentleman yields back. OK. I have 

just one comment which is, the reason for the stress test, originally 

because of Dodd-Frank, was because of the systemically important 

institutions that could bring down the economy. 

And I think we have talked about in the bill that—2155 that set 

thresholds. And while I am not a big fan of thresholds, I think anyVerDate Sep 11 2014 13:42 Nov 15, 2018 Jkt 000000 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 G:\GPO PRINTING\DOCS\115TH HEARINGS - 2ND SESSION 2018\2018-07-17 FI CCAR\3

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body would recognize that $250 billion bank, while that is a big 

bank, it is not big enough to bring down the economy of the United 

States. 

And so, I think you have to remember why that part of DoddFrank is there and why—what kind of implications it could have 

and should have. And most banks now that are exempt under 250, 

I—we have—I guess we will watch the actions of the Fed. But I 

know the regulators. But we—they should not be considered systemically important the part where they are going to be negatively 

impacted by overburdenedsome regulations of additional tests. 

One thing we haven’t talked about yet, we have discussed pretty 

thoroughly everything else, is—and, Mr. Baer, I think you brought 

this up, is CECL. Can you comment, and Mr. Fromer perhaps as 

well, with regards to the impact of CECL loan capital accounts and 

if you have seen any kind of impact at this point yet. 

Mr. BAER. Certainly. Thank you, Congressman. I think it is a 

terrifically important issue, and I appreciate the opportunity. I 

think CECL began with a very good idea. The Financial Stability 

Board recommended to the Fed that they look at the accounting for 

reserves. The concern was that reserving can be quite cyclical. That 

is in the midst of a crisis, banks are having to add reserves. And 

that means they are shrinking lending. 

A fundamental mistake, though, I think was made in projecting 

what the effect of this would be. The change was made from the 

incurred loss methodology which basically said, you set up your reserve when loss is estimable and probable. That has been the 

standard for 40 years. The new requirement says that you have to 

set up a reserve at the time you make the loan for all projected 

losses over the life of the loan, even if the chances of those are 

small. 

Meanwhile, you cannot book any potential income from that loan 

over the course of the loan—of its life. So, that is a fairly significant change. But the idea was, OK, well, let us have them take the 

reserve at the beginning. And then, when things go bad, they won’t 

have to restrict and build a big reserve. 

The fundamental problem with that, though, is it presumed and, 

I think, the analysis done by economists on it, presumed, as economists like to presume, perfect knowledge. So, they presumed that 

everybody got it right at the start. 

What our team did, after hearing a lot of nervousness from the 

CFOs about this, is we actually went back and we ran the 2007 to 

2009 financial crisis. And we said, let us not presume perfect 

knowledge. Let us actually look at what the macroforecasts actually were at the time. Stand in the economic community and see 

what happened. 

And what happened was they didn’t have the perfect knowledge. 

And what happened is you got into 2008. That is when all the forecasts went bad or assumed that there was going to be a very large 

recession. 

And so, what would have happened if CECL had been in place 

is there would have been massive reserves taken. Not just reserves 

on the loans for which losses were already estimable and probable. 

But loans for every need, a reserve for all loans. And particularly 

for loans for low- to moderate-income people. 


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So, what our review shows is if CECL had been in place, it would 

not have been countercyclical, it was not of built reserves in 2006 

and 2007. It would have been profoundly procyclical and would 

have met massive bank reserves in 2008, which almost certainly 

would have dramatically heightened the recession. So ours 

shouldn’t be the last word on this. 

And we are trying to encourage more research, not discourage 

more research. But it is certainly the gut sense of the folks in finance that we have talked to at the bank so we think it is a terrifically important issue. 

Chairman LUETKEMEYER. Anybody else want to comment on 

that? No, OK. Basically, we are finished here. Would anybody like 

to have a closing comment? I can go down the line here and I can 

give everybody about a minute, minute and a half to just make a 

couple closing comments on issues that came up that you would 

like to talk about that maybe weren’t thoroughly discussed or reiterate one specific point. Mr. Fromer. 

Mr. FROMER. Thank you, Mr. Chairman. I think the point that 

I would make is that simply a reiteration of the view that there 

is an opportunity now and a lot of experience that, I think, regulators here and abroad can use now to do a complete review, specifically around these individual actions and the interaction among 

them because there is an interdependency. And in doing so, I would 

also add that we obviously went through a tumultuous time 10 

years ago and we have done an enormous amount of work to address the results of the crisis. 

And these are extremely highly capitalized institutions, as we 

have talked about. I think no one really wants to go back and turn 

the clock on that. We are not looking at going back to the future, 

if you will. But we do think it is important to take stock of what 

we have done and make sure that we are doing it in the most costeffective way possible. 

Chairman LUETKEMEYER. Thank you. Mr. Baer. 

Mr. BAER. Just a couple thoughts. First, I do think it is important to acknowledge how tough capital regulation is. If the regulators come up with something very granular, we criticize them for 

credit allocation. If they give up and go to a leverage ratio and say 

every asset has the same risk, we criticize them for not thinking 

things through. So, it—I am sure there is some medium in there 

but it is not so easy and happy to find. And so, they deserve our 

empathy and they also deserve our notes and comment on that. 

I think we touched on it a little bit today but I do think the unseen world of bank examination is as important as the overt world 

of bank regulation. And that there are a lot of requirements going 

on out there that we don’t even know about, and that it is very important for this committee and others to focus on. 

I would also just say, although I share the enthusiasm about equity, I did want to put in a word for debt, particularly for larger 

institutions that issue debt to the markets. That now, post-crisis, 

the way resolutions are conducted is actually quite loss absorbent 

and protects taxpayers. 

And there is about a trillion dollars of it out there, at least for 

our members. It also brings into play a group of investors and analysts who are quite worried about losing their money and also exert 


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a significant amount of market discipline. So, I think that is a benefit. 

And I would also add that post-crisis, I think there have been— 

at least a GAO study and a couple of other academic papers looking at post-crisis debt pricing spreads. And there is no evidence 

that large banks are receiving a premium in the market or a discount, however you want to look at it. But they are being able to 

issue cheaper, as a result of some too-big-to-fail premium. 

So, that is really market debt. Of course, the easiest way to figure out its market debt is to turn on a Bloomberg machine and see 

that it is priced the same way market debt is for other large institutions in other industries. 

Chairman LUETKEMEYER. OK. All right, thank you. Dr. HoltzEakin. 

Dr. HOLTZ-EAKIN. Well, I applaud the committee for holding this 

hearing. And I think it is a good time to do a holistic review of the 

regulatory apparatus. And I would encourage the committee, the 

regulators, to look at these institutions holistically. I think the 

thing I find most troubling in many discussions is the notion that 

we can separate systemic risk over here and get a capital charge 

for that. Sort of a prudential regulation over here and an enhanced 

prudential regulation up here. Liquidity regulation over here. That 

is not the way the world works. 

And one of the reasons I think a more robust stress testing regime is desirable is it takes a holistic look at the performance of 

the institution through the stress. And I think that should be the 

focus. 

Chairman LUETKEMEYER. Very good. Dr. Stanley. 

Dr. STANLEY. Yes, a couple thoughts. One is I think there tends 

to be this trend or pattern that whenever we see a change in behavior, by banks in response to new capital requirements, that this 

is somehow a cost or a bad thing. And I don’t think that is true. 

Mr. Noreika talked about how U.S. subsidiaries of foreign banks 

have decreased some of their capital markets’ activities in the U.S. 

because of the intermediate holding company rule. Well, I don’t 

think that Credit Suisse or Deutsche Bank, CBO desks activities 

before the crisis were doing any favors for the U.S. economy, nor 

were there enormous credit lines where they pulled all—borrowed 

all these dollars in the U.S. and then couldn’t pay them back without Federal Reserve assistance. That—those capital markets’ activities were not doing anybody any good. And the idea that they 

might have become more responsible about those activities I think 

might be a positive impact of the IHC rules. 

And also, just in terms of this competitiveness, the argument 

about competitiveness with Europe. And I think it is pretty clear 

that the U.S. banking sector is in a lot better shape than the European banking sector. There are still major concerns about the 

weakness of that sector. And, to some degree, I think the higher 

prudential requirements in the U.S. have been a competitive advantage of our banks because people know that our banks are safer 

and sounder and better to deal with. 

Chairman LUETKEMEYER. Mr. Noreika. 

Mr. NOREIKA. Well, thank you, Mr. Chairman, and thank you for 

having me here today. I just want to conclude by saying, look, I am 


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very optimistic about the banking sector, about the regulation of 

the banking sector. 

I think with the passage of the new law and the new regulated— 

regulatory heads finally in place, we have a real opportunity to 

take stock, to look at all the regulations that have been put in 

place and how they have been enforced over the past 10 years. I 

think when we talk and we hear the—particularly the Vice Chairman for Supervision at the Fed, talk about tailoring and transparency. Those are welcome thoughts in the bank regulatory 

sphere. 

And I think now the devil is in the details. And, to me, the details are a soup-to-nuts review of how all of the cumulative effects 

of these regulations have impacted the various segments of the financial system. In particular, I think are the subsets that I talked 

about today. Those in the $100 to $250 billion range, which is going 

to merit a review by the Federal Reserve and those in the foreign 

banking realm. 

But, again, I think we have the approach here now to take a look 

and to tailor and to make more rational our regulation of these 

banks. And I think, hopefully in a few years, we will reap the results from that. 

Thank you. 

Chairman LUETKEMEYER. Thank you. And thank all of the witnesses today for the testimonies. It has been great. You guys are 

fantastic. 

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

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous 

materials to the Chair for inclusion in the record. 

With that, this hearing adjourned. 

[Whereupon, at 3:50 p.m., the subcommittee was adjourned.] 


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nshattuck on FSR297 with DISTILLERInsert offset folio 136 here 31508.136
174 


nshattuck on FSR297 with DISTILLERInsert offset folio 137 here 31508.137
175 


nshattuck on FSR297 with DISTILLERInsert offset folio 138 here 31508.138
176 


nshattuck on FSR297 with DISTILLERInsert offset folio 139 here 31508.139
177 


nshattuck on FSR297 with DISTILLERInsert offset folio 140 here 31508.140
178 


nshattuck on FSR297 with DISTILLERInsert offset folio 141 here 31508.141
179 


nshattuck on FSR297 with DISTILLERInsert offset folio 142 here 31508.142
180 


nshattuck on FSR297 with DISTILLERInsert offset folio 143 here 31508.143
181 


nshattuck on FSR297 with DISTILLERInsert offset folio 144 here 31508.144
182 


nshattuck on FSR297 with DISTILLERInsert offset folio 145 here 31508.145
183 


nshattuck on FSR297 with DISTILLERInsert offset folio 146 here 31508.146
184 


nshattuck on FSR297 with DISTILLERInsert offset folio 147 here 31508.147
185 


nshattuck on FSR297 with DISTILLERInsert offset folio 148 here 31508.148
186 


nshattuck on FSR297 with DISTILLERInsert offset folio 149 here 31508.149
187 


nshattuck on FSR297 with DISTILLERInsert offset folio 150 here 31508.150
188 


nshattuck on FSR297 with DISTILLERInsert offset folio 151 here 31508.151
189 


nshattuck on FSR297 with DISTILLERInsert offset folio 152 here 31508.152
190 


nshattuck on FSR297 with DISTILLERInsert offset folio 153 here 31508.153
191 


nshattuck on FSR297 with DISTILLERInsert offset folio 154 here 31508.154
192 


nshattuck on FSR297 with DISTILLERInsert offset folio 155 here 31508.155
193 


nshattuck on FSR297 with DISTILLERInsert offset folio 156 here 31508.156
194 


nshattuck on FSR297 with DISTILLERInsert offset folio 157 here 31508.157
195 


nshattuck on FSR297 with DISTILLERInsert offset folio 158 here 31508.158
196 


nshattuck on FSR297 with DISTILLERInsert offset folio 159 here 31508.159
197 


nshattuck on FSR297 with DISTILLERInsert offset folio 160 here 31508.160
198 


nshattuck on FSR297 with DISTILLERInsert offset folio 161 here 31508.161
199 


nshattuck on FSR297 with DISTILLERInsert offset folio 162 here 31508.162
200 


nshattuck on FSR297 with DISTILLERInsert offset folio 163 here 31508.163
201 


nshattuck on FSR297 with DISTILLERInsert offset folio 164 here 31508.164
202 


nshattuck on FSR297 with DISTILLERInsert offset folio 165 here 31508.165
203 


nshattuck on FSR297 with DISTILLERInsert offset folio 166 here 31508.166
204 


nshattuck on FSR297 with DISTILLERInsert offset folio 167 here 31508.167
205 


nshattuck on FSR297 with DISTILLERInsert offset folio 168 here 31508.168
206 


nshattuck on FSR297 with DISTILLERInsert offset folio 169 here 31508.169
207 


nshattuck on FSR297 with DISTILLERInsert offset folio 170 here 31508.170
208 


nshattuck on FSR297 with DISTILLERInsert offset folio 171 here 31508.171
209 


nshattuck on FSR297 with DISTILLERInsert offset folio 172 here 31508.172
210 


nshattuck on FSR297 with DISTILLERInsert offset folio 173 here 31508.173
211 


nshattuck on FSR297 with DISTILLERInsert offset folio 174 here 31508.174
212 


nshattuck on FSR297 with DISTILLERInsert offset folio 175 here 31508.175
213 


nshattuck on FSR297 with DISTILLERInsert offset folio 176 here 31508.176
214 


nshattuck on FSR297 with DISTILLERInsert offset folio 177 here 31508.177
215 


nshattuck on FSR297 with DISTILLERInsert offset folio 178 here 31508.178
216 


nshattuck on FSR297 with DISTILLERInsert offset folio 179 here 31508.179
217 


nshattuck on FSR297 with DISTILLERInsert offset folio 180 here 31508.180
218 


nshattuck on FSR297 with DISTILLERInsert offset folio 181 here 31508.181
219 


nshattuck on FSR297 with DISTILLERInsert offset folio 182 here 31508.182
220 


nshattuck on FSR297 with DISTILLERInsert offset folio 183 here 31508.183
221 


nshattuck on FSR297 with DISTILLERInsert offset folio 184 here 31508.184
222 


nshattuck on FSR297 with DISTILLERInsert offset folio 185 here 31508.185
223 


nshattuck on FSR297 with DISTILLERInsert offset folio 186 here 31508.186
224 


nshattuck on FSR297 with DISTILLERInsert offset folio 187 here 31508.187
225 


nshattuck on FSR297 with DISTILLERInsert offset folio 188 here 31508.188
226 


nshattuck on FSR297 with DISTILLERInsert offset folio 189 here 31508.189
227 


nshattuck on FSR297 with DISTILLERInsert offset folio 190 here 31508.190
228 


nshattuck on FSR297 with DISTILLERInsert offset folio 191 here 31508.191
229 


nshattuck on FSR297 with DISTILLERInsert offset folio 192 here 31508.192
230 


nshattuck on FSR297 with DISTILLERInsert offset folio 193 here 31508.193
231 


nshattuck on FSR297 with DISTILLERInsert offset folio 194 here 31508.194
232 


nshattuck on FSR297 with DISTILLERInsert offset folio 195 here 31508.195
233 


nshattuck on FSR297 with DISTILLERInsert offset folio 196 here 31508.196
234 


nshattuck on FSR297 with DISTILLERInsert offset folio 197 here 31508.197
235 


nshattuck on FSR297 with DISTILLERInsert offset folio 198 here 31508.198
236 


nshattuck on FSR297 with DISTILLERInsert offset folio 199 here 31508.199
237 


nshattuck on FSR297 with DISTILLERInsert offset folio 200 here 31508.200
238 


nshattuck on FSR297 with DISTILLERInsert offset folio 201 here 31508.201
239 

Æ 


nshattuck on FSR297 with DISTILLERInsert offset folio 202 here 31508.202