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POTENTIAL MIXED MESSAGES: 

IS GUIDANCE FROM WASHINGTON 

BEING IMPLEMENTED BY FEDERAL 

BANK EXAMINERS? 

FIELD HEARING 

BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS 

AND CONSUMER CREDIT 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

AUGUST 16, 2011 

Printed for the use of the Committee on Financial Services 

Serial No. 112–54 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

SPENCER BACHUS, Alabama, Chairman 

JEB HENSARLING, Texas, Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

NAN A. S. HAYWORTH, New York 

JAMES B. RENACCI, Ohio 

ROBERT HURT, Virginia 

ROBERT J. DOLD, Illinois 

DAVID SCHWEIKERT, Arizona 

MICHAEL G. GRIMM, New York 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

BARNEY FRANK, Massachusetts, Ranking 

Member 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

ANDRE ́ CARSON, Indiana 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

LARRY C. LAVENDER, Chief of Staff 

(III) 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

SHELLEY MOORE CAPITO, West Virginia, Chairman 

JAMES B. RENACCI, Ohio, Vice Chairman 

EDWARD R. ROYCE, California 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JEB HENSARLING, Texas 

PATRICK T. MCHENRY, North Carolina 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

MICHAEL G. GRIMM, New York 

STEPHEN LEE FINCHER, Tennessee 

CAROLYN B. MALONEY, New York, 

Ranking Member 

LUIS V. GUTIERREZ, Illinois 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

RUBE ́ N HINOJOSA, Texas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

NYDIA M. VELA ́ ZQUEZ, New York 

GREGORY W. MEEKS, New York 

STEPHEN F. LYNCH, Massachusetts 

JOHN C. CARNEY, JR., Delaware 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

August 16, 2011 ................................................................................................ 1 

Appendix: 

August 16, 2011 ................................................................................................ 57 

WITNESSES 

TUESDAY, AUGUST 16, 2011 

Barker, Gil, Southern District Deputy Comptroller, Office of the Comptroller 

of the Currency (OCC) ......................................................................................... 11 

Bertsch, Kevin M., Associate Director, Division of Banking Supervision and 

Regulation, Board of Governors of the Federal Reserve System ..................... 12 

Copeland, Chuck, CEO, First National Bank of Griffin ....................................... 33 

Edwards, Bret D., Director, Division of Resolutions and Receiverships, Federal Deposit Insurance Corporation ................................................................... 9 

Edwards, Jim, CEO, United Bank ......................................................................... 39 

Fox, Gary L., former CEO, Bartow County Bank ................................................. 41 

Rossetti, V. Michael, President, Ravin Homes ...................................................... 36 

Spoth, Christopher J., Senior Deputy Director, Division of Risk Management 

Supervision, Federal Deposit Insurance Corporation ....................................... 7 

APPENDIX 

Prepared statements: 

Barker, Gil ........................................................................................................ 58 

Bertsch, Kevin M. ............................................................................................. 81 

Copeland, Chuck ............................................................................................... 89 

Edwards, Bret D., joint with Christopher J. Spoth ....................................... 93 

Edwards, Jim .................................................................................................... 113 

Fox, Gary L. ...................................................................................................... 116 

Rossetti, V. Michael .......................................................................................... 142 

Spoth, Christopher J., joint with Bret D. Edwards ....................................... 93 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Westmoreland, Hon. Lynn: 

Written responses to questions submitted to Gil Barker .............................. 146 

Written responses to questions submitted to Kevin M. Bertsch .................. 151 

Written responses to questions submitted to Bret Edwards and Christopher J. Spoth .............................................................................................. 155 

Letter from the American Institute of Certified Public Accountants 

(AICPA) .......................................................................................................... 160 

AJC op-ed .......................................................................................................... 162 

Letter to Chairman Bachus and Chairwoman Capito from Andrew Alexander .............................................................................................................. 164 

Written statement of the American Association of Bank Directors ............. 166 

American Banker op-ed .................................................................................... 170 

Written statement of the Community Bankers Association of Georgia 

(CBA) .............................................................................................................. 172 

Written statement of First Cherokee State Bank .......................................... 176 

Written statement of the Georgia Bankers Association (GBA) .................... 180 

Letter to Chairman Bachus and Chairwoman Capito from William and 

Deborah Lytle ................................................................................................ 183 

Written statement of Jerry Ownby ................................................................. 186 

Page

VI 

Westmoreland, Hon. Lynn—Continued 

Letter to Chairman Bachus and Chairwoman Capito from K.J. Sturhahn 

& D’Aunn Sturhahn ...................................................................................... 187 

Written statement of the American Land Rights Association (ALRA) ........ 190 

Written statement of Hon. Jaime Herrera Beutler, a Representative in 

Congress from the State of Washington ..................................................... 200 

(1) 

POTENTIAL MIXED MESSAGES: 

IS GUIDANCE FROM WASHINGTON 

BEING IMPLEMENTED BY FEDERAL 

BANK EXAMINERS? 

Tuesday, August 16, 2011 

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 9:05 a.m., in the 

Coweta County Performing Arts Center, 1523 Lower Fayetteville 

Road, Newnan, Georgia, Hon. Shelley Moore Capito [chairwoman of 

the subcommittee] presiding. 

Members present: Representatives Capito, Westmoreland; and 

Scott. 

Ex officio present: Representative Bachus. 

Chairwoman CAPITO. This hearing will come to order. 

First, I would like to thank Mr. Westmoreland for bringing this 

issue to the attention of the Financial Institutions and Consumer 

Credit Subcommittee. He has been a tireless advocate in the 

House—as all of you in the audience know—for his constituents 

and the financial institutions in his district. 

And I would also like to thank our witnesses for traveling to 

Newnan to testify and answer questions. 

For those of you in the audience, we will be maybe a little less 

formal than we might be in the regular committee hearing room. 

I should introduce myself. I’m Shelley Moore Capito, the Chairwoman of the Financial Institutions and Consumer Credit Subcommittee of the Financial Services Committee. Spencer Bachus, 

from Alabama, is the chairman of the full Financial Services Committee. 

Let me just explain the format, so you will all understand what 

we are going to do. We will do opening statements as Members, 

and then we will have two panels, which will consist of regulators 

and then bankers from in and around the region. They will have 

5 minutes to give an opening statement and then we will be able 

to ask them questions. I am going to be pretty lenient on the question-and-answer period because I think that is where we glean the 

most information. But I do have my handy-dandy gavel that made 

it through TSA, so we are very happy about that. 

I also wanted to thank you for welcoming us to Georgia. By way 

of information, my grandparents were born in Perry, Georgia, so I 

2 

have good credentials for Georgia. And I have quite a bit of family 

over in Columbus. And of course, I do remember the 2006 Sugar 

Bowl when West Virginia beat Georgia, but we will not talk about 

that. Sorry, I just had to bring it up. 

Anyway, the topic of this field hearing is critical to the overall 

economic recovery in the United States. Over the past few years, 

members of this subcommittee have heard accounts about overzealous regulators and bank examiners from small business owners 

and financial institution executives. The subcommittee has held 

two hearings this year on the issue of mixed messages from Washington. 

In the sense that regulators in Washington are encouraging institutions to lend, while examiners in the field are applying restrictive standards that make it very difficult to lend, this hearing is 

a continuation of the mixed messages discussion. One of the major 

hurdles to a true economic recovery for both small businesses and 

financial institutions is uncertainty. 

New regulations created by the Dodd-Frank Act are only furthering the uncertainty for institutions, and subsequently our 

small businesses. We must work together to closely examine the 

application of regulations on financial institutions to ensure that 

the appropriate balance is reached between ensuring safe and 

sound institutions and providing the certainty necessary for encouraging economic growth. 

I want to stress that these concerns are not rooted in an effort 

to return to the regulatory landscape in the pre-financial crisis levels. There should be a healthy level of regulation of financial institutions. However, there needs to be room for institutions to take 

calculated risks when lending to spur economic development. Many 

members of this subcommittee fear that the pendulum has potentially swung too far to one extreme. We will continue to examine 

the issue of mixed messages from Washington-based regulators 

throughout this Congress. 

Finally, I would like to thank our second panel of witnesses for 

providing their perspective today. I know that many financial executives are hesitant to come forward publicly with their experiences with financial regulators. But it is important that their accounts be part of the public record. 

Again, I would like to thank my very good friend, Mr. Lynn 

Westmoreland, for graciously hosting the subcommittee in his district this morning. 

I look forward to hearing the testimony of all of our witnesses 

and I hope this continues a productive discussion forward. 

Now, I will recognize the chairman of the Financial Services 

Committee, Mr. Bachus, for 5 minutes for the purpose of making 

an opening statement. 

Chairman BACHUS. I thank the chairwoman of the subcommittee 

for holding this hearing, and I particularly thank her for holding 

it outside Washington. I think it is important for Congress and for 

the regulators to actually visit Main Street, visit really in this case 

almost ground zero with many of our banks. I would also like to 

thank Mr. Westmoreland who, along with Mr. Scott, introduced a 

bill last month that actually came out of the committee on a unanimous vote and passed the Congress 6 days later. You hear a lot 

3 

about partisanship. That was bipartisanship. And it expressed a 

concern that I think we all share, and when I say that, I mean the 

regulators, the bankers, Members of Congress, and business people, 

that we can do better in addressing the problems in our economy 

and problems in our community banks. 

America is made up really in our diversity and our diversity in 

our financial system is one of our strengths. One of the biggest 

strengths is the fact that we have many choices for consumers, and 

many times those choices are Main Street banks or local banks. 

People deal with people that they know, they know their reputation, they can—they do not have to bank with an institution where 

decisions are being made thousands of miles away. They can bank 

with an institution that is locally owned. And that is something 

that I know the regulators are committed to preserving. 

I was looking at the numbers on Georgia. About 1 out of 6 bank 

failures in the country have occurred here in Georgia, and in fact, 

over the last year it looks like it is more like 24 to 25 percent, 

which is pretty astounding. 

The bank regulators—to their credit—on February 10th of last 

year issued a joint policy statement. They all came together and I 

really believe that policy statement, which I am sure we will go 

into a little this morning, if we abide by that policy statement at 

the local level, we will be successful. And basically one thing it 

said, it actually specifically permitted reputational loans. It permitted banks to make decisions which did—in fact, all loans incur 

a certain amount of risk, but it actually enabled banks to make 

loans based on reputation. 

Many of our bankers tell us that they cannot make reputational 

loans, that the bank examiner simply will not allow that. And of 

course, a reputational loan has to have certain basic things, the 

borrower has to have the ability to pay it back, he has to have an 

income stream. So it is not just based on someone with a good reputation; it is someone who can pay that back. 

Let me close by saying two things. One thing is as we have this 

hearing, I think it is important to distinguish between the word 

‘‘regulation’’ and the word ‘‘management.’’ I have talked to bankers, 

regulators, and Members of Congress, and I think we all agree that 

the regulators are to regulate, the bankers are to manage. Sometimes, the boundary between that line is blurred or difficult. But 

it is important that we allow, in the final instance, the bankers to 

make the decisions, as long as those decisions do not violate safety 

and soundness. 

Let me say one last thing. There is also a difference between liquidation and resolution. I have often heard the regulators say, ‘‘We 

have resolved this situation.’’ What actually has been done is they 

have liquidated the bank. And that is a failure. I think ultimate 

success would be restoring that institution to health and that ought 

to always be the priority. Sometimes, that is simply not possible. 

I can tell you that there have been banks in my hometown of Birmingham, Alabama, which simply could not be restored to health, 

and the longer they operated, the more exposure to the taxpayer. 

But I have also on occasions felt as if the message coming from the 

regulators was, ‘‘we have successfully resolved this institution,’’ 

and that ought to always be a last resort. And sometimes, I fear 

4 

that it has been done, and actually because of loan loss agreements 

and sharing agreements, actually the cost has been greater than 

restoring that institution to health. But at the same time, I do not 

want to second-guess the regulators. 

Thank you, Chairwoman Capito, for allowing me to participate 

and thank you, Mr. Scott and Mr. Westmoreland, two fine Members of Congress. And Mr. Westmoreland, as we all know, and Mr. 

Scott, have been bipartisan leaders in this issue. Thank you. 

Chairwoman CAPITO. Thank you, Mr. Chairman. 

I would like to recognize Mr. Lynn Westmoreland, Third District 

of the beautiful State of Georgia, for an opening statement. 

Mr. WESTMORELAND. Thank you and I want to welcome everybody to Georgia’s Third Congressional District and I want to thank 

Chairwoman Capito and Chairman Bachus and Congressman Scott 

for coming down. I want to thank all the witnesses for coming. 

Madam Chairwoman, will we have 5 days for people to submit— 

5 business days— 

Chairwoman CAPITO. Yes. 

Mr. WESTMORELAND. Thank you. 

Chairwoman CAPITO. Actually, we will have 30 days. The hearing 

record will stay open for 30 days to submit statements. 

Mr. WESTMORELAND. Thank you. 

And again, thank you, Chairman Bachus, for helping us move 

this bill so quickly and Subcommittee Chair Capito, especially for— 

Spencer, you did not have that far to come, but Shelley did, so 

thank you all for coming to listen to this hearing on our bank failures and the mixed messages that the regulators are sending to 

our community bankers. 

I would also like to thank the witnesses for traveling here today 

and all those in the audience who have made this trip to join us. 

In Georgia, bank failures are the major threat to the well-being 

of our communities. Banks in Georgia, both strong and weak, big 

and small, are trying to survive in a market where the government 

is picking winners and losers every day, and especially on Fridays. 

I know, I wait every Friday for the dreaded email to come from the 

FDIC that yet another bank in Georgia has failed. 

As many of you know, and we have experienced personally, 67 

Georgia banks have failed since 2008. That is 25 percent of our 

banks. Sadly, there are some communities in my district that no 

longer are served by a community bank. If you ride up and down 

34 highway, and I am sure it is a wonderful bank, but you will see 

the Bank of the Ozarks in our community. 

I hear every week from bankers across Georgia that regulators 

just are not listening, or being able to use any common sense or 

even wanting to help. And curiously, some of these regulators have 

never even worked in a bank and never even made a loan. 

In the 1980s, the agencies testifying today took much criticism 

from the handling of the savings and loan crisis. Lax enforcement 

of the rules created more failures. However, the great community 

bank crisis of 2008 has seen regulatory swing in a completely opposite direction. Now, strict enforcement has created more failures. 

Banks that were too-big-to-fail have survived; banks too-small-tosave have been cut loose. I am convinced there must be some middle ground between these two extremes. 

5 

Our communities every day are losing generational wealth that 

the pillars of these communities have put into these banks. That 

money will never come back. 

The main problem I have experienced is there is both too much 

and too little information to evaluate the job the regulators have 

been doing. Without a doubt, the FDIC is a wealth of information 

about the health of banks if you have the time and resources to go 

through it. However, I felt more analysis was needed. Therefore, 

myself and Congressman Scott introduced H.R. 2056 to study the 

underlying fundamentals that continue to cause bank failures 

across this country. The bill directs the FDIC Inspector General, in 

consultation with the Treasury and Federal Reserve IGs, to study 

the FDIC policies and practices with regard to shared-loss agreements, the fair application of regulatory capital standards, appraisals, the FDIC procedures for loan modifications, and the FDIC’s 

handling of consent orders and cease and desist orders. Further, 

the GAO also has a study in the bill to pursue those questions the 

FDIC IG is unable to fully explore, such as the causes of the high 

number of bank failures, the impact of fair value accounting, the 

analysis of the impact of failures on the community, and the overall 

effectiveness of shared-loss agreements for resolving banks. 

Thanks to Chairman Bachus and Subcommittee Chair Capito, 

this bipartisan bill moved quickly through the Financial Services 

Committee and passed the House on July 28th by voice vote. 

On the other side of the Capitol, our colleague from Georgia, Senator Saxby Chambliss, took this on and tried to get it passed before 

the August recess in the same bipartisan spirit in which it passed 

the House. Unfortunately, the FDIC and the American Institute of 

Certified Public Accountants have both blocked the study from 

moving forward. I hope the FDIC and the AICPA will state here 

for the record that they will reach out to the Senate so all objections will be removed and this bill will pass quickly in early September. 

To the bankers and small business owners testifying here today, 

I appreciate the honest assessment of your experience in this tough 

business environment. There has been a longstanding struggle 

from my office to receive an honest assessment of the job the regulators are doing, from the businessmen willing to come forward and 

share their experience for the record. And I appreciate your courage. We had a number of people who would tell us their story, but 

were unwilling, because of fear of retaliation, to come testify today. 

And that is a shame. 

To those in the audience, know that while I would like to have 

everyone testify today, my office is always willing to submit your 

experience for the record and we have 30 days to do that. And furthermore, I hope the regulators on this first panel will remain in 

the room for the second panel and listen to what they have to say. 

Too many times, the first panel of the government officials will 

come in, testify, and then leave. We are not in D.C., I hope you do 

not have anywhere to go, and we will make sure you get a good 

lunch if you will stick around and listen to some of these people 

that we listen to each and every day. 

6 

In closing, Georgia is in a banking crisis. To overcome this crisis, 

regulators, examiners, and bankers must work together to further 

investment in our small businesses and create jobs. 

With that, Madam Chairwoman, I yield back. 

Chairwoman CAPITO. Thank you. 

I would like to introduce Congressman David Scott from the 13th 

District of Georgia. Mr. Scott is a very forceful member of the subcommittee and the full committee and he has been out front with 

Mr. Westmoreland on this particular issue. Welcome, Mr. Scott, 

and thank you. 

Mr. SCOTT. Thank you, thank you very much. And I certainly 

want to welcome you, Chairwoman Capito, to Georgia and our 

chairman, the distinguished chairman who does an extraordinary 

job on our committee and is a great personal friend to me, Chairman Bachus, thank you for coming. And of course, Lynn, it is always a pleasure working with you. Lynn and I go all the way back 

to our days in the Georgia legislature, and it has been a pleasure 

working with you, bringing forward this very important bill. 

This is a very, very serious issue and we will never be able to 

find our way out of this economic doldrum that we are in and get 

the kind of recovery that we need unless our banks are thriving 

and they are able to lend money. 

Our banks are like the heart of our system. Like the heart 

pumps out the blood, banks pump out the credit and pump out the 

cash and pump out the lending to small businesses, to individuals 

so that our economy can grow. 

But when we have a rash of bank failures in one geographic area 

of the United States which account for over 25 percent of all of the 

bank closures, and in less than 4 years, over 60 banks in this one 

State fail, we have to dig deep and find out what happened. And 

I think that is one of the biggest contributions that we can make 

today with our distinguished committee and representatives. We 

have to find out from the FDIC, the Office of the Comptroller of 

the Currency, and the Fed, all of our examiners and regulators, 

what went wrong, why did this happen. And if the discovery comes 

out to be, as many have said, that so many of our banks overleveraged their portfolios into real estate, well if we knew this, why 

didn’t some red flags go up? So, we have some serious questions to 

ask here. 

And then secondly, what can we do now to make sure that we 

have no more bank closures in this State? Just recently, we had 

a couple of banks close. So the situation goes on. 

I think there have to be some very serious questions asked. I 

think that we have to examine the impact of mark-to-market accounting, what role that played in it. I think we also have to make 

sure—and I want to echo what Lynn said, because we have two 

panels here: we have the regulators; and we have the examiners. 

It is important that the examiners stay so that you can hear from 

our banking folks, so they can have an opportunity to put the 

issues right before them. 

We have had many hearings on this issue. We hear from our 

friends in the banking community who basically say the regulations are too stringent, they are putting too much pressure, particularly pressure in terms of an issue just simply as asset writeVerDate Nov 24 2008 17:48 Mar 15, 2012 Jkt 067949 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 K:\DOCS\67949.TXT TERRIE
7 

downs, which require and put enormous amounts of pressure on 

banks that go out in a hurry and raise capital. We need to examine 

this to see if this is the correct procedure. And then we need to 

come out of this figuring out what, in Washington, are we doing 

that we need to correct ourselves. And I think if we look very closely and examine each of these questions and really be as frank and 

as honest as we can today, we will make a great contribution, not 

just in terms of the banking situation here in Georgia, but this is 

the epicenter and I think the great contribution we will make here 

is that we will be able to provide valuable information going forward for our entire country because other parts of the United 

States are suffering from this as well. 

I look forward to this hearing. I also would like to get some opinions from our panelists on the impact of our bill. Is it enough? Can 

we do more? In the process, as we go and continue to negotiate this 

bill, are there some more things we need to add to it to make it 

stronger? 

So this is going to be a good hearing, and I am really looking forward to it. And I thank you all for your participation. 

Chairwoman CAPITO. Thank you, Mr. Scott. 

Now, we will go to the panel. Our first witness is Mr. Christopher J. Spoth, who is the Senior Deputy Director, Division of 

Risk Management Supervision for the Federal Deposit Insurance 

Corporation, better known as the FDIC. Welcome, Mr. Spoth. 

STATEMENT OF CHRISTOPHER J. SPOTH, SENIOR DEPUTY DIRECTOR, DIVISION OF RISK MANAGEMENT SUPERVISION, 

FEDERAL DEPOSIT INSURANCE CORPORATION 

Mr. SPOTH. Chairman Bachus, Chairwoman Capito, and members of the subcommittee, Congressman Westmoreland, Congressman Scott— 

Chairwoman CAPITO. If I could ask you—I think you have to 

really lean into the microphone so everybody can hear you. 

Mr. SPOTH. I apologize. 

Thank you so much for the opportunity to testify here before the 

committee. As the Senior Deputy Director of the Division of Risk 

Management, I oversee the FDIC’s safety and soundness examination program. Twice in my FDIC career, I lived in Georgia, and it 

is a pleasure to be back today, and outside of Washington, as you 

say. 

The FDIC is the primary Federal regulator for State-chartered 

banks that are not members of the Federal Reserve System. We supervise 4,700 banks. Georgia has 261 banks and the FDIC is the 

primary Federal regulator for 211. We have field offices in Atlanta, 

Albany, and Savannah, plus a regional office in Atlanta. Our examiners are knowledgeable about the economic challenges confronting 

banks and their customers. The FDIC works closely with the Georgia Department of Banking & Finance. 

Georgia’s economy was hit especially hard by the housing market 

collapse in 2007 and the financial crisis and economic recession 

that followed. The pace of economic recovery has been slow, and 

conditions in Georgia remain challenging. The State’s unemployment is higher than the national average, and its banks have lost 

money for 10 consecutive quarters. The non-current rate for conVerDate Nov 24 2008 17:48 Mar 15, 2012 Jkt 067949 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\67949.TXT TERRIE
8 

struction and development loans in Georgia has been over 20 percent for 2 years. High levels of construction and development lending have been a common characteristic of failed banks, and Georgia 

had the highest construction rate of any State in 2007. 

We are keenly sensitive to the hardship that bank failures pose 

to communities and borrowers. Our supervisory goal is always to 

avert a bank failure by initiating timely corrective action. Most 

problem banks do not fail. In fact, most banks across the country 

are in sound condition, well-capitalized and profitable, although 

Georgia has been affected more than most. 

Community banks play a vital role in credit creation. While community banks represent only 11 percent of industry assets, they 

provide 38 percent of bank loans to small businesses and farms. 

However, surveys of bankers and businesses have identified three 

primary obstacles to making loans at this time: lack of demand 

from creditworthy borrowers; market competition; and the slow 

economy. 

In response, the FDIC has adopted policies that can help community banks and their borrowers. Since 2008, the banking agencies 

have issued statements encouraging banks to lend to creditworthy 

borrowers, to prudently restructure problem commercial real estate 

loans, and to meet the credit needs of small business. The FDIC 

sponsored a small business forum earlier this year. Chairman 

Bachus attended and spoke at that forum. 

The FDIC’s examination program strives for a balanced approach. Examiners conduct fact-based reviews of a bank’s financial 

risk, the quality of its loan portfolio, and conformance with banking 

regulations. In analyzing a loan, our examiners focus on the borrower’s cash flow. If the borrower cannot pay the principal and interest, then the examiner will consider any collateral or guarantees. We do not focus on distressed property sales. Loans at risk 

of non-payment are usually identified by the bank itself. At the 

conclusion of their examination work on site, FDIC examiners always discuss their preliminary findings with the bank management. This provides an opportunity to express the bank’s point of 

view on findings, recommendations, and the supervisory process. 

We conduct more than 2,500 on-site examinations annually, and we 

recognize that questions and disagreements may arise, especially 

during difficult economic times. 

The FDIC has a number of channels available for bankers to appeal examination matters. Care is taken to ensure national consistency. We ensure that examiners follow prescribed procedures and 

FDIC policy through our national training program and commissioning process, internal quality reviews, and ongoing communication at every level. Members of our board of directors and all of our 

Washington and regional executives are dedicated and involved in 

this effort. 

The FDIC welcomes feedback and relies on bankers’ informed 

perspectives. We meet regularly with banker groups to discuss the 

examination process. A significant resource is our advisory committee on community banking established in 2009. This committee, 

which includes a community banker from Georgia, provides us with 

advice and guidance on a range of policy issues. Our Atlanta regional office meets regularly with banker groups and has welcomed 

9 

all opportunities to meet with bankers. The FDIC’s Regional Director, Tom Dujenski, is here in the audience today. 

I will now turn it over to my colleague, Bret Edwards. I will be 

pleased to answer any questions, and I heartily accept the invitation to stay and listen to the banker panel. 

[The joint prepared statement of Mr. Spoth and Mr. Bret 

Edwards can be found on page 93 of the appendix.] 

Chairwoman CAPITO. Thank you, Mr. Spoth. 

And now our second witness is Mr. Bret D. Edwards, Director, 

Division of Resolutions and Receiverships at the FDIC. Welcome, 

Mr. Edwards. 

STATEMENT OF BRET D. EDWARDS, DIRECTOR, DIVISION OF 

RESOLUTIONS AND RECEIVERSHIPS, FEDERAL DEPOSIT INSURANCE CORPORATION 

Mr. BRET EDWARDS. Thank you. Chairwoman Capito, Chairman 

Bachus, and members of the subcommittee, I appreciate the opportunity to testify on how the FDIC resolves failed banks, and in particular on the shared-loss agreements we have employed during the 

current crisis. 

Throughout the financial crisis, the FDIC has worked to maintain financial stability and public confidence in the banking system 

by giving insured depositors of failed banks quick and easy access 

to their funds. 

When a bank is closed by the Comptroller of the Currency or a 

State banking commissioner, the law requires the FDIC to use the 

least costly method of resolving the failed bank in order to minimize the costs of bank failures to the Deposit Insurance Fund or 

the DIF. 

With each bank failure, we use a bidding process to find a bank 

to take over the performing and non-performing assets of the failed 

bank, along with the bank’s deposits and other liabilities. Such a 

whole bank resolution has benefits for the failed bank’s borrowers 

and the community, as well as the DIF. The bank’s borrowers benefit because the assuming bank is a potential new source of credit. 

And the community benefits from stabilized asset values. In addition, because the failed bank’s assets are managed by the assuming 

bank, the FDIC’s asset-related expenses are significantly less than 

they would be if the FDIC were to manage and liquidate these assets on its own. Finally, everyone benefits when these assets are 

managed rather than put into an already strained market at fire 

sale prices. 

During the current financial crisis, turmoil in the economy and 

significant uncertainty about future loan performance and collateral values have made potential buyers of failed banks reluctant to 

take on the risk of the failed bank’s non-performing loan portfolios. 

As a result, the FDIC has often been required to use a modified 

version of the whole bank resolution that includes a shared-loss 

agreement. This was particularly true during the early stages of 

the crisis. The FDIC estimates the use of shared-loss agreements 

has saved the DIF, and the thousands of banks that fund the DIF, 

almost $40 billion during the current crisis. 

Unfortunately, a small percentage of failing banks still do not attract viable bids because they have little or no franchise value, and 

10 

the quality of their assets is very poor. In those instances, the 

FDIC pays the depositors the insured amount of their deposits and 

depositors with uninsured funds and other general creditors are 

given receivership certificates entitling them to a share of the net 

proceeds from the liquidation of the failed institution’s assets. Typically in a payout like this, there is no new source of credit available 

for troubled borrowers. 

Since the crisis began in 2007, the FDIC has successfully found 

banks to take over 61 of Georgia’s 67 failed banks. Forty-one of the 

67 banks were acquired by Georgia-based institutions, while 10 

other acquirers are from contiguous States. 

Under shared-loss agreements, the assuming bank takes ownership of the failed bank’s assets and the FDIC agrees to absorb typically 80 percent of the losses on a specified pool of assets, while the 

assuming bank is liable for the remaining 20 percent of the losses. 

Each assuming bank is required to utilize a least loss strategy in 

managing and disposing of these assets. 

Shared-loss agreements soften the effect of bank failures on the 

local markets by keeping more of the failed bank’s borrowers in a 

banking environment. The assuming bank can more easily work 

with the borrowers to restructure problem credits and advance additional funding where prudent. And in fact, shared-loss agreements require assuming banks to review qualified loans for modification to minimize the incidences of foreclosure. Because the assuming banks share approximately 20 percent of any losses on covered loans, they are motivated to restructure a loan whenever a 

modification would produce a greater expected return than a foreclosure or short sale. We also require assuming banks to manage 

covered assets just like their own portfolio, consistent with prudent 

business practices and the bank’s credit policies. The incentives for 

pursuing modifications and the requirement for consistent treatment of assets work together to prevent a fire sale strategy. 

The FDIC monitors compliance with the shared-loss agreements, 

including the requirement to consider loan modifications through 

quarterly reporting by the assuming bank and performing periodic 

reviews of the assuming bank’s adherence to the agreement terms. 

To enforce compliance with the agreement, the FDIC will delay 

payment of loss claims until compliance problems are corrected. We 

can also deny payment of a claim altogether or cancel a shared-loss 

agreement, if compliance problems continue. 

While we believe the shared-loss agreements have significant 

benefits, as the economy improves, we expect to see fewer resolutions with loss share. 

Thank you for allowing me to testify today and I look forward to 

your questions. 

[The joint prepared statement of Mr. Spoth and Mr. Bret 

Edwards can be found on page 93 of the appendix.] 

Chairwoman CAPITO. Thank you. 

Our third witness will be Mr. Gil Barker, the Southeast District 

Deputy Comptroller for the Office of the Comptroller of the Currency. Welcome, Mr. Barker. 

11 

STATEMENT OF GIL BARKER, SOUTHERN DISTRICT DEPUTY 

COMPTROLLER, OFFICE OF THE COMPTROLLER OF THE 

CURRENCY (OCC) 

Mr. BARKER. Chairwoman Capito and members of the subcommittee, I appreciate this opportunity to discuss the OCC’s supervision of community banks and the steps that we take to ensure 

that our supervision is balanced, fair, and consistent with OCC 

policies. 

My district supervises more than 650 federally-chartered community banks and thrifts, including 45 national banks and thrifts in 

the State of Georgia. I have been involved in the direct supervision 

of community banks for most of my career, so I have a deep appreciation for the challenges that these bankers face. 

Community banks play a crucial role in providing consumers and 

small businesses with essential financial services and credit that is 

critical to economic growth and job formation. Our goal is to ensure 

that these banks have the strength and the capacity to meet these 

credit needs. 

I understand that some bankers believe that they are receiving 

mixed messages from regulators about the need to make loans to 

creditworthy customers, and I appreciate the opportunity to address these issues today. 

The OCC’s policies encourage banks to make loans to creditworthy borrowers and to work constructively with borrowers. We 

have mechanisms to help ensure that our examiners apply these 

policies in a consistent and balanced manner. We alert our examiners to new policy issuances via weekly updates. When warranted, 

we supplement these issuances with targeted supervisory memos 

that provide additional direction for implementing on a consistent 

basis. We reinforce these messages through periodic national teleconferences and meetings at our local field offices. 

We have quality assurance processes to ensure that our examiners are applying our guidance consistently. Every report of examination is reviewed and signed off by an appropriate Assistant Deputy Comptroller before it is finalized. Additional levels of review 

occur when enforcement actions are involved. Our formal quality 

assurance processes assess the effectiveness of our supervision and 

compliance with OCC policies through quarterly randomly selected 

reviews of the supervisory record. While a bank’s supervision policies and procedures establish a consistent framework and expectations, our examiners tailor their supervision to each bank and its 

individual risk profile and business model. 

Our front line managers who are located in the local communities are given considerable decision-making authority, reflecting 

their on-the-ground knowledge of the institutions that they supervise. To support our local examiners, we have district analysts who 

monitor and provide information on local markets and conditions. 

This information allows us to tailor our supervisory activities to 

unique challenges being faced within local economies and business 

sectors. 

We also have an extensive outreach program with State trade associations and we meet with our State and Federal regulatory 

counterparts to share information and discuss issues. 

12 

OCC examiners assess the quality of the bank’s loan portfolio 

during each examination cycle. The goal of our reviews is to confirm the accuracy of bank management’s own assessments of credit 

quality. If a borrower’s ability to repay a loan becomes impaired, 

we expect the bank to classify the loan to recognize the increased 

risk. 

To provide consistency in the examination process, the OCC and 

other bank agencies use a uniform risk scale to identify problem 

credits. Consistent with generally accepted accounting principles, 

the call reports require that a loan be put on non-accrual status 

when full repayment of principal and interest is not expected. In 

making these decisions, each loan must be evaluated based on its 

own structure, terms, and the borrower’s ability to repay under 

reasonable repayment terms. A loan is not classified simply because a borrower is based in a certain geographic region, when 

they operate in a certain industry, or because the current market 

value of the underlying collateral has declined. Our supervision 

strives to ensure that problems are identified and addressed at an 

early stage before they threaten the bank’s viability. When these 

efforts are not successful and the bank is not viable, we work closely with the FDIC to effect early and least cost resolution of the 

bank. 

The OCC’s supervisory philosophy is to have open and frequent 

communications with the banks that we supervise. While I believe 

that OCC examiners are striking the right balance in their decisions, my management team and I encourage any banker who has 

concerns about a particular examination finding to raise these concerns with their examination team, with the supervisory office, 

with me directly, with the OCC’s independent ombudsman. 

Thank you, and I would be happy to answer questions afterwards. 

[The prepared statement of Mr. Barker can be found on page 58 

of the appendix.] 

Chairwoman CAPITO. Thank you, Mr. Barker. 

And our final witness on this panel is Mr. Kevin Bertsch, Associate Director, The Board of Governors of the Federal Reserve System. Welcome. 

STATEMENT OF KEVIN M. BERTSCH, ASSOCIATE DIRECTOR, 

DIVISION OF BANKING SUPERVISION AND REGULATION, 

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 

Mr. BERTSCH. Thank you. 

Chairwoman Capito, Chairman Bachus, and members of the subcommittee, I appreciate the opportunity to appear before you today 

to discuss the Federal Reserve’s efforts to ensure a consistent approach to the examination of community banking organizations. 

Community banks play a critical role in their local communities. 

The Federal Reserve very much values its relationship with community banks and is committed to supervising these banks in a 

balanced and effective way. Developments over the past few years 

have been particularly challenging for these institutions, and the 

Federal Reserve recognizes that, within this context, supervisory 

actions must be well considered and carefully implemented. 

13 

The Federal Reserve conducts its supervisory activities through 

its 12 Federal Reserve Banks across the country. This means that 

supervision is guided by policies and procedures established by the 

Board, but is conducted day-to-day by the Reserve Banks and their 

examiners, many of whom have lived and worked within the districts they serve for many years. We believe this approach ensures 

that Federal Reserve supervision of community banks is consistent 

and disciplined and that it also reflects a local perspective that 

takes account of differences in regional economic conditions. 

There has been much discussion recently about whether examiners are unnecessarily restricting the activities of community 

banks. The Federal Reserve takes seriously its responsibility to address these concerns, and working with the other agencies, the 

Board has issued several pieces of examination guidance over the 

past few years to stress the importance of taking a balanced approach to supervision. The Federal Reserve has complemented 

these statements with training programs for examiners and outreach efforts to the banking industry. In addition, the Federal Reserve continues to strongly reinforce the importance of these statements with its examiners and has taken steps to evaluate compliance with the guidance as part of its regular monitoring of the examination process. 

First, all examination findings must go through a thorough review process before being finalized. Local management teams vet 

the examination findings at the district Reserve Banks to ensure 

that problem areas are addressed consistently, findings are fully 

supported, and supervisory determinations conform with Federal 

Reserve policies. If these vetting sessions identify policy issues requiring clarification, local Reserve Banks contact the Board in 

Washington for guidance. 

In addition, Board analysts sample recently completed examination reports to assess compliance with policies. Potential deviations 

from policy requirements that are identified through this process 

are discussed with Reserve Banks and corrected as needed. Board 

analysts also review quarterly off-site financial surveillance reports 

with the Reserve Banks to ensure identified issues are consistently 

and promptly addressed. 

Board staff also conduct periodic reviews of specific examination 

activities. For example, recently we undertook a focused review of 

commercial real estate loan classification practices in the districts. 

We initiated this review to assess whether Federal Reserve examiners were implementing the inter-agency policy statement on commercial real estate loan workouts as it was intended. Based on this 

review, we concluded that Federal Reserve examiners were appropriately implementing the guidance and were consistently taking a 

balanced approach in determining loan classifications. 

Overall, our monitoring efforts to date suggest that Federal Reserve examiners are following established guidance in evaluating 

supervised institutions. However, if any banking organizations are 

concerned about supervisory actions that they believe are inappropriate, we continue to encourage them to contact Reserve Bank or 

Federal Reserve Board supervisory staff to discuss their concerns. 

We at the Federal Reserve are acutely aware of the need for a 

strong and stable community banking industry that can make credVerDate Nov 24 2008 17:48 Mar 15, 2012 Jkt 067949 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 K:\DOCS\67949.TXT TERRIE
14 

it available to creditworthy borrowers across the country. We want 

banks to deploy capital and liquidity, but in a responsible way that 

avoids past mistakes and does not create new ones. 

The Federal Reserve is committed to working to promote the concurrent goals of fostering credit availability and maintaining a safe 

and sound banking system. Through our ongoing communication 

with Reserve Banks and bankers, the Federal Reserve will continue to strive to ensure our guidance is applied in a fair, balanced, 

and consistent manner across all institutions. 

Thank you again for inviting me to appear before you today on 

this important subject. I will be pleased to take your questions. 

Thank you. 

[The prepared statement of Mr. Bertsch can be found on page 81 

of the appendix.] 

Chairwoman CAPITO. Thank you. I appreciate the testimony and 

we will begin with questioning. Each member will have 5 minutes 

on the first round, and I am going to begin. 

I think the question I am asking could be appropriate to everybody, but it might be most appropriate to the FDIC witnesses. 

Being a resident of a different State and coming to Georgia and 

seeing 25 percent of the bank failures occurring in this particular 

region, my question is, what is different in Georgia? We know that 

the recession is a national one, we know that half of the houses in 

Las Vegas are in neighborhoods that are underwater. What is particular to Georgia in the regulatory review that causes it to have 

the greater share of the bank failures? 

Mr. SPOTH. I am happy to start to answer that question, Chairman. 

It is a very thoughtful question and one that I think about all 

the time. What is it that happened in Georgia? And as I said, I 

lived here, I left in 2002, the second time that I was here living 

in the Atlanta area. What the numbers show, and what my feeling 

was at the time, was that Atlanta had, or more generally, the State 

of Georgia had high economic growth in the run-up to the housing 

collapse in 2007. Credit was available, readily available, for construction supporting that growing economy, and there were rising 

real estate prices. Not many expected the collapse of housing. Some 

of the issues that caused that collapse were masked in the nonbank arena through subprime mortgages and some similar issues. 

I think that is what happened. Why it affected Georgia more than 

others was probably, as a principal reason, the high amount of exposure to construction and development lending. 

Chairwoman CAPITO. Mr. Edwards, do you have another comment? 

Mr. BRET EDWARDS. I would concur with that, that is exactly 

right, the high level of construction and development loans on the 

books of the banks, especially as we got to the peak of the market, 

was a big factor. 

Chairwoman CAPITO. So that is different than what is occurring 

in some of these other high real estate areas—Florida, Arizona, 

New Mexico, Texas? 

Mr. SPOTH. It is somewhat different in scale. All of those States 

experienced a similar phenomenon with rising real estate prices. 

Chairwoman CAPITO. Right, right. 

15 

Mr. SPOTH. What was different in Georgia is that it had the 

highest concentration of construction and development loans relative to the capital base, compared to others. 

Chairwoman CAPITO. So then my follow-up question would be 

during that period of time when you were conducting reviews of 

these particular banks, that was not a red flag at the time? 

Mr. SPOTH. It was a red flag. Maybe some of my other colleagues 

will talk about it. We issued guidance in 2006 to the industry talking about concentrations and risk management around commercial 

real estate and acquisition, development and construction lending 

generally. Would there be lessons learned behind that and mistakes made? Probably so. 

Chairwoman CAPITO. In the regulatory reaction, you are talking 

about? 

Mr. SPOTH. Yes. The red flags were not always carried all the 

way through to the supervisory process. 

Chairwoman CAPITO. Mr. Bertsch, in our conversation before we 

began our testimony, you mentioned that you have sort of ridden 

through this tide before when you were in Boston as a regulator 

in the downturn of the real estate market in Boston in the early 

1990s, and that you are seeing a lot—a lot of what you are hearing 

us talk about is a lot of what was talked about in the 1990s. What 

were the solutions at that time and, I guess, how do we find ourselves back in the same position, understanding that there are economic issues here on a national basis that are sort of more beyond 

control of community bankers in Georgia and others? 

Mr. BERTSCH. I think a lot of what the regulators have been 

doing has been, to some degree, looking back in history to see what 

helped the New England crisis sort of slow down and how that was 

sort of addressed. I think if you look at, for example, the prudent 

commercial workout, commercial real estate workout guidance that 

all the agencies issued after the initial guidance that Chris referenced, that is basically designed to encourage banks to work with 

their borrowers and do formal restructurings of loans because that 

actually did work fairly well in terms of addressing some of the 

issues that occurred in New England. 

Now neither situation was very good for the banking industry. 

Just as now Georgia is experiencing a very high level of failures, 

it was similar in New England back in the late 1980s and early 

1990s, and some of these same questions were being asked. 

But I think the thing we learned through the New England issue 

was that we need to give the banks an opportunity to restructure 

the loans and that if they restructure the loans, they can, some of 

them, can survive. But that does mean that some of them have to 

recognize some losses and some problems in some of the transactions before they can move forward and see those transactions 

come back to a performing asset. 

Chairwoman CAPITO. Thank you. 

Chairman Bachus is recognized for 5 minutes for questions. 

Chairman BACHUS. Thank you. 

Let me ask the FDIC this question. Loss sharing agreements, obviously that has been a real focus and area of concern. My first 

question would be—and these are things we have heard from more 

than one source—is that banks who come in and take over these 

16 

loans do not have the incentive to modify those loans when the borrower gets in financial trouble. There is almost maybe an incentive 

to close those loans out. And that is particularly problematic when 

there is a participation agreement I guess would be the word, between other banks on those loans. That is sometimes where we 

hear the complaints. 

Do you monitor those and is there a possibility of maybe—or 

have you changed the way those are structured maybe to address 

that? Have you heard that before? 

Mr. BRET EDWARDS. Yes, we have heard that before and obviously it is a concern to us, because we took a lot of care in crafting 

those agreements as what we feel is the best solution to dealing 

with the assets coming out of failing banks. 

We do believe that the way the shared-loss agreements work, we 

share the losses, 80 percent with us, 20 percent with the assuming 

bank, we believe that gives them a pretty significant incentive, as 

we call it, skin in the game, to ensure that their behavior, their incentives in these agreements are aligned with ours—which is, we 

want them to pursue the least loss strategy for each and every 

asset. 

Additionally—and I will get to the monitoring in a second—I just 

want to make it clear that the agreement basically says they must 

manage the assets that they take in through a shared-loss agreement the same as their assets that are already on their books. So 

let us talk about compliance for a second. They do extensive reporting to us, we have compliance management contractors go out and 

do a thorough review of their compliance with these agreements. 

The agreement requires them to consider modifications in doing an 

analysis. So we have a bank credit, we look at all the disposition 

alternatives. If it is a troubled credit, they are required to do an 

analysis and demonstrate to us or our contractors as we go in to 

check with compliance, that they have documented, analyzed, and 

are following the least loss strategy on every credit. 

So we are relatively comfortable that the banks are incented to 

follow the least loss strategy—and they are also required to—and 

we also check that they are doing that. So I feel that is—but again, 

I have heard the same things and that concerns us and what I 

would say with respect to that is, if there are specific instances 

where folks feel that they are seeing behavior where that is not occurring, we would want to know about that. 

Chairman BACHUS. Okay. Have you heard any complaints from 

other banks when there are participation agreements? 

Mr. BRET EDWARDS. Sure. With participation agreements—and 

again, generally what happens with those participation agreements 

is it depends on whether you are the lead participant, in other 

words you are the manager of that loan, or you are a downstream 

participant, as we say. Where the assuming institution is under a 

shared-loss agreement, they take the lead, from our perspective, 

again, the requirement in the agreement is they should be managing that loan just like any other loan in their portfolio and that 

includes, with respect to participation agreements, and I am sure 

my examination colleagues would tell you, they should be regularly 

and actively communicating with the other participants in that 

loan about what their disposition strategy is if it is a troubled credVerDate Nov 24 2008 17:48 Mar 15, 2012 Jkt 067949 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 K:\DOCS\67949.TXT TERRIE
17 

it, and follow the terms and conditions of that participation agreement. 

Chairman BACHUS. I know that Congressman Westmoreland and 

Congressman Scott both mentioned mark-to-market. And I know 

that even in 2008, when we first ran into trouble, mark-to-market 

came up. Chairman Bernanke actually, within 6 months or a year, 

said mark-to-market is a problem. In some cases, it is exacerbating 

the problem. He testified probably on at least two or three occasions that it was a concern to the OCC, which has expressed concerns. 

In fact, we actually passed a provision that the SEC would look 

at the impact of mark-to-market and consult with the banking regulators. And they actually came out and instructed the accounting, 

the different accounting boards, to address the problem, which they 

sort of did in what has been called by many in the academic field 

a superficial addressing, because you had sort of a conflict between 

investors and the institutions as to what those assets were valued. 

Can you update me on any of your thoughts on mark-to-market? 

In fact, two former OCC Chairmen have testified that had markto-market been in effect in earlier recessions, there would have 

been many more bank failures than they had. And they were quite 

outspoken about that. I had a conversation with Don Powell— 

whom you are very familiar with—who headed up the agency, and 

he said that was a real problem. He had left the agency at that 

time. 

But would you comment on that? 

Mr. BARKER. Congressman Bachus, I can tell you that from the 

examiner’s perspective, when they go in and they conduct reviews 

of a loan portfolio, they are looking to see the ability of the borrower to make repayment. They look at the cash flow, they look at 

the current status of the loan, they look at the prospects for continued payment. In fact, the only time that mark-to-market would 

come into play is when the loan is no longer being able to be repaid, and then the valuation of the collateral comes into play. So 

it is at that point when the examiners would go beyond an assessment of the cash flow and make a determination as to whether 

there is sufficient collateral, and then apply mark-to-market standards as they exist right now, as part of their examination activity. 

Chairman BACHUS. Okay. So you do not always follow mark-tomarket in just determining whether a loan needs to be further reserved? 

Mr. BARKER. We apply the standards first looking at the cash 

flow and the borrower’s ability to make the payments. As long as 

those payments are continuing to be made, the assessment of the 

collateral position is very secondary, much after the cash flow analysis. 

Chairman BACHUS. All right. That is good news, thank you very 

much. 

Chairwoman CAPITO. Thank you. 

Mr. Westmoreland? 

Mr. WESTMORELAND. Thank you, Madam Chairwoman. 

Mr. Barker, you mentioned in your testimony that you have a 

deep appreciation for the challenges of those bankers. 

Mr. BARKER. Yes. 

18 

Mr. WESTMORELAND. Have you ever been in the banking business? 

Mr. BARKER. Only as a regulator, sir. 

Mr. WESTMORELAND. Only as a regulator. And how long have you 

been there with the regulators? 

Mr. BARKER. I have been with the Comptroller of the Currency’s 

Office for 33 years. 

Mr. WESTMORELAND. So you must have gone straight to work 

there after you graduated college? 

Mr. BARKER. Yes, I did. 

Mr. WESTMORELAND. So you have never actually made a loan to 

anybody? 

Mr. BARKER. No, I have not. 

Mr. WESTMORELAND. You have never been on the banker’s side 

of the desk making a loan? 

Mr. BARKER. No. 

Mr. WESTMORELAND. Have any one of you ever—since we have 

had 67 bank failures, how many times have you all been to Georgia 

to actually go into some of these banks or communities that have 

had the large number of failures? I will start with you, Mr. Spoth. 

Mr. SPOTH. I have been to our—this microphone again. 

Chairman BACHUS. These microphones are not as sensitive as 

those in Washington, so you might want to pull them pretty close. 

Mr. SPOTH. I have been to our offices here in Atlanta. 

Mr. WESTMORELAND. No, I mean how many banks have you been 

to? 

Mr. SPOTH. I meet with the bankers when they are in the Washington office. 

Mr. WESTMORELAND. How many local banks have you been to 

here? 

Mr. SPOTH. Meet with Georgia banks in Georgia? 

Mr. WESTMORELAND. Yes. 

Mr. SPOTH. I have not met with any in Georgia in recent years. 

Regional Director Dujenski meets with them all the time. 

Mr. WESTMORELAND. Good. Mr. Edwards? 

Mr. BRET EDWARDS. No, I have not. I assumed this position in 

January of this year. 

Mr. WESTMORELAND. Okay. Mr. Barker? 

Mr. BARKER. I have met with several community banks in the 

State of Georgia as part of our supervisory process. 

Mr. WESTMORELAND. So you went physically to those that were 

being audited I guess or whatever? 

Mr. BARKER. Yes. 

Mr. WESTMORELAND. And how many of those closed? 

Mr. BARKER. Three of those banks have closed. 

Mr. WESTMORELAND. And so you went to three and all three 

closed? 

Mr. BARKER. Yes. 

Mr. WESTMORELAND. Okay. Sir, do you ever get out much? 

[laughter] 

Mr. BERTSCH. When they let me out, periodically I do get out. 

Chairman BACHUS. He is out today. 

Mr. BERTSCH. I have not been in any of the banks in Georgia. 

I would refer you back to our testimony that we do our supervision 

19 

directly through the Reserve Banks and that is typically how our 

visits are conducted. 

Mr. WESTMORELAND. Okay. Now I know that the shared-loss 

agreements—Mr. Edwards, you spoke about them and I guess their 

intention, at least from what I am reading, is to soften the blow 

to the community. 

Mr. BRET EDWARDS. Yes, that is correct. 

Mr. WESTMORELAND. And I read in your testimony about—I 

guess it was your testimony, it did not have anybody’s name on the 

front of it, but it talked about loss share, that they were open to 

modification and that you were willing to work with people and 

that the reason these shared-loss agreements came in was so the 

acquiring bank could go in and work with these different people to 

see if they could not save the loans; is that correct? 

Mr. BRET EDWARDS. Yes. 

Mr. WESTMORELAND. Okay, you need to get out more. And I hope 

you will stick around and listen to some of this testimony because 

that is not what happened. That may be what you all think is 

going on in Washington, but that is not what is happening here in 

our local communities, I can promise you that. 

You also mentioned, or somebody mentioned, that a large percentage—I guess it was you, sir—that a large percentage of the 

loans here were A&D and construction. And that is true. And I 

think Ms. Capito asked a question about how many—because of so 

many banks in Georgia, and we did have a large part of that. Did 

you ever take into consideration that because of maybe some type 

of a uniqueness, that somebody would need to come down here and 

look at it? And if that was recognized by the FDIC as being a problem, then you cannot manage all problems the same way? And if 

you recognize this, and I am sure it was much the same in Nevada 

where 40-something percent of their banks have closed, why 

wouldn’t you come in here and look at maybe some special circumstances of the A&D and the construction loans? 

Mr. SPOTH. As you know, we issued guidance from Washington 

about restructuring troubled real estate loans that was designed to 

reflect what was going on in Georgia, Florida, and some other 

States that have been mentioned here. We addressed how to restructure loans on the cash flow from the development or from the 

commercial property and to try and keep the borrower with that 

property. 

Mr. WESTMORELAND. How often did you inquire to how that process was going and how did you—when you looked at that process, 

how did you see it going? 

Mr. SPOTH. We asked bankers and examiners whether they are 

able to follow the guidance. The particular guidance that I am talking about is about 19 pages long and has all kinds of examples in 

it. So we have asked people to go back and look at troubled real 

estate loans and see if the examiners— 

Mr. WESTMORELAND. But from your personal experience, what 

has been the result of going back and doing these things? 

Mr. SPOTH. Bankers tell me that they are more comfortable, and 

importantly, examiners too tell us that they are more comfortable 

working on restructured loans than they would have otherwise 

been without the guidance. 

20 

Mr. WESTMORELAND. You need to stick around too. 

Mr. SPOTH. I will do that, sir. 

Mr. WESTMORELAND. Now let me just— 

Chairwoman CAPITO. Sure. We will do another round. 

Mr. WESTMORELAND. Okay, if I am going to get another round, 

I will yield back. 

Chairwoman CAPITO. Okay. Mr. Scott? 

Mr. SCOTT. Thank you very much, Madam Chairwoman. 

One of my favorite actors is Paul Newman and he made a wonderful picture called ‘‘Cool Hand Luke’’ and in there, there was this 

line that said, ‘‘What we’ve got here is failure to communicate.’’ 

And I think that—and I want to talk about that for a moment because we have Federal regulators in Washington, field examiners 

and then the banks. And they have not been on the same page. We 

have had complaints after complaints. And I think at the core of 

part of our problem here in Georgia has been just that. What have 

you all done to correct this, to address the concern that there has 

been a lack of communication between the Federal bank regulators 

in Washington and the examiners in the field? And in relationship 

to what they are doing on a consistent manner with the banks. 

Mr. SPOTH. At the FDIC, one of the things that we did, having 

heard that, Congressman, is we informed our community bank advisory committee and had community bankers come to Washington 

and try to tell us their experience in their banks, in the field, and 

how it is with those they are representing, their peers. That has 

been very helpful; I have met with that committee every time they 

have been in Washington. That has probably been 7 or 8 times now 

they have come in. 

The other thing that we do—I talked about the commercial real 

estate loan restructuring guidance—is to have conference calls with 

bankers and invite them to participate. People like myself and the 

leadership that I work for participate on those calls with bankers 

and try to cut through the layers of communication that could 

break down somewhere. 

Mr. SCOTT. Let us just take one of those areas. We have come 

to the conclusion, I think you talked about the major cause, because I think we need to zero in on that, being that overleverage 

of bank foreclosures into the real estate and the construction area 

that caused a lot of what we have down here. So what have we 

moved or what are we going to put in place to make sure that does 

not happen again? Have we addressed that? Why didn’t the examiners, why were they not able to communicate that as they examined the banks? Why were banks allowed to, if we knew that this 

would be a problem—some of them I think had 70, more than 70 

percent of their portfolios were in this. Wasn’t that a red flag going 

up? Didn’t somebody see that? If not, have we moved in to correct 

that, to put something in place, some kind of triggering mechanism, something that would prevent that? 

Mr. SPOTH. I can take an initial stab at that. One of the things 

that we think about when we see that is to recall—and I referenced 

earlier—how strong the Georgia economy was, and for the Georgia 

banks, the high capital ratios that existed at that time, say in 2006 

and into 2007, and the high earnings. All this was largely driven 

by real estate, which masked the levels of exposure that were going 

21 

on, both to examiners, I think, and to the bankers. So we look at 

techniques and perhaps go back to our 2006 guidance and see if 

there is something that we could or should do different there. What 

we know is that it is not necessarily the level, although we have 

talked about it some here, it is not necessarily the level of construction and development loans; it is also the management of risk 

around the loans. So it is a two-part story, and it is complicated, 

but I think that some of the solution is to look at risk practices. 

Mr. SCOTT. Let me just ask one because here in Georgia—I want 

to bring one incident to illustrate, particularly some of the requirements on what is known as asset writedowns. Let us just take the 

situation with a bank that was called Buckhead Bank, and it was 

run by a friend of mine, Charlie Loudermilk, who was the chairman and talked to me about that, to see what we could do. 

Is there a consistent procedure in place for asset writedowns in 

terms of the amount of cash capital that bank has to go and raise 

and are there too restrictive requirements on where they can go or 

cannot go to raise that capital? Because I think that is at the core 

of a lot of the problems with why some of the banks went down. 

There were very strong, stringent requirements on certain standards that might not—that it seems to me could have been adjusted. 

I think that some of these banks really had no business failing if 

we were more on the case and were adapting procedures that fit 

tough economic times as opposed to just bringing down the hammer. And one of those is the asset writedowns. And if we are going 

to get a troubled bank to have to go and to raise capital, there 

ought to have been some elasticity there. I do not know the particulars, but I think there is so much you could get from shareholders, 

or non-shareholders, there had to be—could you address that? 

Mr. SPOTH. I will be happy to touch on that. At the beginning, 

what we try to do when a bank gets in— 

Mr. SCOTT. Specifically, if you could refer to that case. I know 

somebody here dealt with the Buckhead case because if you did not 

and did not know about that, that is another part of the problem. 

Were you familiar with that case or the closing of that bank? 

Mr. SPOTH. I am. I cannot recall right now the details of that 

bank. I would be happy to look into it and get back with you on 

the specifics of that case. I can talk generally about what we do 

when a bank’s viability is threatened or when its closure is near 

because of its insolvency. I can talk about that kind of corrective 

program. I just cannot remember the story behind Buckhead at 

this moment. 

Mr. SCOTT. All right, before you leave, some of our banking 

friends come and tell us that they fear retaliation. Could each of 

you respond to that? What is that about? Why is there a fear 

among the bankers of retaliation just to come forward publicly? 

Where is this fear coming from and what is this retaliation? 

Mr. BARKER. Congressman Scott, let me first address the comment itself, and I think that it is very understandable that examiners have considerable power, and each one of the regulatory 

agencies have considerable power over the institutions themselves. 

We have the opportunity to make recommendations to the board of 

directors, we have the opportunity to assess fines and penalties, to 

22 

pursue enforcement actions. We have a great deal of authority over 

the institutions themselves. 

I think in recognizing that, there is concern about what will happen if there are disagreements or arguments over different opinions 

that are expressed during the course of an examination. But I can 

tell you in the strongest terms—and again, I operate in the Dallas 

office and supervise this region, that it has been emphasized a 

great deal that there is no retaliation that will take place in any 

of our supervisory activities. I am as concerned about that as I am 

anything else that we do. We have active involvement with the institutions themselves, with the bankers associations, I meet with 

the institutions, and we are very concerned about any kind of feedback or comments that would suggest any kind of retaliation. 

Mr. SCOTT. What would that retaliation be? How would any of 

our Federal regulators—each of you sitting there are regulators— 

what would be a retaliation? How would that happen? It is a part 

of the culture there, we hear it all the time, so we might as well 

get it out in the open so we can correct it, so we do not deal with 

it. What are some of the—could you describe an action that would 

be considered retaliation that our bankers would have to worry 

about, from an examiner? 

Mr. BARKER. Again, I go back to concerns about what actions the 

regulators could pursue. For example, fines and penalties and violations and weaknesses could all be cited in an examination report. 

Again, we have a series of checks and balances that take place to 

make sure that does not happen. And again, I cannot emphasize 

enough that any kind of retaliation, it is a four-letter word, it is 

identified as something that we just will not allow to take place in 

any of the institutions. 

Chairwoman CAPITO. Would anybody else like to comment on 

that? 

Mr. BERTSCH. I would just add on the question of retaliation, we 

take it very seriously too, and would not tolerate it. We have an 

ombudsman function in Washington that is separate and distinct 

from our supervisory function that can investigate any specific 

cases that people identify of retaliation. That ombudsman has the 

ability to investigate through the Reserve Banks and identify any 

cases that might rise to that and to take appropriate action if anything of that nature is identified. But as Gil said, and I know my 

other colleagues from the FDIC share this, we do not expect examiners to retaliate. We understand there are differences of opinion 

but we do not tolerate retaliation. 

Chairwoman CAPITO. Thank you. I am going to take the liberty 

of having another round. I am going to have one quick question. 

All three of you have mentioned guidance as a policy, guidance 

from Washington to try to spur lending. I know that guidance is 

different than regulation and this is maybe Washington bureaucratic speak, but it has great impact I think in terms of how it is 

carried forward. So I would ask you, how do you distinguish guidance from regulation, and then if guidance is a weaker form of regulation, more as an advisory opinion, how do you follow up with 

that in terms of your quality control to make sure it is consistent 

across all regions and all types of institutions and lending practices? 

23 

So I will start with you, Mr. Bertsch. 

Mr. BERTSCH. As I touched on in our testimony, we have done 

a number of things to try to look specifically at how the examiners 

are implementing the guidance. So one of the things we have to do 

is rely on our local reserve banks to monitor the work that the examiners are doing and take into account their knowledge of the 

local business market, their conversations with bankers, and make 

sure the examiners are taking a balanced approach to looking at 

loans. 

Beyond that, we have done specific testing to look at the particular area that seems to be raised most frequently, which is concerns about how we are treating commercial real estate loans. And 

so we took a look at a large sample of those loans across the country to see how our examiners were treating them, compared that 

to the guidance that we set out and make sure that the examiners 

were consistently following that. 

Chairwoman CAPITO. What did you find? 

Mr. BERTSCH. We found that in our opinion, the examiners were 

carefully following that guidance. And in many instances were giving bankers reasonable and, for good reason, benefit of the doubt 

on loans that they reviewed when there were pending actions or 

there was additional collateral that was going to be offered, or 

things of that nature. So we conclude from that—and we continue 

to test that—that the examiners are hearing the guidance and that 

they understand that we need to be careful to consider and listen 

to what the bankers have to say when we are making our classification determinations. And we think that the guidance is effective, regardless of the fact that it’s not regulation, as you mentioned. 

Chairwoman CAPITO. Right. Mr. Barker? 

Mr. BARKER. Madam Chairwoman, I guess the way I would respond to your comment is the difference between guidance and regulation, that specific point itself, because issuing guidance provides 

a lot of flexibility for the institutions to be able to take an approach 

and implement what the intentions and the objectives of the guidance actually is. So it is very much a principles-based rather than 

rules-based approach, which I think again allows the institutions 

to go ahead and adopt policies, develop business plans, and it provides them some flexibility in how they comply with the regulatory 

issuance that is out there. I think that is very important because 

banking is an innovative, creative process and we see that take 

place all the time and it is up to the experience of the examiners 

to make sure that guidance is being followed, that the risks are 

being identified and that the controls are in place to minimize that 

risk. 

Chairwoman CAPITO. Thank you. And then, anybody at the FDIC 

on that point? 

Mr. SPOTH. I think I can probably comment for both of us there. 

The guidance does not have the force of law. 

Chairwoman CAPITO. Right. 

Mr. SPOTH. It is a communication vehicle with the industry and 

our examiners, and during the tough times that we have here— 

particularly we are all talking about the same main three pieces 

of guidance—trying to convey a message to both the bankers and 

24 

the examiners about what the expectations are. So we expect sound 

loans to be made. 

Chairwoman CAPITO. I expect we will hear from the second panel 

that in the three guidance areas maybe the guidance is, on the one 

hand, one thing, and then when the rubber meets the road, so to 

speak, it ends up converting into something else. 

I will just make a quick comment and then go to Mr. Bachus. 

When I hear bank failures and folks taking over assets, it is consolidation. We just went through too-big-to-fail in a big way in this 

country and certainly the community banks were not the problem. 

But I, as chairwoman of the Financial Institutions Subcommittee, 

am beginning to get very concerned about bank consolidation, because from what we are hearing, the institutions are getting larger 

and larger. And from a lessons-learned aspect, I am not sure—I 

need to be assured that is the direction we need to go and that you 

all as regulators are overseeing this as a potential red flag. 

So I just put that out as a comment, a source of concern. I think 

most of my colleagues share this and certainly some of the controls 

that were put in place in Dodd-Frank, whether it is the FSOC or 

some other things to look at, kind of over the horizon, systemic risk 

areas, are still very unformed and, I don’t know, they do not make 

me sleep all that great at night. And then when you see the markets just going crazy here, particularly with the financial institutions, it is a source of concern. 

Chairman Bachus? 

Chairman BACHUS. Thank you. 

I would say this to the regulators, but also to the audience, it is 

very difficult here on Main Street, the environment, the demographics, the economy, the loss of jobs. It is also, I think, a very 

difficult time for regulators and they have many challenges there. 

You will hear sometimes as a Member of Congress conflicting information even from the bankers or from the borrowers. You talk to 

a borrower and sometimes he will say that the banks say the regulators don’t want me to make that loan. And let me say this, it is 

not up to a Member of Congress to tell people or encourage people 

to make loans or not to make loans. That is certainly not our job, 

ethically. But when we have made inquiries as to just what is the 

situation here, a lot of times the bankers tell us that they do not 

want to make the loan and they actually do sort of shift that by 

saying—and it is an easy answer to say—we are afraid of the regulators. And that is often the case. 

I know many bankers will maybe tell you that is not the case, 

but I have had some of them who have said that is the case. Not 

that they intentionally do that, and maybe it is someone, a loan officer who is saying that, not someone in management. 

Mr. Barker, you, as a District Director, are in the banks quite 

often. And I think Mr. Westmoreland mentioned something—Mr. 

Spoth—and Mr. Edward, you have been on the job since January— 

and you are actually in Washington and you supervise the District 

Directors, so they are going into the banks. But I think maybe Mr. 

Westmoreland has hit on something in that I think—I believe it 

could be beneficial to sometimes go with the District Directors or 

even the bank examiners and listen. Oftentimes, my staff will meet 

with constituents and then I will talk to constituents and the staff 

25 

will think they are getting the message, but I may actually say, I 

think we can do something. 

I would actually encourage you to do that because we sometimes 

don’t—at the Washington level, they say they are sending a message to the bank examiners, the bank examiners on the local level 

sometimes feel as if it is Washington, that if they do something, 

they may have a problem with Washington. And it is very difficult 

for us as Members of Congress or for bankers or for borrowers to 

know exactly if there is a problem or where there is a problem. 

I will close by saying that—and I know for many of the bankers 

here, this may not be a popular thing for me to say, but I am going 

to say it anyway, because I do not run in this district. 

[laughter] 

One of the bankers in my district who was the most critical of 

the bank regulators, vehemently critical, and was always calling 

with various examples of overreach, I had been told a year before 

by other bankers that that bank had done all sorts of imprudent 

lending and that there was no way they were going to pull out. And 

they were closed, at a considerable loss to the taxpayer and to some 

depositors who, during that period of time, came in and deposited 

money above what their protection rates were. And to the last day, 

I was being told that this bank was in great shape, by the management. But everyone else realized that was not the case. 

That is human nature to say that someone else caused your problem. The bottom line is the regulators may have made mistakes, 

but I do not think in many cases they forced the failure of banks. 

They may not have done everything that they could have, they may 

not have done a perfect job. And I worry going forward the level 

of regulation and the cost of regulation and Dodd-Frank is going 

to—the interchange fee on debit cards, of all things, which impacts 

community banks particularly—is going to be another hurdle for 

our community banks. And I know the Fed has been outspoken on 

that and very concerned about it, that it would be a problem. 

Credit cards were not addressed on the interchange fee. Those 

are the seven largest banks. So we have had—that provision that 

only dealt with debit cards is going to make the—it is not a level 

playing field between our community banks, regional and community banks, and our largest institutions. 

So I would just simply say to you I think more communication 

always helps. I appreciate the fact that the FDIC sent its top people from Washington. It was good that we had a District Director 

from the OCC because it is a slightly different point of view, and 

I think they were both good. But I would encourage you, with Mr. 

Westmoreland and Mr. Scott, to look at their legislation, offer comments to them, if you have a provision that you think is a problem. 

But if you can work with them on this, at least sit down and see 

if you can agree. 

I appreciate your attendance today and it is not—we are not one 

big happy family, we are never going to be, but we are all Americans, we are all concerned about the economy, we all want the financial system and the American people to prosper. So we are all 

on the same page, we all want the same goals. But as you will 

probably find out on this second panel, they do not consider you 

family. But they should not, because you are not there to—you 

26 

have a duty you have to discharge. It is not always popular, but 

I do—as I appreciate the challenges with the bankers, I appreciate 

the challenges you have, too. 

I have no further questions. 

Chairwoman CAPITO. Thank you. 

Mr. Westmoreland? 

Mr. WESTMORELAND. Thank you. To the gentlemen from the 

FDIC, can you both confirm to me for the record that no one on 

the FDIC asked any Senator in the United States Senate to hold 

H.R. 2056? 

Mr. SPOTH. May I take some liberty with that question, to offer 

our support. For one, we think it is the right thing to do, to have 

our Inspector General and anyone else look over the FDIC’s operation. We support that initiative and are happy to work with it. 

Mr. WESTMORELAND. So if anybody told us that, they were mistaken? 

Mr. SPOTH. I would not know about that. 

Mr. WESTMORELAND. All right. Mr. Barker, in your testimony, 

you said, ‘‘Thus, a key part of our job is to work with bankers to 

ensure that they recognize and address problems at the earliest 

possible stage when remedial action is likely to be most effective. 

The simple truth is that seriously troubled banks cannot effectively 

meet the needs of their local communities.’’ 

And you testified or spoke that you had gone I think to three 

banks that eventually went. What prior steps had been done, what 

remedial actions had been taken to get them back on the road I 

guess to recovery. And how long back had those remedial actions 

been put in place before the failure? 

Mr. BARKER. I think that in every single case where we have a 

bank failure, examiners are responsible for conducting examinations on a routine basis, based on the size of the institution. Once 

we identify problems at an institution— 

Mr. WESTMORELAND. But how many of those banks—had there 

been problems identified with those banks that you visited? 

Mr. BARKER. Yes. 

Mr. WESTMORELAND. And how far back had those problems been 

identified? 

Mr. BARKER. Varying degrees. 

Mr. WESTMORELAND. Okay. Because we have bankers telling us 

that the OCC comes in and they get an A+ on their report card and 

then the next report, they not only get an F, they are called everything but a felon. 

How often do you do examinations on banks? 

Mr. BARKER. Depending on the size, either 12 or 18 months. 

Mr. WESTMORELAND. Okay, 12 or 18 months. So, one year, you 

make all A’s and then the next year, you get F’s, you are called everything but a felon and you make a D in conduct. Now somewhere, somebody missed those remedial steps I guess, because I 

don’t know how it goes from an A+ to an F in 12 months. 

Mr. BARKER. Let me say a couple of things. One is that the 

uniqueness of the Georgia markets included, as was spoken before, 

the size of the concentrations in commercial real estate and I think 

what has not been spoken is the significant economic impact that 

hit at one particular time. In the past, it was a slow downturn or 

27 

the economy slowed, but it was just a significant economic event 

that just completely shut down the markets in Georgia. So it happened very, very quickly. 

As part of our supervision, we not only examine banks once every 

12 or 18 months, we have quarterly contacts with the institutions. 

And the purpose is to do those very things, to highlight trends in 

financial condition, to talk about new products and services— 

Mr. WESTMORELAND. I understand. And I am not trying to cut 

you off, but some of these loans that are now F’s were A’s. It is just 

hard for me to believe a loan goes downhill that fast, especially 

when it is a performing loan. 

But I want to get back to the FDIC because I know we are running out of time. How often do you take a performing loan with a 

failed bank, and when it comes into receivership of the FDIC, how 

does it become a non-performing loan? 

Mr. BRET EDWARDS. Are you talking a bank fails and the loan— 

Mr. WESTMORELAND. The FDIC took over as a receivership. 

Mr. BRET EDWARDS. Okay. If a performing loan goes into receivership, it would depend on where it gets managed obviously, but 

you are asking how it would become non-performing? 

Mr. WESTMORELAND. No. What do you do with it? 

Mr. BRET EDWARDS. With a performing loan? 

Mr. WESTMORELAND. When a performing loan comes in. 

Mr. BRET EDWARDS. Sure. Again, we have tried to use the whole 

bank structure as much as possible, so the performing loan would 

be sold to the acquiring institution and become an asset of that institution. 

Mr. WESTMORELAND. The FDIC is the receivership—no? 

Mr. BRET EDWARDS. Okay. If there is no acquiring institution, 

then we would take that onto the receivership’s books and we 

would manage it—either manage it ourselves or package it into a 

package to sell, or perhaps to put into a limited liability structure 

to have— 

Mr. WESTMORELAND. Okay. But the rules and regs that we are 

supposed to be, as the chairman said, at least applying consistency, 

if you go in and put a bank in receivership yourself, you work out 

these loans or at least you should be following your own guidelines 

to work out these loans, but isn’t it true that most loans that the 

FDIC wants to modify, they want 50 percent of loan to value? 

Mr. BRET EDWARDS. I am not familiar with that requirement. 

Mr. WESTMORELAND. Okay, so that is not a requirement? 

Mr. BRET EDWARDS. No. 

Mr. WESTMORELAND. That it would be 50 percent. So you would 

be more than willing to help somebody with a loan that the FDIC 

had, to soften the blow, to do what you are encouraging other 

banks to do, to have shared-loss agreements, you would be willing 

to go in and do that? 

Mr. BRET EDWARDS. What I described earlier about our expectations on acquiring institutions when they take over these loans 

under a loss sharing agreement, we follow exactly the same standard. We are going to look at a performing—if a loan becomes nonperforming, we are going to look at the alternative disposition 

strategies and we are going to follow the one that we believe is 

going to minimize the loss. 

28 

Mr. WESTMORELAND. Okay. Let me follow up for just a minute 

here. With Rialto being a partner of the FDIC, Rialto is a group 

of people, I think out of Florida, that has partnered with the FDIC, 

correct? FDIC, 60 percent partner? 

Mr. BRET EDWARDS. That is correct. 

Mr. WESTMORELAND. They are 40 percent. They purchased $3.2 

billion worth of loans I believe from the FDIC—and you are a partner, right? 

Mr. BRET EDWARDS. Yes. 

Mr. WESTMORELAND. —for about 40 cents on the dollar. 

Mr. BRET EDWARDS. Okay, yes. 

Mr. WESTMORELAND. And I think the actual money they put in 

cash, 300 and some million dollars, was about 8 percent of that, 

right? 

Mr. BRET EDWARDS. Okay, yes. 

Mr. WESTMORELAND. And you are a partner with them? 

Mr. BRET EDWARDS. Right. 

Mr. WESTMORELAND. It is zero percent interest for 7 years, is 

that correct? 

Mr. BRET EDWARDS. I believe that’s right. 

Mr. WESTMORELAND. So the taxpayers—let me get this straight, 

we are a 60 percent partner and we took on another entity, an 

LLC. They got the stuff with just cash money for about 8 percent 

down, right? Would you do that for anybody else out in the audience there who wanted to do that? 

Mr. BRET EDWARDS. When we put those LLC structures together, 

we put— 

Mr. WESTMORELAND. No, I am just asking you, would you do that 

with anybody else out there? 

Mr. BRET EDWARDS. Anybody who is qualified to bid on those 

kind of structures. When we put those— 

Mr. WESTMORELAND. So if they had 8 percent of what the deal 

was, you would take them on as a 40 percent partner? 

Mr. BRET EDWARDS. As long as it is the highest bid for the— 

Mr. WESTMORELAND. I am sorry? 

Mr. BRET EDWARDS. When we put those deals together, we take 

those assets, put them together in a pool, we bid them out competitively. 

Mr. WESTMORELAND. Okay, so your 40 percent partner was just 

lucky to get the bid? 

Mr. BRET EDWARDS. We think we do an excellent job of marketing these things— 

Mr. WESTMORELAND. I know, but I am just asking you. 

Mr. BRET EDWARDS. Yes. 

Mr. WESTMORELAND. Because it sounds like a sweetheart deal, 

and all these people may want to get involved with you to be able 

to do that. 

[applause] 

Mr. WESTMORELAND. And let me ask you this— 

Chairman BACHUS. It was bid, though. 

Mr. BRET EDWARDS. Correct, that is absolutely right. 

Mr. WESTMORELAND. I don’t care. With all due respect, Mr. 

Chairman. 

Chairman BACHUS. I know. 

29 

Mr. WESTMORELAND. When you go and buy other people’s loans 

that are supposed to be in the constant consistency of what we are 

doing, that is supposed to soften the effect on the community and 

work them out, now they are auctioning them off. And let me go 

one step further. Typically, you would foreclose on a property if it 

was a non-performing loan? 

Mr. BRET EDWARDS. If that is the best disposition alternative 

after we have done the analysis. 

Mr. WESTMORELAND. Okay. Would the best dispositional thing to 

do be to go immediately to court and file for a judgment and let 

the borrower continue to accrue interest and let the borrower be responsible for the taxes, rather than foreclosing and taking the 

property over and putting it back out and selling it. Would it be 

the FDIC’s decision, since you are a 60 percent partner, to go to 

court first and go after these people personally, because we are 

wanting to do a consistency of the regulations? So it is the FDIC’s 

position that their managing partner go to court first, sue these 

people personally, try to get control of the property and even 

though they have control of the property, the borrower is still responsible for the taxes and the interest? Is that what I am hearing 

from you? 

Mr. BRET EDWARDS. It sounds like this is a fact-specific situation. 

I would be happy to talk to you about that. 

Mr. WESTMORELAND. You know the situation, I mean it is Rialto. 

Mr. BRET EDWARDS. Right. I will tell you that the LLC structure 

has served the FDIC well. We take the loans— 

Mr. WESTMORELAND. You are a 60 percent partner. 

Mr. BRET EDWARDS. —we put them out for bid. 

Mr. WESTMORELAND. You put them out for bid and then do you 

tell them to go straight to court? I am not going to argue with you 

here, but we are going to look further into this because I am telling 

you, there is something that is not right with it. 

[applause] 

Mr. WESTMORELAND. And we are going to continue to pursue it. 

Chairwoman CAPITO. Mr. Scott? 

Chairman BACHUS. Mr. Edwards may want some time to explain. 

I know he was kind of— 

Chairwoman CAPITO. Mr. Edwards, did you have another response? 

Mr. BRET EDWARDS. Again, let me just explain. Our LLC program is essentially designed to keep as many of the assets in the 

private sector, just like the shared-loss program is. If we are incapable of getting a loss share deal or a whole bank deal first of 

all and then a shared-loss deal, we then take those assets back 

onto the books of the receivership. Rather than manage those assets ourselves with our own employees, we put these assets into an 

LLC structure. These equity partners bid competitively to get a 

piece of that deal and then they have their own capital at risk. 

Again, they are putting up substantial amounts of capital, these 

are not—these are some of the most poor quality assets we have 

and they are incented to follow the same disposition strategies that 

we would or our loss share partners would. It is their money at 

risk, they are going to follow the disposition strategy that has the 

highest net present value for that asset. 

30 

Chairwoman CAPITO. Thank you. 

Mr. Scott? 

Mr. SCOTT. Thank you. 

Let me ask you, are there any banks now currently, in your opinion, or your understanding, that are in trouble or close to closing 

now that are under review? 

Mr. SPOTH. Yes. 

Mr. SCOTT. And how many would that be? 

Mr. SPOTH. The problem bank list has 888 on it, it has been 

trending down some. Not nearly all of those do we expect would 

fail. There is a subset of those, there is a possibility that some of 

those could fail, not all of them will. 

Mr. SCOTT. But relative just to Georgia, how many? 

Mr. SPOTH. I do not have that information. 

Mr. SCOTT. But there are some? 

Mr. SPOTH. There are banks struggling in Georgia, yes. 

Mr. SCOTT. And if you had to put your hand on one basic area 

that was a causal effect, what would that be? Why? 

Mr. SPOTH. This is still the workout of the overhang in the real 

estate markets. 

Mr. SCOTT. One of the problems that we have that I would like 

for you to address is that we get to hear from our friends in the 

banking community when we ask them to lend more. We faced it 

most recently, a lot of closing of car dealerships, for example, and 

their biggest problem was we would go to the bank, we could not 

get the money, we would go to the bank and when we get to the 

bank, the bank would say, we are not lending, we cannot lend because of the overly restrictive standards and application of regulations that the FDIC, the Office of the Comptroller, the Fed, all the 

regulators, examiners, are putting on us. Do you agree with that? 

Is that a fact? 

Mr. SPOTH. No. I do not doubt that it is a fact that you are hearing it, but I do not think that it is a fact that it could be occurring 

that way. 

Mr. SCOTT. You mean you do not feel that what you are doing 

is hindering the banks from lending money? 

Mr. SPOTH. That is correct. 

Mr. SCOTT. Why would they say that it is then? That is what I 

mean; there is this disconnect. We cannot get the banks to lend because they say you are putting so much pressure on with these restrictions that they cannot lend and then you say these restrictions 

can. So something has to give, we have to get the money out into 

these small businesses. 

Mr. SPOTH. I think this may go back to the chairman’s point 

about the guidance and the like. This is why, along with the other 

regulators, we would put out guidance that we are encouraging 

loans to creditworthy borrowers, and that goes right to, if it is a 

car dealership, do they have the ability to cash flow whatever kind 

of loan that they are applying for. We are happy to see those kinds 

of credits made. 

Mr. SCOTT. But let me just ask you, what are these restrictive 

standards? What would they be? What are the bankers talking 

about? I do not think they are just making this up. There has to 

be something that you are doing. What is it—I am trying to get at 

31 

a point, not sort of he said-she said, but what in your opinion are 

they talking about in terms of these restrictive standards? 

Mr. SPOTH. I will try to work with you on that. It is a communication piece, I think. The only banks that are restricted on the 

amount of lending that they can do, unless it would be State law, 

there are limits on how much you can lend to any borrower, but 

setting that aside, the only restrictions that are on banks are 

banks that are in serious trouble, and we usually have a formal or 

informal agreement with them about how they plan to work out 

their problems. Even then, you would not usually see the kind of 

restrictions that you may be hearing about. 

Mr. SCOTT. Let me ask one for you to respond to. There have 

been complaints about the consistency of procedures used by examiners for appraising collateral values. Is that, in your opinion, legitimate? Is there a problem of not being consistent in applying 

those procedures? 

Mr. SPOTH. Our procedures at the FDIC, and I think the other 

regulators as well, are to review the appraisals that the bank itself 

has gotten. So you would not be expecting, and you would not see, 

a bank examiner conducting appraisals. We may ask about an appraisal or an evaluation that a bank has in its files, but— 

Mr. SCOTT. And so you do not see, there is no legitimacy to the 

concern that there is inconsistency in the procedures? 

Mr. SPOTH. I don’t think there is inconsistency in the procedures, 

but I do hear the concern. It is certainly true that there is a concern about that. We put out guidance specifically on this issue. I 

think it was in December of 2010 that we reissued appraisal guidance. 

Mr. SCOTT. What about the factors that the examiners consider 

when assessing capital adequacies? 

Mr. SPOTH. The assessment of capital adequacy is a case-specific 

situation, according to the risk profile of the institution, unless 

they are not meeting the absolute minimum standards of the regulation. So there is a minimum standard, as you know, and there 

may be a requirement above that, depending on the risk profile. 

Mr. SCOTT. What about the impact of the cease and desist orders? 

Mr. SPOTH. This is one that we do hear a lot about when banks 

are in troubled condition. We try to work with the bank management to reach a bilateral agreement, which would include, if we 

agree, that an increase in capital is necessary, and we try to agree 

with the bank on what that number should be. And we think what 

that leads to is a consistency of approach. If the bank has to talk 

to their existing shareholders or new shareholders, what exactly is 

the road map forward. So if we can agree on an order, which we 

do substantially all of the time, everybody knows what the road 

map is to avert that failure. 

Mr. SCOTT. Okay. And so what would you say, because the bankers are going to come up here and speak in the next panel, I would 

like to give you an opportunity, what would you say—we have 

asked questions here, and there are two thoughts of opinion here. 

There are areas of disagreement. I think you saw and heard some 

of the reaction from the audience with their applause in making a 

point, but there seems to be some difference here. You are the exVerDate Nov 24 2008 17:48 Mar 15, 2012 Jkt 067949 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 K:\DOCS\67949.TXT TERRIE
32 

aminers, you are the regulators, they are the banks. What would 

you say to the bankers, what do they need to do that they are not 

doing, and where are some of the miscommunications that are taking place, because there obviously is miscommunication here? How 

would you address that? 

Mr. SPOTH. I would just stipulate that these are the very toughest conversations that a regulator and a banker can have, if the 

bank is in a seriously threatened condition. Investors could lose 

money, borrowers, communities could potentially lose their local 

community bank. These are the very toughest conversations you 

can have and you would expect that informed people on both sides 

of the table would be trying to come to a solution. And I believe 

that is the case substantially all of the time. So it is getting around 

to just what you are asking, what needs to be done. Usually if capital has been depleted, it will need to be replaced at some level so 

that the institution has time to work out its issues. 

Mr. SCOTT. Yes? 

Mr. BARKER. I would like to make a couple of comments. In my 

experience over the years, we have difficult times like this, but 

there are institutions that not only survive, but those that thrive. 

And there are two elements in those two individual cases. One is 

a management team that recognizes the issues and is prepared to 

address them. The second issue is having access to capital in order 

to have them last through the difficult periods. The access to capital is really a key. 

But I think what I would pass along to the bankers who are coming up next is as examiners, our window into the bank, our window 

into their borrowers is through the credit files and through the discussions of management. So the best they can do is to help us understand what the situation is, help us to see the things that they 

see, have that dialogue, and the communication is critically important to us making accurate assessments. 

Mr. SCOTT. Finally, I don’t want to take up too much time, but 

Congressman Westmoreland and I are working on this bill and in 

the legislative process, you are always looking for vehicles. And 

while the paramount purpose of this bill is to really get a good 

study and get some answers to questions, and we can also use 

this—as a result of this hearing, there may be some things that 

come about where we can improve the situation and that is why 

I really asked those questions about some of the points and some 

of the concerns that have been raised. And I would hope that you 

all would have an open mind here that as we get back, the bill gets 

over to the Senate, that we might be able to add one or two items 

into this bill that can be executed to help with one or two of these 

problems. Would you all be amenable to that? 

Mr. SPOTH. Yes. 

Mr. SCOTT. Okay, thank you. 

Chairwoman CAPITO. All right, thank you. I want to thank the 

first panel. I think we have had a very good discussion. I want to 

thank you for traveling to Georgia and I want to thank you for— 

Mr. WESTMORELAND. May I make one comment? It will take 5 

seconds. 

Chairwoman CAPITO. He said 5 seconds. 

33 

Mr. WESTMORELAND. Mr. Edwards, could you just get me a list 

of every entity that the FDIC is in partnerships with? 

Mr. BRET EDWARDS. Absolutely. 

Mr. WESTMORELAND. Thank you. 

Mr. BRET EDWARDS. Absolutely. 

Chairwoman CAPITO. And also, I would like to echo the chairman’s comments in terms of thanking you for your service in the 

financial sector, I know sometimes it is not easy work, and we appreciate that. You have certainly had lengthy service there. 

My final comment before I call the second panel up would be that 

one of the big solutions to a lot of the issues that we have heard 

today is a roaring and vibrant economy. And this is something that 

we are all four here tasked with, but so is everybody in this audience. So I look forward to those days in other such hearings. 

Thank you all very much. I will dismiss the first panel and I 

would like to call up our second panel of witnesses. 

We will go ahead and get started. If everyone could take your 

seat quickly, we will go ahead and start the second panel. They 

have been very patiently waiting. I know the chairman will be back 

in the room—there he is. 

Chairman BACHUS. Madam Chairwoman, Mac Collins, who was 

a colleague of mine, we came into Congress in 1992 together—Mac, 

would you stand up? You represented this district? 

Mr. COLLINS. I had the pleasure of representing this district for 

12 years. It is in good hands now with Lynn Westmoreland. We appreciate you all being here; this is an issue that really needs to be 

addressed. There are a lot of problems around the country with our 

community banking system and I do think a lot of it has come from 

the regulators. In fact, I know it has. And I appreciate you all 

being here, and I appreciate them being here and facing up to the 

issue, too. 

You all take care and have a good day. I hate to beg off, but I 

have to go to Forsyth for a conference. 

Chairwoman CAPITO. Thank you, Mac. 

Our colleague, Mr. Scott, probably will be coming in here shortly. 

So with your permission, I am going to go ahead and start. I will 

introduce each panelist individually for the purpose of giving a 5- 

minute opening statement and then we will get to the question portion. 

Our first witness is Mr. Chuck Copeland, who is the CEO of the 

First National Bank of Griffin. Welcome. 

STATEMENT OF CHUCK COPELAND, CEO, FIRST NATIONAL 

BANK OF GRIFFIN 

Mr. COPELAND. Committee Chairman Bachus, Subcommittee 

Chairwoman Capito, and Representative Westmoreland and Representative Scott in absentia, welcome to my congressional district 

and thank you for affording me the opportunity to provide my comments during these times which have been so detrimental to our 

communities. 

First National Bank of Griffin is a 78-year old community bank 

chartered in Griffin, Georgia, in 1933, literally rising from the 

ashes of the 1929 financial collapse, to serve the citizens and merchants of our community. For all of these 78 years, service to and 

34 

access to credit for our citizens and merchants have been our principal tenets of business. 

Being located less than 50 miles from downtown Atlanta, our 

community has served as a long-time bedroom community for those 

commuting daily into Atlanta for work. As such, as the metro Atlanta economy prospered in the 1990s and early 2000s, the demand 

for housing in our banking markets blossomed. Being a community 

bank, we responded to this by providing both construction and development financing to many of the builders and developers. We 

provided responsible conventional long-term mortgage financing to 

many of the home buyers through our longstanding, direct-delegated authority through Freddie Mac. We did not knowingly participate in the subprime game of hybrid loan structures and perilously relaxed mortgage underwriting standards and we often questioned the soundness and appropriateness of those activities. What 

we failed to anticipate in our risk management practices at that 

time was the degree to which this subprime activity was propping 

up the unprecedented demand for new housing our market was experiencing. We also failed to understand the degree to which misrepresentation and manipulation were masking huge fundamental 

flaws in the mortgage securitization market. 

We monitored our concentration risk in the areas of residential 

construction and development, comparing our levels against the 

regulatory guidelines, and against the levels of our market peers. 

Due to our 7 decades of retained earnings and careful and prudent 

past dividend policies, our higher than peer capital levels helped 

mitigate our risks, and our concentrations in these loans as a percentage of capital generally came in at the lower end of our market 

peers, which was not substantially out of line with regulatory guidance. Regardless of these circumstances, no amount of forward 

analysis or stress testing anticipated the depth and length of the 

real estate housing collapse we were about to face in the closing 

months of 2007. 

We were early to recognize our problems, mainly due to the fact 

that we had used loan structures which were more stringent than 

many of our peers. We commonly required hard equity and monthly payment of interest on our construction lines. In addition, it was 

the exception where we permitted borrowers to draw funded interest reserve to carry their development loans. Because of these practices, in many cases, we knew our problems the first time a monthly payment was missed as opposed to not discovering the depth of 

the problem until loan maturity. In spite of these efforts, the pace 

and magnitude of the residential collapse quickly overwhelmed our 

early warning devices. 

We are a core-funded community bank. As we entered the recessionary cycle, we enjoyed the number one deposit market share position in our home market and had no wholesale or brokered deposit funding on our balance sheet. In spite of the significant credit 

stresses we have endured over the past 4 years, we continue to 

demonstrate an underlying core earnings stream. In other words, 

once the cloak of this real estate collapse is finally lifted, our bank 

can not only survive, but prosper for another 78 years. 

I recognize that the title of this hearing is, ‘‘Potential Mixed Messages.’’ My frustration is not so much one of mixed messages, but 

35 

one of changing messages. As this cycle began, we sensed a reaction from our regulator of supportive cooperation. They knew our 

bank. Many of the field examiners had been in our bank through 

multiple exam cycles for as long as 25 years. The general message 

coming from examiner comments in 2008 was one of acknowledging 

that the same core fundamentals which had sustained our bank for 

decades were still evident, but that we had become victims of an 

unprecedented real estate market collapse. The beginning of the 

shifting message became evident when we received our written reports of examination, and many times the narrative seemed more 

harsh than the discussions. Unfortunately, it is the written narrative which becomes the written record, and the document by 

which we will all be judged in history. Did we have a role in setting 

ourselves up to become victims? No doubt. But did we recklessly 

pursue growth and earnings at all cost with no regard to the other 

elements of our mission? Never. 

Fast forward to subsequent exam cycles and we have found the 

field examiners less willing to disclose conclusions and very guarded in acknowledging progress in those areas where we had been 

performing well. These are many times the same examiners we 

have worked with for years. We understand that this is not a personal affront; it is simply this environment of second-guessing and 

weariness in which we are all operating. But as the field examiners 

have become less comfortable in making casual assessments of 

progress or acknowledgement of bright spots within our banks, 

such as our extreme customer loyalty and core funding, the written 

reports of examination have taken on a clear pattern of excessive 

criticism and legal edification. So much so that one can find nearly 

contradictory statements within the same paragraph or section of 

a current report. 

We understand our shortcomings, and you can rest assured that 

we are working diligently to improve our banks in the areas we can 

control and influence. But, the inflammatory and demoralizing tone 

found in many of the examination reports only tends to send us 

clamoring for cover. We are trying to improve our banks and preserve our chances of survival, not because of heightened rhetoric or 

threat of repercussion, but because for most of us, our banks are 

a substantial part of our being. We are the ones leading our community’s economic development activities and trying to attract jobs 

for our citizens. We carry the daily weight of knowing the importance of a paycheck to the roughly 100 people we employ in our 

bank. This is bigger than pride, deflection of responsibility, or selfpreservation. 

I have observed some of the testimony of the regulators and the 

academic experts in earlier hearings on the subject of regulatory 

practices or behavior. A recurring theme seemed to be the position 

that forbearance in regulation is inappropriate and would only lead 

to greater potential losses to the fund. I would argue that forbearance is a necessary and logical part of any healing process. And 

that is exactly what is taking place in our banks; we are attempting to heal our banks, our local economies, and where salvageable, 

our borrowers. That is why I support the flexibility being offered 

in some of the proposed legislation such as smoothing out the effects of loan and asset impairments resulting from declining real 

36 

estate values. The current methods of write-down being employed 

today have the potential to wipe out all of the capital in our banks 

with no chance of living to see the eventual real estate market recovery. Unfortunately, by that point, our community will have been 

stripped of a valued commodity. My bank and its resources will 

have been extinguished and the beneficiary will be a faceless, opportunist investor with no ties to my community. 

Chairwoman CAPITO. Mr. Copeland, could you kind of summarize 

the end there? Sorry. I’m trying to keep it in a reasonable timeframe. 

Mr. COPELAND. Certainly. 

In spite of the imperfections and the public’s general distaste for 

it, I was an early proponent of the TARP program. Unfortunately, 

our bank was not allowed to participate in that. This has created 

a system of two different classes of banks: those that can afford to 

and are motivated to dump problem assets at substantial discounts; and those of us who are clinging to our remaining capital 

like a shipwreck survivor clinging to debris. 

Theoretically, had we received the TARP funding which the funding formula indicated we were eligible for, our current leverage 

ratio would still be at a respectable 8.25 percent and our total riskbased capital at 15 percent. 

And with that theoretical capital level, I am sure it would be 

much easier for my bank to attract additional shareholder investment to bring us into compliance with the regulatory order my 

bank entered into with the OCC almost 2 years ago. The capital 

cushion would add badly needed flexibility as we consider loan requests from borrowers and we would find ourselves in a position 

to operate our bank for the benefit of our community, its employees, and the broader economy, as opposed to the regulatory paralysis which we suffer from today. 

Cycles eventually come to an end. We have endured this one for 

4 years. We realize that much of what has been done cannot be 

changed or its effect reversed. We kindly ask that through forbearance and flexibility, our regulators give us time and support us as 

we try to lead our communities to recovery. 

Thank you for your time. 

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

89 of the appendix.] 

Chairwoman CAPITO. Thank you. 

Our next witness is Mr. Michael Rossetti, who is president of 

Ravin Homes. Welcome. 

STATEMENT OF V. MICHAEL ROSSETTI, PRESIDENT, RAVIN 

HOMES 

Mr. ROSSETTI. Thank you, Chairwoman Capito. I would like to 

welcome you and Chairman Bachus to Georgia. And Lynn Westmoreland, David Scott, it is good to see you guys again. I sincerely 

appreciate the honor and the opportunity to testify before you on 

this subject. It is my opinion that our Representatives genuinely 

want to foster and promote a healthy banking environment so that 

citizens and businesses can prosper. 

I have been directly involved in the banking business as a director since 1999. And my primary business, as Chairwoman Capito 

37 

mentioned, is homebuilding. I have owned and operated Ravin 

Homes for 30 years. 

In your letter inviting me to testify, the first two bullet points 

request comments on the policies and procedures of the FDIC and 

whether they are being applied uniformly across the country. 

Although I have read about certain banks getting favorable treatment from regulators, I can say that my experience has generally 

been that they have acted reasonably with our bank. The problem 

is with the regulations and the lack of common business sense used 

in the interpretation of these regulations. We are being regulated 

so heavily that we cannot function as a facilitator in the community. 

When Sarbanes-Oxley was implemented, our bank decided to go 

private so we would be exempt from the duplication of regulatory 

reporting. We were already performing the regulatory requirements 

of the FDIC. The costs and manpower required to do redundant reporting under Sarbanes would have been crippling to our institution. 

Now, we have Dodd Frank to contend with. This a 2000+ page 

bill that will have 10 times the regulations attached to it after bureaucrats get through with writing all the rules. I see more of an 

issue with the amount of regulations rather than the regulators. 

We are being regulated to death in all of our personal and business 

lives. 

Your next point of interest concerns regional economic conditions 

and adjusting exam standards. 

In my banking world, as well as most banks in Georgia, real estate loans, which we call AD&C loans, were and still are a large 

part of our portfolios. In accumulating these large portfolios, the 

bank’s customers were simply supplying the product that the Federal Government, through Fannie Mae and Freddie Mac, were giving away money to buy. 

The current huge overhang that this created in all levels of housing development is going to take years to work down. If the regulators were able to adjust to this fact and be less onerous on banks 

to write down loans, I believe that the liquidation of assets would 

be more orderly and more lucrative and create considerably less 

stress on our banks. I will have more on this when I discuss loss 

share. 

The second to last point of discussion concerns safe and sound 

operation of banks while promoting economic growth. In my mind, 

there are two entities that need to be considered in the economic 

growth equation for this topic—the banks and their customers. At 

the present time, we are restricted from doing any new AD&C 

lending, no matter how secure it is, due to the concentration limitations imposed by the regulators. We cannot take advantage of 

doing a good loan and the customer cannot find a bank to do that 

same loan. Both get hurt and the economy loses jobs and suffers. 

My grandfather told me when I was younger that there were 

only two ways to get out of debt: stop spending; and start making. 

If banks are going to survive, we need to make a profit. And the 

only way that banks make money is to lend it. Right now, we are 

prevented from doing that. 

38 

Banks that are in this position, basically community banks, are 

completely defensive in this arena. As of this date, we do not lend 

unless it benefits the bank in the disposal of foreclosed property. 

New loans to new or existing customers do not exist at our bank. 

I would respectfully request that you investigate H.R. 1755, the 

Home Construction Lending Regulatory Improvement Act. It addresses this issue and several other regulatory issues that are very 

germane to our discussions here today. 

Now we have the last point in your letter, and my favorite— 

winding down failed institutions and the liquidation of assets by 

the acquiring institutions, which we will call loss share. 

This shared-loss agreement allows banks to operate completely 

outside of normal banking policies because they are guaranteed to 

make money, no matter what they sell the asset for. The same 

banks operate completely differently—and I have found this directly and heard this from other people—they operate completely 

differently under a loan that was originated in their original bank. 

To add insult to injury to our bank and the community, they will 

dump the assets acquired at a rock-bottom price, thereby destroying local property values. In my opinion, loss share has done more 

to destroy property values than any other economic factor in this 

downturn. 

Concerning troubled and failed institutions, from what I have 

seen, the FDIC declares that anywhere from 25 to 35 percent of the 

failed institution’s assets are declared as a loss when they close 

that bank. 

Using our bank as an example, we are a $380 million bank, the 

Bank of Georgia. If we were closed, the loss to the FDIC Insurance 

Fund would be between $95 million and $133 million. If our bank 

could borrow, or be supplied through TARP like Chuck mentioned, 

$6 million to $10 million to use as capital, we would return to 

being well-capitalized and we would be profitable. In addition, we 

would be able to pay this back over a period of time in the future. 

My point is that many banks could survive with a minimal— 

compared to closing the bank—capital injection. This is what 

should have been done with TARP funds instead of forcing them 

on healthy institutions and telling them that they were too big to 

fail. 

I also want to mention—it is not in my testimony, but Lynn 

brought up this Rialto/FDIC partnership. In my opinion, these public/private partnerships are terribly—they are perverted. That just 

leaves the door open for a private company to make a ton of money. 

And from what I have heard recently over the past 2 weeks of investigating this, that Rialto/FDIC partnership is bad news. And I 

would highly recommend that you investigate that. 

It is my sincere hope that my testimony today has given you a 

constructive view of these items of interest. Again, I would like to 

thank you for your time today and I look forward to answering any 

questions that you may have. 

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

142 of the appendix.] 

Chairwoman CAPITO. Thank you. 

Our next witness is Mr. Jim Edwards, the CEO of United Bank. 

Welcome. 

39 

STATEMENT OF JIM EDWARDS, CEO UNITED BANK 

Mr. JIM EDWARDS. Good morning. Chairman Bachus, Subcommittee Chairwoman Capito, Representative Lynn Westmoreland, Representative Scott, I am delighted to be here today. 

My name is Jim Edwards, and I am CEO of United Bank which 

is based in Zebulon, Georgia. I appreciate the opportunity to speak 

to you today concerning the state of banking in Georgia and our 

bank’s experience working with the FDIC’s shared-loss agreements. 

I want to tell you a little bit about our bank. United Bank’s corporate office is located 50 miles south of Atlanta and 40 miles east 

of where we are today in Newnan. I joined United Bank in 1993 

and I became CEO in 2002. I am proud to say that I represent the 

third generation of my family to work with United Bank and the 

banks from which it was created. I am active in both State and national bank trade associations and currently serve as chair-elect of 

the GBA or the Georgia Bankers Association, and also serve as a 

member of the American Bankers Association Community Bankers 

Council. 

United Bank traces its roots back to the founding of its predecessor, The Bank of Zebulon, in 1905. Over 100 years later, more 

than 90 percent of our company’s stock continues to be owned by 

our employees and our directors who live in and care very deeply 

about the local communities that we serve. We operate 21 banking 

offices in 11 contiguous counties ranging from 35 to 65 miles southwest, south and east of Atlanta. Our total assets are just over $1 

billion and we offer traditional banking services along with mortgage, trust and investment products. We are pleased that we have 

been able to grow our employee base through this economic downturn and we now provide jobs and benefits to nearly 400 people 

and their families. 

The economic downturn which Georgia and our entire Nation 

have endured over the last several years has created the most challenging operating environment for banks that I have ever experienced. United Bank has historically maintained above-average capital levels and worked to make sure that our loan portfolio was 

well-diversified among different types of lending. This conservative 

philosophy has served our company well during the past century of 

operations. This same cautious approach encouraged our board to 

make the decision to apply for the Capital Purchase Program 

funds, more commonly known now as TARP, from the U.S. Treasury in late 2008. After a rigorous application process, we were approved for a little over $14 million in funding. Even though we 

were already well-capitalized at the time, the new capital has provided an additional buffer in what has certainly been a worsening 

economy, and has allowed us to maintain our employment and continue to make loans to qualified borrowers in the communities that 

we serve. 

Since accepting this funding in 2009, United Bank has paid just over $2.6 million in quarterly interest payments at an approximate 

rate of 8 percent to the Treasury. Our current plans are to begin 

repaying our TARP funding in May of 2012, assuming the economy 

begins to improve by then. 

United Bank has acquired 3 failed banks from the FDIC during 

the last 3 years. We purchased the deposits in all these transVerDate Nov 24 2008 17:48 Mar 15, 2012 Jkt 067949 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 K:\DOCS\67949.TXT TERRIE
40 

actions and loans in two of the transactions. In the early stages of 

the recession, the FDIC liquidated failed banks primarily by auctioning off the deposits to another financial institution and then retaining the loans themselves for disposition at a later time. 

In December of 2008, United Bank purchased the deposits of 

First Georgia Community Bank in Jackson, Georgia, using this 

‘‘clean bank’’ type transaction without a shared-loss agreement. A 

group of FDIC contractors stayed onsite and managed the failed 

bank’s loan portfolio for over a year, but they had little authority 

to make decisions or to offer options to work with customers experiencing financial difficulties. Ultimately, the FDIC bundled all the 

failed bank’s loans into several groups and bulk sold them through 

an internet-based auction. The winning bidders were mostly located several States away; therefore, they knew very little about 

the local community. And as a result, they had minimal incentive, 

in my opinion, to try to take any long-term approaches to working 

with troubled borrowers. 

In August of 2009, United Bank entered into its first shared-loss 

agreement with the FDIC for the purchase of deposits and loans 

of First Coweta Bank here in Newnan. In contrast to our earlier 

acquisition in Jackson, we are fully responsible for managing this 

loan portfolio. In return, the FDIC reimburses us for essentially 80 

percent of the credit losses we experience in the loan portfolio. This 

reimbursement is effective for the first 5 years for commercial 

loans and for 10 years for one-to-four family residential loans. The 

shared-loss agreement does not reimburse United Bank, however, 

for the expenses associated with funding these loans, nor does it 

cover the considerable overhead needed to manage this loan portfolio and remain in compliance with what are very extensive requirements involved with the shared-loss agreement. 

In the fall of last year, the FDIC informed us that First National 

Bank in my home town of Barnesville, Georgia, soon would fail and 

they asked us to consider submitting a bid, along with other banks. 

Although we were competitors, this was shocking and very sad 

news. Our employees in Barnesville had always enjoyed a very 

good relationship with First National’s employees and we historically had worked together to improve the local community for decades. Our board ultimately decided not to submit a bid for First 

National due to our recent growth and due to the fact that we felt 

like the economy was continuing to turn down. However, shortly 

after the bid deadline, the FDIC contacted us and explained that 

they had received no qualifying bids from any financial institutions 

and that they were preparing to close the doors of First National, 

terminate all the employees, and simply send checks to all the depositors. They also communicated that unfortunately it appeared 

some customers might exceed deposit coverage limits and so there 

could be depositor losses from some of the First National Bank accounts. After considering how devastating this would be to one of 

our most important communities, our management team and board 

decided to submit a bid to prevent the bank payout. And I am 

pleased to share with you today that we were able to hire a majority of First National Bank’s employees and continue banking services without any disruption to customers in Barnesville. 

41 

Through these experiences, I have seen the advantages of how a 

loss share arrangement works, as compared to the FDIC’s earlier 

practice of using outside contractors to manage a failed bank’s loan 

portfolio. When a local community bank, such as United Bank, 

manages a loan portfolio, in my opinion, it has a very strong vested 

interest in trying to take a long-term approach and work with customers to overcome their financial challenges. The primary reason 

for this is so that we can make the borrower a life-long bank customer. The secondary reason, and you heard the regulators talk 

about this earlier today, is that because the bank participates in 

any future loan loss, we do have skin in the game and we work 

hard to try to minimize any future losses. We have worked very 

hard here in Newnan and in Barnesville to find solutions for struggling loan customers and have offered modifications and forbearance agreements. And we have had a number of successes with this 

type of approach. 

Under our agreement with the FDIC, United Bank is essentially 

required to manage the loss share loan portfolio in essentially the 

same manner as we handle our non-loss share portfolio. The FDIC 

has encouraged us to work with customers whenever possible. The 

FDIC also audits our bank regularly to make sure that we remain 

in compliance with all the elements of the shared-loss agreement. 

This enhanced scrutiny has necessitated us having to hire a number of new employees, just to make sure that we are in compliance 

with the shared-loss agreement. 

No, there is absolutely nothing good about any bank failure. We 

all know that. Customers, bankers, businesses, and in effect, entire 

communities, suffer in a variety of ways. However, as I mentioned, 

in our experience, the current system of utilizing a shared-loss 

agreement is preferable to the others used earlier in this economic 

cycle by the FDIC. In general, the resolution process works to keep 

the transition organized, it provides maximum depositor protection, 

encourages confidence in the safety of deposits at a critical time, 

and it minimizes more broad-based market disruptions. 

Thank you again for the opportunity to share our perspective and 

our experience in working with the FDIC in these shared-loss 

agreements, and I look forward to answering your questions. 

[The prepared statement of Mr. Jim Edwards can be found on 

page 113 of the appendix.] 

Chairwoman CAPITO. Thank you, Mr. Edwards. 

And our final witness is Mr. Gary Fox, former CEO, Bartow 

County Bank. Welcome, Mr. Fox. 

STATEMENT OF GARY L. FOX, FORMER CEO, BARTOW COUNTY 

BANK 

Mr. FOX. Thank you. Chairwoman Capito and members of the 

committee, thank you for inviting me to participate in your hearing 

today. My name is Gary Fox and I was in the banking business in 

Georgia from January 1981 until April 2011, when our bank was 

closed by the Georgia Department of Banking & Finance and sold 

with a shared-loss agreement to Hamilton State Bank. I started my 

career as a bank examiner with the State of Georgia and began 

working at the Bartow County Bank in May of 1983. I am also a 

certified public accountant and am now in private practice. 

42 

I divided my remarks into three categories. First, how we got 

here, to give you some historical perspective. Second, what made 

it worse, where I will mention issues such as appraisal policies, 

market disruptions caused by unprecedented government involvement, and the application of certain regulatory and accounting policies. And third, I will mention some real concerns I have with how 

the loss share is playing out in the market. 

Included in my testimony are slides that I will be referring to 

that were furnished to me by John Hunt of Smart Numbers, which 

would be a good resource for you going forward. 

I saw a lot of changes in our industry in 30 years and had the 

pleasure to meet and know a lot of great community bankers during that time. I have a depth of knowledge about the community 

banking industry in Georgia that few other people have. 

The biggest change that I saw over the years, other than regulatory, was the ease of entry. When I first got into the business, 

it was quite difficult to get a bank charter. In fact, it was quite a 

chore to even get a branch application approved. At that time, you 

had to convince the chartering authority of convenience and need. 

Sometime in the mid-1990s, that went out the window and it 

seemed to me the only requirement became whether or not you had 

enough initial capital to meet the chartering authority’s requirement. As a result, we had an overabundance of banks. Many banks 

relied heavily on brokered deposits since there really was not a 

need for the bank in that particular community in the first place. 

It was also a reason why so many banks did out-of-market lending 

and participation lending since there was not enough demand in 

the community they operated in. On top of that, in 1996, Georgia 

passed statewide branching. Previously, Georgia had been a State 

that only allowed a bank to operate in the county in which it was 

chartered unless it formed a bank holding company and entered a 

new market by buying another bank in a whole bank transaction. 

So as a result, many of the banks in markets that were not as robust branched into the metro Atlanta area to take advance of 

metro Atlanta’s growth. This only compounded the problem. After 

all, it only takes a couple of folks polluting the pool to ruin the 

swimming for everyone. 

Another thing that got us here was prompt corrective action, 

which was put into law in 1991 as a result of the S&L crisis. While 

in theory, it sounded reasonable to mandate FDIC to take progressively punitive action against a bank as its initial capital falls towards 2 percent, in this environment, it was and is a bank killer. 

It immediately put you in a death spiral that you could not escape. 

Capital dried up, liquidity dried up, customers lost confidence, employees left, and regulators no longer were allowed to exercise judgment, as they were required to follow a set of draconian guidelines. 

And you cannot talk about how we got here without mentioning 

two government programs that have created market disruptions— 

the Troubled Asset Relief Program and the FDIC selling failed 

banks with shared-loss agreements given to the acquiring bank. 

Most banks in Georgia that have failed have been appraised out 

of business. To give a specific example of the appraisal problem, in 

the metro Atlanta area, historically the cost of a lot is 20 percent 

of the overall cost of a home. That means if you had a new home 

43 

that cost $200,000, the lot cost would be $40,000. Today, the cost 

of a lot is 5 percent of the overall cost of a home, meaning that in 

the same $200,000 home, that lot cost is now $10,000. We have 

gone from a cost norm of 5-to-1 to an abnormal TARP and loss 

share induced 20-to-1. This is visually demonstrated by slide 13, 

which is part of the set of slides that I have included in my testimony. 

There is another slide, number 20, that shows real estate asset 

disposals by TARP and loss share banks. The size of the yellow dot 

represents the number of lots liquidated, and they were all sold at 

less than $10,000 per lot. Unless you were one of the fortunate 

ones who received the government assistance, you had no chance 

to avoid significant charges against your capital due to undue influence of government money in the marketplace. 

Another example specific to my community was a subdivision where the lots had sold in the $90,000 to $120,000 range in 2007. 

The loan amount was around $43,000 per lot, which at the time 

seemed to be a safe margin. Most recently, those lots were sold for 

$9,500 apiece by a loss share bank. That is a decline of 89 percent 

at the minimum. This was a fully developed subdivision in a highly 

desirable area with a first class amenities package. 

Additionally, these types of appraisal-driven declines permeate 

throughout the local economy. You would think that what it costs 

to create something would have some relevance to its value, but 

not in today’s world. Under new appraisal standards, many appraisers will tell you that cost is not relevant. All that matters is 

the market approach, and to a lesser extent, the income approach. 

Therefore, since the market approach is the most heavily favored 

approach and you have federally-funded asset disposal by TARP 

and loss share banks, we have an incredible disruption in our real 

estate markets here in metro Atlanta and Georgia in general. 

Think about how this affects the general public. Consumers cannot refinance their homes to a lower payment because their home 

will not appraise. The municipalities that rely on real estate taxes 

can no longer fund schools or police and fire protection. And to 

make matters worse, many bankers are telling me that new appraisals are coming in 40 percent less than last year. 

In Georgia, until recently, building and building-related businesses had made up 20 to 25 percent of our economy. Referring 

back to the Smart Numbers slides, notice slide number 15, which 

shows permits issued since 1996. The norm appears to be 3,500 to 

4,000 per year. The current number is around 500, which is a drop 

of about 86 percent. In Georgia, we have had an industry that represented 20 to 25 percent of our economy not just slow down, but 

literally cease to exist. 

Another side that demonstrates the same point is slide number 

3. Normally, new homes make up about 50 percent of the home 

sales, but most recently, they represent less than 10 percent of that 

total. The decline is not only a result of lack of inventory from lack 

of funding, but it is also because of the undue influence of TARP 

and loss share money in the real estate market. If you take a look 

at slide number 8, you will see that the average new home in the 

first quarter of this year sold for around $225,000 while the average resale was $97,000, primarily due to foreclosures. A lot of asset 

44 

devaluation has to do with a regulatory system trying to flush out 

the overall system as quickly as possible. As a result, the economy 

in general is being significantly hindered. 

A couple of other accounting-related issues of great importance 

are loan loss reserves and the deferred tax asset. Historically, 

banks use the experience method, called FAS–5, to fund their loss 

reserve. In May of 1993, an additional loss measure called FAS– 

114 was put into place, which I will not discuss today. Under the 

experience method, banks looked back at their average 5-year loan 

losses and set aside an amount that would cover those same losses 

as if they were going to happen again. In the 5-year look back, 

some years were better than others and the reserve balanced out. 

Over the last few years, banks have been required to shorten their 

look-back period to anywhere from 2 quarters to 5 quarters. This 

basically has the effect of capturing your worst historical loss periods and having to fund your loss reserve as if it were going to happen again. This has a direct effect on reducing capital, since only 

part of your loss reserve is allowed to be counted toward risk-based 

capital, and none of it counts towards tangible equity, which is the 

ultimate measure under prompt corrective action. 

Also of importance is the deferred tax asset. The deferred tax 

asset is a balance sheet account that is the result of timing differences between financial accounting and tax accounting. A deferred tax asset is a benefit you stand to gain in the future and 

in our current environment, this is primarily a loss carryforward. 

So if you had a couple of years of net losses, those losses would 

carry forward to reduce future tax liability when you have net income. Unfortunately, regulatory requirements state that you must 

disallow the amount of your deferred tax asset that you cannot 

demonstrate you can recoup in net income within the upcoming 12 

months. When the entire amount becomes disallowed, it must be 

subtracted from tangible equity. In this environment, a 12-month 

look forward for the deferred tax asset should be reconsidered and 

a longer look put in place. 

In my home county, Bartow County, there are three loss share 

banks. The fact that there are so many loss share banks in this 

area has only exacerbated the asset value problem. It is clear to 

me that loss share banks stand to make more money by forcing the 

issue rather than working with the customer. In Georgia, community banks generally do balloon notes on commercial properties. 

This is done as an interest rate risk management tool. So at the 

end of 18, 24, 36 months, the entire balance of the loan is due. The 

commercial loss share part of the acquiring bank’s agreement, 

which is 4.15B, is for 5 years. I fear that as the fifth year anniversary of the shared-loss agreements comes closer, rather than losing 

the protection of the loss share, many of these loss share banks will 

pursue judgments and foreclose so as to maximize financial gains, 

regardless of the borrower’s past performance or capacity to pay. 

Another loss share issue is home equity lines of credit. While 

they generally fall within the provisions of the single family 

shared-loss agreement, which is 4.15A, which has a 10-year duration, they are specifically separated from the mandatory loss mitigation provisions required for single family loans. Instead, they fall 

within the other shared loss loans category, which simply requires 

45 

the acquiring bank to try to mitigate loss consistent with its own 

policies. Since this product became popular in the early 2000s and 

originally had a 15-year maturity, later a 10-year maturity, many 

will be coming due in the next 4 to 8 years. What could easily happen is the loss share bank will get an updated appraisal, which will 

probably be valued down and then it will have to mitigate loss consistent with its own policies. Basically, this means there will be a 

whole lot more pressure on an already stressed consumer. And 

since there is no incentive to allow those loans to get outside of the 

loss share period, we could see another round of judgments and 

foreclosures. As a result, I think we will be mired in this real estate mess for quite a long time. 

Another problem I see with the loss share is it does not allow the 

loss share bank any judgment in its collection practices. Several 

months ago, one of these loss share banks in our community filed 

suit against a borrower. This particular borrower had had a debilitating stroke and would never be able to work again, and had lost 

everything. In prior years, the bank would have written the loan 

off and gone on down the road. I called someone I knew who 

worked at the loss share bank and asked, ‘‘Considering the circumstances, why are you suing this person?’’ He simply replied, 

‘‘That is the only way we can collect on the shared-loss agreement.’’ 

I cannot imagine that is our government’s intent. 

In closing, I also want to point out that the regulators I dealt 

with at all levels were both courteous and professional. I do not believe they take any joy in closing banks. I also want to point out 

that, particularly during the prompt corrective action process, I 

was told many times by the regulators that their hands were tied, 

they had no choice but to follow the requirements of prompt corrective action. Therefore, it is clear to me it is not an issue of regulators; it is an issue of regulations. So if this committee truly wants 

to make a positive change, it is going to have to come on a legislative level, not a regulatory level, to deal with these particular 

issues. 

Again, I want to thank you for inviting me to be part of this 

hearing and I hope that something positive comes from it. 

[The prepared statement of Mr. Fox can be found on page 116 

of the appendix.] 

Chairwoman CAPITO. Thank you. 

I want to just ask a quick question, and then a follow up, and 

then we will move on. 

Mr. Copeland, each one of you, will you tell me who your regulators are? 

Mr. COPELAND. The Office of the Comptroller of the Currency. 

Mr. ROSSETTI. FDIC. 

Mr. JIM EDWARDS. State-chartered bank, also regulated by the 

FDIC. 

Chairwoman CAPITO. And you were? 

Mr. FOX. State and FDIC. 

Chairwoman CAPITO. FDIC, okay. Now, you have made your 

statements and they are all very, very good. But you had the benefit of being the second panel, so you also heard the regulators. 

What, in your mind, Mr. Copeland—and Mr. Scott talked about 

this a lot in the first panel, the sort of talking past each other, lack 

46 

of communication—if there was something glaring that came out of 

some of the statements the regulators made that did not fit with 

what you see in practice in your bank, what would that be? 

Mr. COPELAND. I was not at great disagreement with any of the 

statements made by the regulators. However, because this is not a 

personal issue, I do not believe— 

Chairwoman CAPITO. Right. 

Mr. COPELAND. —there are no personal attacks involved. But I 

will say we have seen a clear difference in the tone of particularly 

the written reports of exams that we have received, as we have 

moved further out, that risk compendium in the eyes of our regulator. Whereas the initial reports of examination that we got had 

a very clear tone of understanding with regard to what got us here 

in this unforeseen catastrophic collapse, I believe it was Mr. Barker, my own regulator, who talked about this was not a steady slowing market, but literally we fell off the cliff. And what we have 

seen is a change in those reports, with an understanding that is 

what got us here and this is still a competent management team, 

for example, running this bank. And we do see positive aspects to 

this bank with regard to liquidity for funding and so forth. You see 

a change in tone in the reports of examination that clearly show 

what I would describe as legal edification where you are seeing verbiage come into these reports that is designed to bring it into step 

with prompt corrective action and other regulatory tools that are 

out there. And that is not for our benefit, I feel. It is for the benefit 

of being able to look back and kind of self-justify why particular actions may have been taken with the bank or might be taken in the 

future. So that is a tough thing to articulate and it should not come 

across as, for lack of a better word, whining, ‘‘they are picking on 

me on the playground’’ sort of thing. So we try to be careful as we 

say those things, because again, I do not believe it is personal. 

Chairwoman CAPITO. Right. Mr. Rossetti, do you have a comment? 

Mr. ROSSETTI. Yes, ma’am. There are two things. The first is 

when the regulators come in to regulate us, one of the first questions that the directors ask is what is the regulator like, what is 

the personality, how are they going to be on us. And that should 

not be a concern if they are dealing equally with all of the regulations. But a lot of the time it comes down to personality and that 

is something that I think the guys up in Washington do not understand, that it does depend a lot on who the regulator is and what 

they are like as to how that exam is going to come out. 

The second thing is their misunderstanding I believe of the loss 

share and how effective it is. I think you need to look at the two 

types of banks out there—a community bank under the loss share 

who has a stake in that community is going to administer the loss 

share differently than a large bank where you are just a number. 

And it has been my feelings with those large banks that they are 

very onerous and very stiff with their dealings with the loss share. 

They want that out of the bank, they do not care if it is performing, 

non-performing, whatever. They want it out of that bank and they 

want to get their money off the loss share. So those two things. 

Chairwoman CAPITO. Thank you. Mr. Edwards? 

47 

Mr. JIM EDWARDS. Being a State-chartered bank, we are regulated one year—we will have the State Department of Banking & 

Finance in one year and the FDIC will come in the following year. 

And we have not—we are now due, although I probably should not 

remind my regulators of this, but I am sure we will have an FDIC 

exam before long. I hope I do not say anything today that causes 

that to be any sooner. 

But in terms of what they said, I think we have found certainly 

maybe a more challenging time with regulators but I think we all 

have to understand the backdrop here, how difficult these economic 

times are. The way you could structure something maybe in better 

times is not the way you can do it today unfortunately. And I look 

forward to those days when things will be better. 

I think in our discussions with regulators, obviously there are 

new requirements that come out, but we have felt like there has 

at least been a dialogue with them about that. And certainly I do 

not know a banker working today who believes or agrees with the 

regulators about everything they say. But I think in general terms, 

we have felt that they are trying to work through this situation too, 

in most cases. 

Chairwoman CAPITO. Mr. Fox? 

Mr. FOX. I think the loss share is having a far greater effect on 

local communities than maybe what they feel like right here. And 

it is a difference. There are some banks, while they may be locally 

chartered in the State of Georgia, they are funded by huge dollars 

from Wall Street or wherever, by venture capitalists. And those 

guys did not get into banking because they want to make 2 percent 

on assets, I promise. 

Chairwoman CAPITO. Thank you. 

Chairman Bachus? 

Chairman BACHUS. Thank you. 

I want to commend all you gentlemen for the tone of your testimony and for the specificity. I think you have actually given us 

some real meat. 

Mr. Fox, I especially appreciate you being here. As a former 

banker, you could just walk away, but you are still obviously concerned about your colleagues and the business, and I think that 

speaks well of your character. 

Mr. FOX. Thank you. 

Chairman BACHUS. I commend you for that. 

We mentioned shared-loss agreements, that keeps coming up. I 

think there is a problem there and I think it is something that 

needs to be looked at again. I think particularly—not particularly, 

but also when you have participation agreements, it can be a problem for those institutions. 

One thing that came up that I do not think we talked about on 

the first panel was writing down a performing loan, which at least 

two of you mentioned. We have often used the words ‘‘paper profit’’ 

or ‘‘paper loss’’ where you write down performing loans and you 

have to raise capital and then an institution has restrictions or 

challenges because of, not actual losses but just the write downs of 

performing loans. And I think that is particularly frustrating and 

bears more watching. 

48 

So I appreciate what you said about the prompt corrective action, 

that it may be the regulation, it may not be the regulators in those 

cases. They are following the law. And then that becomes our duty 

to review. 

And finally, Dodd Frank—2,400 pages—and I can tell you the 

regulators appreciate that you are concerned about them because 

they are pretty much struggling with it on a daily basis, they are 

overwhelmed by that regulation. So the regulators are even overwhelmed by the regulations. And when it gets to that point, you 

know you have a problem. 

I know one Georgian, Newt Gingrich, has actually said we need 

to repeal Dodd-Frank. 

We seriously need to take a strong look at it, I will tell you that. 

We are going to have a hearing on that in October, as to how the 

economy is going to swallow that massive undertaking. 

I will yield the balance of my time to Mr. Westmoreland. 

Mr. WESTMORELAND. Thank you, Mr. Chairman. 

Before we close, I want to thank Mr. Don Mixon for allowing us 

to use this Performing Arts Center. It is a beautiful building. 

Thank you for allowing us to use the facility. 

And I also want to thank Chief Deputy Mr. Riggs for being here 

today and for the whole staff of the Newnan Police Department for 

being here and providing the security. So thank you all for what 

you do. 

Let me say just for the benefit of maybe everybody in the audience, I think most of you are familiar, but to some of these gentlemen who have great careers with the FDIC and the OCC and with 

the Federal Reserve, and I want to thank you all for your 30+ 

years of service or whatever you have been there. But you need to 

talk to some of these guys on a regular basis, some of these guys 

who are out there actually making the loans. Not your regulators, 

but talk to some of the people making the loans, talk to some of 

the people who are being punished by some of your regulations. 

And believe it or not, until the construction business comes back, 

our unemployment is going to stay high and this economy is not 

going to get going again. That is just a fact. 

Now let me say, what happened is a lot of these TARP banks, 

and we had some come into our communities that had gotten a lot 

of money and they fire sold, they did public auctions and sold these 

properties. And that brought the value down. So then some of our 

community banks were demanded to write down these loans immediately. Is that not true? And so they wrote down the loans immediately and had to have more—a loss of I guess reserve, grow their 

capital, were told to reduce their real estate portfolios in many 

cases. 

Then after that wave, we had the shared-loss agreements. Now 

Jim Edwards—if everybody who came into a community was like 

Jim Edwards, especially down in Barnesville and the relationship 

he had with that bank across the street, we would not have a problem. But when you have banks coming in here from California— 

and I am not picking on them—or Arkansas or others—I know we 

had testimony that said that these other banks were 10 banks adjoining Georgia. That is not true. So they do not know the commuVerDate Nov 24 2008 17:48 Mar 15, 2012 Jkt 067949 PO 00000 Frm 00054 Fmt 6633 Sfmt 6633 K:\DOCS\67949.TXT TERRIE
49 

nity and so with their loss share, I think as Mr. Fox pointed out, 

the quicker they flushed these things, the better off they were. 

So we had another round with our community banks. And now 

we have communities that do not even have a community bank. 

And why people who have been regulating for 30+ years at the 

FDIC and the OCC could not see that this ball was going downhill, 

it was going downhill. We were losing thousands of jobs, 

generational wealth was being sucked out of our communities. People were losing their investments. We were losing our community 

banks, pillars of the community lost everything they had. Why 

could we not recognize that and see if we could not come in to see 

a Chuck Copeland or a Michael Rossetti or Jim Edwards or Mr. 

Fox and say, what we might need is some advice on how to do this 

because I have been in Washington for 30 years? 

Is what I have described basically what happened to our economy, especially here in the Third Congressional District? 

Mr. COPELAND. There is no doubt, it is the massive devaluation 

of real estate that has impacted all of our banks. And there are 

many reasons for that. 

Mr. WESTMORELAND. Right. And Mr. Fox, you mentioned that we 

do not need to do anything with the regulators, we need to do 

something with the regulation. I could not agree with you more. 

But say you do something legislatively, what would you propose 

that we could do legislatively that would help? 

Mr. FOX. It seems to me—and this is a double-edged sword, probably the reason we have prompt corrective action is you all wanted 

to take judgment away from the regulators. I think they need to 

be given some amount of judgment. And of course, if they are given 

that judgment, they need to use it wisely. Because when you look 

at the way real estate values have collapsed in Georgia, a non-assisted community bank, it is going to be a struggle. If this does not 

correct itself within the next 4 or 5 years, I do not know what is 

going to be left. But we cannot survive such an asset devaluation. 

And I think you would just have to give these banks some time 

through some kind of regulatory—I mean legislative—leeway for 

them to have. 

Mr. WESTMORELAND. So how about if there was a 5-year period 

to write down some of these loans, that some of them are even performing, where people are paying their interest, they are meeting 

their takedown schedules, and they are still being made to write 

these loans down because somebody is saying that it will not ever 

be worth that much money or they cannot pay it. Would it be of 

any assistance if there was some room to where they would write 

this down for a certain period of time, maybe even go back 24 

months and go forward say 36 months, or whatever, if they were 

still in business, to be able to adjust some of these loans? 

Mr. FOX. Sure, it would be helpful, yes. I think that approach 

may have been tried back in the S&L days, and that has been 

brought up. I know another banker, Chris Maddox, brought it up 

to the FDIC. 

Mr. WESTMORELAND. Chuck, would that have hurt you? 

Mr. COPELAND. Oh, there is no doubt it could make a difference. 

I do think there is this whole issue of transparency though and 

someone being able to pick up a call report or a financial statement 

50 

and truly be able to assess the condition of a bank that is using 

some of these smoothing techniques with regard to funding 

writedowns, but I would think that that could be handled through 

memorandums to call reports or whatever, as a way to capture how 

much a bank does have in this pool of asset writedowns that it is 

accreting onto its books, and a process for how you re-evaluate values there and you adjust that pool, so that someone can pick up 

my call report and know exactly what sort of hangover effects I am 

still dealing with from the real estate meltdown versus say Jim’s 

bank, who might be in a different situation. 

Mr. WESTMORELAND. You would be glad to work with any of 

these folks to give them an idea, wouldn’t you? 

Mr. COPELAND. Oh, no doubt about it. And you have to cut 

through some of the rhetoric too, because when you talk about 

writedowns on performing loans, I think there is a bit too much anecdotal jargon getting thrown in there. And for example, I know 

our experience with our regulator, I cannot say I have ever experienced having to write down a performing loan. But there is a point 

at which the regulator— 

Mr. WESTMORELAND. Even if the appraisal had come back for 

half the price of the loan? 

Mr. COPELAND. Again, there is a difference between being forced 

by a regulator to write it down and having to reserve. The nuance 

in that, though, is the effect on my capital is the same. I have had 

to remove it from earnings and either put it into my loan loss reserve as a specific earmark against that credit or I have had to 

take the writedown. So the impact on my capital ratio is the same. 

I think we have to remove some of this rhetoric and anecdote 

from some of this if we are going to get to real solutions. 

Mr. WESTMORELAND. I will go ahead and close because I know 

we are running out of time. But let me just thank all of you for 

coming and thank all of you for doing this. I would hate for the 

FDIC to get the same reputation as the IRS. 

Chairman BACHUS. I think you have your own time now. 

Mr. WESTMORELAND. Oh, I do. 

Chairman BACHUS. You can start the timer again. 

Mr. WESTMORELAND. That is Ellen, and she has just given me 

five more—I will take just a couple more minutes then. I know 

lunch is getting near. 

But it is amazing that the FDIC when they come in and actually 

be the receiver does not want to work with a lot of these people. 

I have had a number of them call and tell me that they had loans 

that they offered to buy or whatever and then they were put up 

for auction. And then, they are sued personally by a partner with 

the FDIC. That just does not sit well with me. In a non-recourse 

loan for 7 years, interest free, there is something wrong with that. 

Really and truly, there is something wrong with that. When we put 

out banks and we suck this money out of the community and we 

are in business. It would be a little bit different if this company, 

Rialto, was not—I think most of them are from a home building 

company and I think 5,100 of the 5,500 loans were actually residential loans. So there is just something weird with that. But I 

know there are a lot of new partners for the FDIC out there right 

51 

now just waiting to put together their money and call them and 

say, look, we want to be in business. 

But thank you all very much for coming and I hope we all 

learned something today. I hope we will take it back to Washington—Chairman Bachus, Chairwoman Capito, and Congressman 

Scott—so that we can write some legislation that will help out here 

in the real world. Maybe not in Washington, but out here in the 

real world with people who sit across the desk from these folks who 

have to make a decision on whether to loan money or not. 

I do think we need to look at some of those regulations that Mr. 

Fox mentioned about having to sue somebody to be able to get your 

loss share part of it. So there are a lot of different things that we 

can look at. I know that Chairman Bachus has been great about 

looking at this, about having the hearings and I want to push forward with it. 

So with that, I will yield back the balance of my time. And again, 

I thank everybody for coming. 

Chairwoman CAPITO. Thank you. 

Mr. Scott? 

Mr. SCOTT. Thank you. 

I would just like to start off by commending each of you for excellent testimony, very thorough, very informative, and providing us 

with a lot of good information. 

I would like for my line of questioning to kind of zero in on this 

area of conflicting communications—the banks and the regulators. 

I think you all were probably here when I asked the regulators if 

they felt that their standards were so restrictive that it was inhibiting lending, and their basic response was that they did not feel 

it was. 

And I would like for you to address that. Do you feel so? If I remember, I think, Mr. Copeland, you said they were sending shifting messages and the examiners were making contradictory statements that sent you clamoring for cover. 

Mr. COPELAND. Correct. 

Mr. SCOTT. That is certainly a stark difference from what the 

regulators said. 

Mr. COPELAND. I can tell you there is a marked difference between how we feel and how we maneuver through our normal dayto-day in the management of our banks during times when we do 

not feel the cloak of the regulator. And that cloak of the regulatory 

being most present during periods of exam, where you truly do feel 

almost paralyzed in terms of dealing with the day-to-day running 

of your bank. 

With regard to the contradiction, there are two things there that 

I would point to. One is—and this is somewhat of a selfish statement—one of the tenets of the CAMELS rating is the management 

component. We have the same management team and same board 

of directors in our bank that was there in the period of the early 

2000s when our bank was generating record earnings and receiving 

nothing but the highest of regard from our regulator. 

My reports of examination today have a very indictful tone towards management and the board of the bank. But it is the very 

same people. 

Mr. SCOTT. Did you say indictful? 

52 

Mr. COPELAND. Indictful, yes. So it tends to put you in a very 

guarded position. The other thing with regard to contradiction; 

again, in our report of examination, we never had any significant 

reliance upon wholesale funding, brokered deposits or those things, 

we were always a core funded community bank. And that gets a 

brief acknowledgement in a passage in a report, but then it will go 

on to say in the same paragraph, ‘‘but due to the bank’s high level 

of non-performing assets and its elevated risk profile, liquidity is 

insufficient’’ and it may even go in some passage to take it a step 

further and say, ‘‘and this constitutes an unsafe and unsound 

banking practice.’’ Back to prompt corrective action. The trump 

card that has to be there before they can play prompt corrective action is they need to be able to assert these unsafe and unsound 

banking practices. 

Mr. SCOTT. So with the regulators here in the audience listening 

to what you have to say, what two major recommended changes 

would you like to see in their procedures? 

Mr. COPELAND. I would like to see patience exerted in how verbiage and terminology finds its way into the report of examination. 

I want a report of examination that 20 years from now my 5-year 

old child would not be embarrassed and ashamed to read about his 

dad. 

Mr. SCOTT. Okay. 

Mr. COPELAND. In simple terms. 

Mr. SCOTT. Right. 

Mr. COPELAND. But in addition to this patience, forbearance. And 

an example of that would be we are under a public regulatory 

order, so I am not disclosing anything that is not out there in the 

world to see, which requires that we achieve and maintain 9 percent tier 1 leverage and 13 percent total risk-based capital. We 

were in excess of those levels by and away during good times because that is the way we ran our bank. We understand the core 

principle of capital being your cushion against bad things that can 

happen in a risk-associated industry. Bad things happened to us, 

our capital has eroded. We need forbearance to work with our regulator on how we get back to that 9 and 13 over a reasonable period 

of time. There is no capital out there to a community bank in a 

community of my demographics, 13 percent unemployment, 30-odd 

percent of my population not being high school graduates, housing 

prices in the tank. There is no—outside of perhaps maybe with the 

beauty of a nice FDIC 80/20 loss share, some venture capitalist 

from New York who might like to take a bite out of our bank. 

So we do not disavow the importance of the capital, but to have 

an expectation and a demeanor in how that expectation is communicated that we be able to restore those capital levels to that 9 and 

13 in an environment that just for all practical purposes and common sensical analysis will not support that. 

Mr. SCOTT. Okay. 

Mr. COPELAND. The tools are already there with regard to what 

is defined as adequately capitalized. The trigger is there within 

prompt corrective action with regard to the forced dissolution of a 

bank. We understand the need to abide by those and will continue 

to do our dead level best to do it. But it is indeed crippling to realize that is not enough. 

53 

Mr. SCOTT. Okay. They are sitting out there, they are listening. 

So we hope that they hear what you are saying and we can move 

to correct. 

But going a little bit further, of course, lending—we have been 

touching upon that, that is a great concern, it is really at the core 

of this field hearing, the whole issue, of course lending is the key. 

Banks cannot make money if they do not lend, and we cannot recover our economy if they are not lending. 

Mr. Rossetti, you came right out in your statement and said in 

fact it is preventing you from lending. How is that? 

Mr. ROSSETTI. Our lending guidelines for AD&C lending, the 

FDIC has written them down to 100 percent of capital. We are at 

450 percent of capital. We will not get down there in 30 years. 

Mr. SCOTT. Repeat that again. 

Mr. ROSSETTI. They have put such an onerous guideline on us to 

lend money for AD&C lending, acquisition, development and construction lending, that—they put a guideline on us that we cannot 

achieve. And we are just prevented from bringing in any new business to lend money to people doing AD&C lending. 

Mr. SCOTT. And what would you recommend that formula be? 

Mr. ROSSETTI. It gets back to what Chuck says, common sense, 

if you get a loan, say a builder comes in, he has a presale home 

to build on somebody else’s lot and the customer that he is building 

for is completely qualified. It is a commonsense loan. We cannot do 

that. We could not lend money in that situation because it is outside of our guideline. 

Mr. SCOTT. And have you presented this particular issue to the 

examiner or to the regulator in any way? 

Mr. ROSSETTI. I am sure it has been discussed. 

Mr. SCOTT. But have you yourself discussed it? 

Mr. ROSSETTI. Not myself, no. No, I have not, but I know what 

the guidelines are and I know the revised guidelines that they put 

us under to do that kind of lending, and it is just going to be impossible for us to get there for a long period of time. 

Mr. SCOTT. And you had some things to say about the sharedloss agreement, which you felt was the most onerous. And I think 

it might have been you, Mr. Edwards, I wonder if you might—you 

said that, if I understand you correctly, that there is a requirement 

that you hire new people in order to be in compliance with the 

shared-loss agreement. 

Mr. JIM EDWARDS. Yes, sir. They did not require that we hire 

new people per se in the contract, they just—we entered into a contract and it has a number of obligations and we have to make sure 

that we comply with all different things in the contract. 

Mr. SCOTT. And when you say ‘‘they,’’ you are talking about the 

FDIC? 

Mr. JIM EDWARDS. Yes. 

Mr. SCOTT. Okay. Do you believe—do each of you believe that 

there ought to be some restructuring in Washington regarding the 

regulation of our financial institutions to fit these economic times, 

that would be different? And if so, what would those be? 

Mr. COPELAND. I think without a doubt. And honestly, it had not 

occurred to me until Mr. Fox’s testimony just what a hurdle 

prompt corrective action creates for the regulator, and that perhaps 

54 

it is not so much the regulator, but the regulation. And I understand the 2 percent capital minimum and the time in which that 

came from, but I would assert that there are banks out there that 

have a strong enough core element to their DNA that they could 

survive with negative capital. Now, you could not survive indefinitely, but you could certainly survive at less than a 2 percent capital level. 

Mr. SCOTT. Okay. And just a final question. If you could zero in 

on and categorize—we have discussed many issues here, what 

would be the single deterrent to banks lending more now? What 

would that be? 

Mr. FOX. Most banks, or a lot of banks in Georgia, a high number, are under a regulatory order of some sort. And usually in those 

orders, there is a limitation on your lending, there is a limitation 

on how much you can grow. So by virtue of that, you have to meet 

a minimum capital standard and every time you make a loan, it 

usually goes, based on risk-based capital, that is going to reduce 

your capital ratio. So basically, once you come under order, all you 

are managing from that point forward is liquidity in capital, that 

is all you can really do. 

Mr. SCOTT. Just one last question, if I may, Mr. Chairman, this 

will be my last one. But it just intrigues me that you, Mr. Fox— 

I think you mentioned that you were once an examiner, is that correct? 

Mr. FOX. Yes. 

Mr. SCOTT. So that puts you in a pretty unique position here, to 

be able to add some perspective. And I really want to try to get to 

this, because as I mentioned before, Lynn and I find ourselves in 

a pretty good position with our bill having passed the House, and 

over in the Senate, and we have a pretty good bipartisan approach 

to this bill. That, unfortunately, does not happen very often. So we 

have a very live vehicle here and I am wondering—you remember 

I asked the regulators when they were here what they were doing 

that was so restrictive that stopped the lending, and they basically 

said, it is not our fault. But you hear from the bankers here that 

yes, some of this is their fault. 

What is the true story here? You have sat in both seats here. 

Who is telling the truth? 

Mr. FOX. I am not going to call anybody a— 

[laughter] 

Mr. SCOTT. Let us put it this way, who is more accurate? I did 

not say it correctly; who is more accurate? We really have to get 

to— 

Mr. FOX. Mike made probably one of the best points I have heard 

today about the fact that if someone comes to his bank right now, 

because they are restricted from increasing their concentrations in 

real estate—construction lending, it is a presale, it probably has a 

mortgage takeout—he cannot make the loan. That does not make 

sense. So that’s a great example. You really need to be able to use 

some common sense like he is saying. Does this credit stand on its 

own and if it does, then we ought to be able to make it. 

Mr. SCOTT. Okay. So there is some truth to that statement and 

we will just say that we will work with our regulators to see what 

we can do here. 

55 

Thank you very much, it has been a very good session. Thank 

you. 

Chairwoman CAPITO. Thank you. Before I dismiss the panel, I 

would like to thank them for their very great comments and answers to questions and their statements. We will be taking this 

back to Washington, working with this bill and others to try to 

strengthen the possibility of a faster rebound for everybody. 

I would like to thank the audience for being a great audience and 

being so attentive and sticking with us. This has been a very 

lengthy hearing. I would also like to thank panel one, the four regulators, they are all in the audience, so I would like to thank you 

all for staying and listening as we requested, and that is duly 

noted. Right, Lynn? 

Mr. WESTMORELAND. Yes. 

Chairwoman CAPITO. And I would like to also thank Mr. Westmoreland’s staff for putting this together and at such a beautiful 

facility and I think creating two panels that have been very enlightening. 

So with that, the Chair notes that some members may have additional questions for this panel, which they may wish to submit in 

writing. Without objection, the hearing record will remain open for 

30 days for members to submit written questions to these witnesses and to place their responses in the record. 

With that, this hearing is adjourned. 

[Whereupon, at 12:20 p.m., the hearing was adjourned.] 

(57) 

A P P E N D I X 

August 16, 2011 

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