1 

FEDERAL DEPOSIT INSURANCE CORPORATION 

+ + + + + 

ADVISORY COMMITTEE ON COMMUNITY BANKING 

+ + + + + 

TUESDAY 

JULY 30, 2019 

+ + + + + 

The Advisory Committee on Community 

Banking met in the Board Room, 550 17th Street, 

N.W., Washington, D.C., at 9:00 a.m., Jelena 

MCWILLIAMS, Chairman, presiding. 

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2 

PRESENT: 

JELENA MCWILLIAMS, Chairman, FDIC Board of 

Directors 

MARTIN GRUENBERG, Director, FDIC Board of 

Directors 

DICK BESHEAR, Chairman, President & CEO, First 

Security Bank and Trust Company 

ASIF DAKRI, Vice Chairman & CEO, Wallis Bank 

FRED DeBIASI, President & CEO, American Savings 

Bank 

CHRIS DONNELLY, President & CEO, Bank of the 

Prairie 

JAMES J. EDWARDS, JR., CEO, United Bank 

KEITH EPSTEIN, Executive Vice President & CEO, 

Roxboro Savings Bank, SSB 

DAVID J. HANRAHAN, SR. 

DANNY J. KELLY, President & CEO, The Hometown 

Bank of Alabama 

KENNETH KELLY, Chairman & CEO, First Independence 

Bank 

BRUCE KIMBELL, President & CEO, First Community 

Bank of the Heartland 

THOMAS LEAVITT, President & CEO, Northfield 

Savings Bank 

LORI MALEY, President & CEO, Bank of Bird-in-Hand 

TIFFANY BAER PAINE, President & CEO, Security 

Bank USA 

ALAN SHETTLESWORTH, President & COO, Main Bank 

LOUISE WALKER, President & CEO, First Northern 

Bank of Dixon 

LEN E. WILLIAMS, CEO, People's Intermountain Bank 

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3 

ALSO PRESENT: 

RYAN BILLINGSLEY, FDIC, Corporate Expert-Capital 

Markets, Division of Risk Management 

Supervision 

CHAD DAVIS, FDIC, Deputy to the Chairman for 

External Affairs 

DOREEN EBERLEY, FDIC, Director, Division of Risk 

Management Supervision 

LEKESHIA FRASURE, FDIC, Acting Chief, Community 

Affairs, Division of Depositor and Consumer 

Protection 

BOBBIE GRAY, Supervisory Community Affairs 

Specialist, Division of Depositor and 

Consumer Protection 

ALLEN GUTIERREZ, Associate Administrator, Office 

of Entrepreneurial Development, U.S. Small 

Business Administration 

EMERSON HALL, FDIC, Acting Associate Director, 

Division of Depositor and Consumer 

Protection 

MARTIN HENNING, FDIC, Deputy Director, Division 

of Risk Management Supervision 

M. ANTHONY LOWE, FDIC Ombudsman 

BRANDON MILHORN, FDIC Chief of Staff 

RAE-ANN MILLER, FDIC, Associate Director, 

Division of Risk Management Supervision 

LUKE REYNOLDS, FDIC, Chief, Outreach and Program 

Development, Division of Depositor and 

Consumer Protection 

BETTY RUDOLPH, FDIC National Director for 

Minority and Community Development Banking 

ROBERT STORCH, FDIC, Chief Accountant, Division 

of Risk Management Supervision 

JAMES WATKINS, FDIC, Senior Deputy Director, 

Division of Risk Management Supervision 

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4 

CONTENTS 

Introductory Remarks .......................... 5 

Committee Member Discussion of Local 

Banking Conditions ........................... 6 

Supervision Update 

Doreen Eberley ............................... 77 

Ryan Billingsley ............................. 78 

Robert Storch ................................ 89 

Rae-Ann Miller ............................... 96 

Martin Henning .............................. 112 

FDIC Ombudsman Update 

M. Anthony Lowe ............................. 119 

FDIC Subcommittee on Supervision Modernization 

Brandon Milhorn ............................. 146 

Minority and Community Development Financial 

Institutions 

Betty Rudolph ............................... 174 

Updated Money Smart Financial Education Materials 

Luke Reynolds ............................... 200 

Bobbie Gray ................................. 203 

FDIC and U. S. Small Business Administration 

Collaboration Efforts 

Lekeshia Frasure ............................ 215 

Allen Gutierrez ............................. 216 

Emerson Hall ................................ 227 

James Watkins ............................... 245 

Update on FDIC Efforts Regarding DeNovo 

Institutions 

James Watkins ............................... 248 

Closing Remarks ............................. 252 

Adjourn ..................................... 253 

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5 

1 P-R-O-C-E-E-D-I-N-G-S 

2 9:06 a.m. 

3 CHAIRMAN MCWILLIAMS: Good morning, 

4 everybody. Thank you for being here today. I 

5 know some of you have traveled from far away. We 

6 have one person that's still delayed with 

7 flights, but it's a pleasure to have you here 

8 again today, and I'll tell you, as I am now one 

9 year in, it's a year and a couple of months, and 

10 I've done a few state visits where I go and I 

11 talk to bankers in their local communities, I've 

12 done about 21 states thus far. 

13 I have to tell you what you provide 

14 here today and in these meetings is so valuable, 

15 and those bankers really rely on you to bring 

16 those perspectives to us. I know you quite often 

17 talk about, you know, your local experience and 

18 your local markets. But there are many banks 

19 that are similarly situated where you come from, 

20 and so thank you for being here and being the 

21 voice for those banks. 

22 I don't want to take too much time 

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6 

1 belaboring the thank yous, but I am very grateful 

2 that you're here, that you took the time and I 

3 can't wait to hear what you have to say today. 

4 I will turn it over to Marty if you have anything 

5 to add. Chad, please. Thank you. 

6 MR. DAVIS: Okay. Thank you, 

7 Chairman MCWILLIAMS. We'll get started today 

8 with our go-around that we began a few meetings 

9 back. I think we've mixed everybody up, so 

10 nobody has to be first or last every time. But 

11 we did give them fair warning, so we ask Tom to 

12 go first. Oh, and we've got about an hour, ten. 

13 So if we could keep it down to three or four 

14 minutes each, that would help me keep us on 

15 schedule. 

16 MEMBER LEAVITT: We'll get off to a 

17 good start. Is this working? Okay. Well good 

18 morning, everybody. I am Tom Leavitt of 

19 Northfield Savings Bank in the heart of the green 

20 mountain State of Vermont, and it's good to be 

21 back at this table with you all. 

22 Just very briefly, I gave an 

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7 

1 introduction the first meeting in late March 

2 about the outlines of Northfield Savings Bank, 

3 and I won't go into that detail today. But 152-

4 year-old mutual bank with 13 branch offices and 

5 a billion, 30 million in assets, an independent, 

6 and the largest bank based in the State of Vermont 

7 that is headquartered there. 

8 Vermont presently is facing 

9 conditions that are relatively stable and solid. 

10 In May, the unemployment rate in Vermont was at 

11 a national low of 2.1 percent. That's generally 

12 a healthy indicator, but also presents challenges 

13 relative to workforce. That's been tight. It 

14 shows up in the construction markets as we see 

15 projects get delayed or prolonged as people are 

16 trying to scramble those project crews. 

17 Delinquencies are still low in our 

18 state overall and certainly for our bank. 

19 There's no significant weaknesses generally, and 

20 overall there's good opportunity in our MSA in 

21 the greater Burlington area where I'm from. 

22 There are some sectors that we are 

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8 

1 watching, and one of those is rural health care. 

2 Some regional and smaller hospitals are 

3 struggling with the current dynamic and mix of 

4 payers, and that's true nationally, but it's 

5 certainly also showing up in our markets. We're 

6 watching for potential overdevelopment of the 

7 lodging market, hospitality. Projects have been 

8 robust, more coming. We're just concerned longer 

9 term that we not get into a situation of 

10 oversupply. 

11 Rental housing growth has been strong. 

12 The rents are high. Again, we hope that we don't 

13 reach a tipping point where that could put --

14 have a dampering effect on growth overall as it 

15 relates to the labor force. 

16 We're looking at renewables and solar 

17 activity. It's been slowing in our market, and 

18 we -- that's the somewhat negative news. The 

19 positive news is that these solar projects have 

20 been maturing over the last three to five years, 

21 so that we're actually starting to get some 

22 history relative to the pro formas that were 

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9 

1 originally presented. Those projections are 

2 bearing out. We're happy to see that people 

3 didn't overshoot, at least not in our geography 

4 on that. But that's another area that we're 

5 watching. 

6 Private education. The demographics 

7 are challenging in terms of being able to fund 

8 private education models in some instances, and 

9 we're seeing some of the effects of that. So 

10 something perhaps to watch for in terms of 

11 broader trends. 

12 Residential inventories are tight in 

13 our market, which means that we have people 

14 wanting to buy, but finding the right property 

15 and getting into that property presents a 

16 challenge. We do see a bit of a refi moment 

17 perhaps on the threshold, as rates continue to be 

18 favorable and drive to a point where people are 

19 starting to think about that again. 

20 I'll just wrap up with a couple of 

21 things on the regulatory side. We do appreciate 

22 the progress that the FDIC and the regulatory 

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10 

1 community has made on the issue of brokered 

2 deposits and the national rate question that we 

3 talked about at the last meeting, and I know we'll 

4 be talking about again today. So we are watching 

5 that with great interest. 

6 We're watching also the rulemaking on 

7 the community based leverage ratio, community 

8 bank leverage ratio, and we are looking for final 

9 guidance on that to make a determination for our 

10 institution. Then the last thing I'll mention 

11 is management succession planning. I didn't 

12 speak about that the last time I was here. 

13 I went back to a terrific issue that 

14 the FDIC put out in April of 2016 in Supervisory 

15 Insights, on the special corporate governance 

16 issue. In that issue is a quote that says, 

17 “Build bench strength and maintain continuity in 

18 the chief executive and other key senior 

19 management positions,” when it was talking about 

20 the Board's responsibility for developing the 

21 management cadre. 

22 It said, “Also address the process of 

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11 

1 identifying potential successors from outside, 

2 and do so covering a three- to five-year time 

3 horizon.” So to me, that very specifically 

4 speaks to the executive levels of the bank, and 

5 perhaps the key senior management levels just 

6 below the senior vice president level, which is 

7 what we focused on. 

8 But in our most recent round, there 

9 was language in our report that suggested at all 

10 levels, and we're stuck a little bit on the 

11 definition of at all levels. We're putting 

12 together a formal management succession plan that 

13 speaks largely only to senior management. We 

14 have a professional development program that 

15 takes care of the rest of the organization. 

16 But we're not actually looking to 

17 inculcate a management succession model 

18 throughout all levels of the bank. So hoping for 

19 some clarification on that at some point. That's 

20 all I have today, Chad. 

21 MR. DAVIS: Thanks. Bruce, and then 

22 we'll just continue around to the right. 

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12 

1 MEMBER KIMBELL: All right. Good 

2 morning, everyone. Bruce Kimbell, First 

3 Community Bank in Clinton, Kentucky. We're 

4 located in far western Kentucky and also in 

5 northwest Tennessee, just right across the state 

6 line there. We have about eight offices and 

7 about 240 million in assets. 

8 We're an agricultural bank in a very 

9 rural area, and just speaking a few minutes ago 

10 about ag conditions. Ag conditions, we're 

11 beginning to see some improvement. The prices 

12 have rebounded here just a little bit here 

13 lately. In our particular part of the world, 

14 have been blessed this year with a wonderful 

15 crop. Not too much rain and got off to a little 

16 bit of a slow start there, but it's rebounded 

17 quite nicely. So things are actually looking 

18 pretty good from a production standpoint, which 

19 it's far from being complete but still we're 

20 looking at a great crop in our area this year. 

21 So that's going to give our farmers 

22 probably an opportunity to at least get back 

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13 

1 close to home. Probably there are not a lot of 

2 profits still out there this year, but still 

3 probably won't be a lot of loss either. So that 

4 will be good. It will stem -- the last couple 

5 of years have been pretty tough, so we begin to 

6 see some restructurings and in our case, a lot of 

7 utilization of USDA-guarantee programs and those 

8 kinds of things to help us stem that tide of any 

9 losses, and reduce those losses to minimal 

10 amounts. So that works very well with us. 

11 Rural communities still struggle. 

12 It's far from being robust, even though we do see 

13 improvements from an unemployment standpoint. 

14 And but it's definitely still a struggle in the 

15 rural area, but what we decided to do is to --

16 that's home and that's where we have staked our 

17 future. 

18 Our bank over the last, probably, five 

19 years, we've I guess opened three new branches, 

20 de novo branches in different communities to try 

21 to help shore up our rural base. We're still 

22 rural by any stretch of the imagination compared 

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14 

1 to some of you in this room, in more 

2 urban/suburban type settings. 

3 But we find that we're able to go into 

4 those areas where there's really a large regional 

5 or even a national bank presence, and we're able 

6 to go in and be different, and to present a 

7 different picture, and so that's what we're 

8 trying to do in doing that. 

9 On the regulatory side, we've got a 

10 compliance exam coming up the end of this year. 

11 So we'll see how that goes and, you know, 

12 it's -- three years is a long time. So we'll see 

13 how that goes. But we're -- that's good. We're 

14 actually working with our examiner-in-charge 

15 right now and getting those things together. So 

16 that will be -- that will be fine. 

17 We hear lately -- I had a phone call 

18 the other day from the Tennessee bankers, which 

19 we're a part of too, since we're on the state 

20 line. One of the things that Mr. Barrett, Colin 

21 Barrett, the director there, wanted me to address 

22 was the recent spike in acquisitions of community 

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15 

1 banks by credit unions. 

2 That's really become a big sticking 

3 point. We actually just had an announcement from 

4 Kentucky the other day of a Tennessee credit 

5 union acquiring a Kentucky bank more up in the 

6 central part of the state. And, you know, just 

7 really that struggle there, and I know the 

8 acquisitions seem to be stepping up quite a bit. 

9 That's a question, you know. I guess 

10 as a rural banker I have a concern with that as 

11 I look at my farmers and my customers, and I 

12 wonder how really a credit union can address 

13 those issues and address those customers like we 

14 can. I just don't feel that that's possible. 

15 And so but still we'll see how that goes. 

16 But all said and done right now, you 

17 know, things are pretty good and we're very 

18 fortunate to be where we are, and thank you for 

19 allowing us to come and be part of this Committee, 

20 and look forward to hearing everyone else's 

21 comments. 

22 MEMBER EDWARDS: Well good morning. 

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16 

1 I'm Jim Edwards. I'm CEO of United Bank, 

2 headquartered in Zebulon, Georgia, about an hour 

3 south of Atlanta. We're in ten counties, sort 

4 of stretching in a southern arc around Atlanta. 

5 We're not inside the metro area, but just outside 

6 that from -- we range from about 50 miles 

7 southwest to about 50 miles southeast of Atlanta 

8 in ten counties, as I said. 

9 A billion-four in size and a 

10 traditional community bank with a significant 

11 wealth management area, as well as a significant 

12 mortgage area also. You know, Chairman, I called 

13 everybody in the bank yesterday. I said you 

14 know, “Are we seeing anything? What am I missing 

15 here?”, because it still feels really solid here 

16 in our company and in our economy. 

17 You know, I'm pleased to report that 

18 nobody came up with anything that really is 

19 worrying us right now. But having lived through 

20 the Great Recession in Georgia, I think we are 

21 all very nervous about an economic downturn. But 

22 we don't see that coming yet. Things are still 

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17 

1 very positive. There's good population growth 

2 in the Atlanta area right now. 

3 That continues very strongly and 

4 that's spilling over into our area somewhat, 

5 causing a good demand for new housing. We're 

6 seeing good loan demand there on the construction 

7 side of our business. I don't think that's 

8 getting overbuilt. We're not encountering 

9 situations where we're having to renew loans to 

10 contractors and things like that. 

11 So we're keeping a very close eye on 

12 that, but have not seen that -- those conditions 

13 deteriorate at all as of yet. Problem assets 

14 remain at really record low levels in the bank, 

15 and that's good to see here. Past dues remain 

16 very, very manageable. From a concern 

17 standpoint, you know, there is a difference and 

18 Bruce mentioned this as well. 

19 I think the further you get away from 

20 the metro areas, I am more concerned about our 

21 rural areas. It's not so much that credit 

22 quality's deteriorating there; we're just 

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18 

1 beginning to see population declines in some of 

2 these areas that are further away. 

3 And so that's a challenge for us. 

4 It's got kind of a mix of suburban and more rural 

5 markets. So I think that's not just a banking 

6 issue; it's a larger issue than that. But that 

7 will impact -- I see that potentially impacting 

8 our, you know, our business as well as we go 

9 forward here. 

10 Challenges? It's hard to find good 

11 people. Lenders are very scarce out there. 

12 We've been looking for lenders now for the last 

13 two years and pretty much decided that we've got 

14 to develop our own. So that's what we have --

15 we've got a management training program that we 

16 have increasingly hired folks for right out of 

17 school or very early on in their careers and are 

18 trying to develop staff that way, and that's 

19 working well. 

20 Other concerns. We've always 

21 historically had competition from regional banks 

22 and larger banks than that, even, on long-term 

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19 

1 fixed-rate loans. But we're seeing more and more 

2 smaller community banks with the yield curve the 

3 way it is now, go ahead and lock into ten-year 

4 type fixed-rate commitments. 

5 We've not done much of that, you know. 

6 We know what the yield curve tells you what that's 

7 going to do. But the yield curve, as we all 

8 know, is often that can change. So we've been 

9 concerned and tried to maintain a very 

10 conservative interest rate risk posture. But 

11 that does worry me somewhat. 

12 So overall things are really good. 

13 From a regulatory standpoint, the only thing I 

14 would love to at some point today, just to get a 

15 quick update, I know there's not a decision yet 

16 on this, but if you could talk or just get an 

17 update on the community bank leverage ratio 

18 issue, and if there is any further thinking on 

19 that, that would be helpful. 

20 I know there are a lot of community 

21 banks, ours included, that are still looking at 

22 that as a potential option, but we'd love to kind 

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20 

1 of know a little more about where that -- where 

2 we're going to settle on that leverage ratio. So 

3 thanks. Glad to be here. 

4 MEMBER MALEY: Good morning. Lori 

5 Maley, Bank of Bird-in-Hand. I'm president and 

6 CEO. Just so you know, Bank of Bird-in-Hand was 

7 the first bank after the financial crisis that 

8 was granted a charter. At the time when we 

9 opened the bank, we had 17 million in capital and 

10 ten employees. I'm happy to report we're up to 

11 430 million in assets, and over 60 employees. So 

12 the bank has seen really unprecedented growth. 

13 I think a lot of where that growth 

14 came from is it was an area where there was a 

15 community which is really comprised of the 

16 “Plain” community, that weren't really serviced 

17 by some of the larger banks. So this was for us 

18 kind of a perfect niche that we could service 

19 this community and build a solid bank. 

20 So we're up to four branches and one 

21 of our branches is a mobile bank unit, which is 

22 actually a 29-foot long bank in a -- really bank 

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21 

1 in a vehicle. You can do anything in this 

2 vehicle that you could do any branch. So we 

3 actually service nine communities with just one 

4 unit, and we're actually looking at -- we call it 

5 the Gelt bus, and we're looking at building Gelt 

6 Bus 2 to figure out if we can do it a little bit 

7 bigger and a little bit better, and to get to 

8 some of those areas, because I have calls all the 

9 time, when are you coming to my area. 

10 So we're trying to get to those areas, 

11 the people that are really underbanked and some 

12 really don't have bank accounts at all, and 

13 they're waiting for that community bank to move 

14 into the area. So we are working on that. We 

15 are lucky to be in an area of really unprecedented 

16 employment. 

17 I mean we don't -- unemployment for us 

18 is really not an issue. One of the Board members 

19 on our board builds sheds, and he basically said 

20 he's been advertising for a year to hire people 

21 and he's unable to hire people. So you know, 

22 we're really in an industry and an area that is 

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22 

1 very strong. 

2 We also have dairy. Dairy's been hit 

3 hard these past three years. Milk margins and 

4 the co-ops are moving in, and they're creating 

5 issues on the dairy side. Unfortunately, we've 

6 lost some dairies. They've sold the cows, and 

7 they've sold the farms that have been in families 

8 for many generations. So we have seen some of 

9 that. 

10 Luckily, it hasn't affected our loan 

11 quality. We haven't had loans to those certain 

12 dairies. But it is something to consider. I 

13 mean it is really a core staple in the farming 

14 industry, and I think we've seen deterioration 

15 there. As far as loan growth, again loan growth 

16 in our area is strong. We don't market. We 

17 don't really need to. 

18 The Amish and the English in the area 

19 come to us. You know, we've had instances where 

20 we've had to pull loan growth back because we 

21 were worried about capital constraints. So we 

22 raised capital last year. We raised 20 million. 

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23 

1 So that freed us up again to lend to some of these 

2 people that have been on the list. The Amish, 

3 you know, they really are looking for a lender. 

4 They have certain issues relative to 

5 getting a loan, especially residential loans, you 

6 know. They're in communities where there's not 

7 necessarily electric. So they're non-conforming 

8 properties. We can't make a loan and sell it in 

9 the secondary market. So that was actually 

10 really a whole demographic and group of people 

11 that would probably not have been in a home had 

12 the bank not been created. 

13 So we're over 30 million in loans just 

14 to that particular sector of the community. So 

15 you know, those are big numbers. When you're a 

16 young couple and you're not able to get a 

17 mortgage, and the big banks don't want to do it, 

18 you know, for us it wasn't even really something 

19 that was in our original business plan, but yet 

20 it filled a tremendous need. 

21 So we're happy that we've been able to 

22 do that. In our area, again based on our 

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1 community and the people that make it up, we have 

2 no delinquencies. We've had no charge-offs. 

3 We're actually approaching -- Year 6 will be 

4 December of -- the end of this year, December of 

5 2019 we'll be in business six years. 

6 So you know, the loan quality's good. 

7 The Amish, if there's default they actually help 

8 each other. There's a whole process to it that 

9 most of us don't realize, and you don't really 

10 realize it until you get involved. But it is 

11 amazing, you know. It is -- you're in the heart 

12 of Amish country, the old order Amish. They 

13 travel by horse and buggy. So travel for them 

14 is incredibly slow. 

15 So we've learned to cater to them and 

16 really give them what they need, be it a loan. 

17 Do you need us to come and have you sign the loan 

18 papers at your kitchen table? And I think that's 

19 kind of what differentiates us from the bigger 

20 banks whereas, you know, there's levels of 

21 approvals at the larger banks and even regional 

22 banks. We haven't had that. That has not been 

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1 an issue for us. 

2 As far as -- one issue that I wanted 

3 to, relative to regulatory issues, the flood 

4 insurance. So you know, Amish have the Amish 

5 Aid, and I know the FDIC still -- I know there 

6 was some information put out July 1st. But I 

7 think for us we still haven't been able to utilize 

8 Amish Aid relative to the flood policies. 

9 So we're kind of looking for some 

10 guidance whether it be, is it on a case-by-case 

11 basis or how do we handle that, because we 

12 actually had one loan in July after July 1st, and 

13 we were not able to use the Amish Aid at this 

14 point because we didn't feel there was sufficient 

15 guidance. We have one additional loan coming up 

16 in August with the same circumstances. 

17 So we did secure traditional flood 

18 insurance, but the Amish are really looking for 

19 that. That's really important for them to have, 

20 to be able to use those policies. They use it 

21 for many things, they have their own health 

22 policies. So it really is a different 

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1 demographic, and they use those policies really 

2 without loss. 

3 One thing about the exam process, we 

4 were lucky to have an exam this year before the 

5 summer came, and I'll have to tell you it was 

6 probably -- and I've been in banking a long time 

7 -- probably the best, most excellent process as 

8 far as what I've ever seen. 

9 I think the preplanning was terrific 

10 and the communication. We provided everything 

11 in advance. I think the onsite management 

12 process was great, and I think after the exam 

13 concluded I think there was good communication. 

14 All of the issues were brought to the table. 

15 There were issues that we were given advice 

16 proactively. 

17 So you know, I can't really say enough 

18 about the people that ran the exam. They 

19 were -- it was varying degrees of experience, but 

20 it ran really, really well. It was very 

21 streamlined. So I credit the FDIC. I think that 

22 you're doing a great job on those initiatives. 

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1 A couple of last things. I'm glad to 

2 see de novo activity continues to increase. I 

3 think, you know, if you look at our bank, you 

4 know, hopefully we're kind of the poster child 

5 for confidence that, you know, small community de 

6 novo banks do fill a need. I think we've proved 

7 that, and I think community banks are alive and 

8 well. So I'm hoping that we will continue to see 

9 that trend. Thank you. 

10 MEMBER SHETTLESWORTH: Hi, good 

11 morning. Alan Shettlesworth. I'm the president 

12 and chief operating officer of Main Bank. We're 

13 located in Albuquerque, New Mexico. We have one 

14 location, and I am very pleased to report that 

15 since our last meeting we have made one 

16 additional hire, which brings us to a whopping 15 

17 employees. So that is a small bank, ladies and 

18 gentlemen. 

19 We are also increased a little bit in 

20 assets, so that's about 160 million in total 

21 assets. We do mostly commercial and commercial 

22 real estate-related transactions focused on small 

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1 business. Not a lot of consumer activity. I 

2 would say that the conditions right now are 

3 eerily good. 

4 It's just a bizarre environment and I 

5 hope I'm not jinxing it, but just everything 

6 seems to be working. There's a lot of strong 

7 demand out there. I don't remember the last time 

8 I've seen an appraisal negatively impact any loan 

9 transaction, which I guess is good and bad right 

10 now. But everything, everyone is current with 

11 us right now. 

12 The two problems that I would say we 

13 have at the bank are both under contract. One's 

14 closing this week to be sold, and the other one's 

15 closing at the end of the month or the first week 

16 of September. That's just a bizarre environment 

17 when your problems are being swept up by the 

18 market and they're -- both loans are current. 

19 So it's just a weird environment. It 

20 feels like 2005 and '06 and '07, and in some cases 

21 that there's -- I don't, I can't tell where the 

22 overheating is right now and I don't really think 

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1 there is. It just seems like a slow recovery. 

2 So I'm hopeful for Albuquerque, New Mexico's 

3 standpoint that this recovery continues because 

4 it feels like we're just finally getting out of 

5 the recovery, or just finally getting out of it 

6 and having some positive momentum for us. 

7 The only real negative thing that I've 

8 seen, and I've seen this more than once and on a 

9 small scale, but it was on the non-profit side. 

10 A lot of non-profits in New Mexico. We are a 

11 fairly poor state, a lot of poverty. I think a 

12 lot of -- the common thing I've seen is United 

13 Way is a big -- they spread a lot of funds. 

14 They're big -- they collect a lot of 

15 funds throughout the state, and they also 

16 disperse a lot of funds. I've heard more than 

17 once now that either they've changed their policy 

18 in New Mexico or that they have lost a federal 

19 grant or some money that will help kind of over, 

20 I guess, pay for their operating costs. 

21 So we're starting to see that impact 

22 on some of our non-profits. We've actually had 

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1 to come in on a couple of cases and kind of redo 

2 their loan transactions for them, give them some 

3 relief, give them some working capital. So 

4 hopefully that's just a short-term deal, but 

5 that's about the only real concern that I've got. 

6 We're getting ready for an FDIC exam, 

7 safety and soundness at the end of September, and 

8 they contacted us like two weeks ago and were 

9 already letting us, you know, here's the reports 

10 that we're going to be looking at. So we really 

11 appreciated that effort of reaching out to us 

12 early on, so that we can start working on it 

13 because with 15 employees, you know, gathering 

14 those reports does take a lot of time. 

15 But everything honestly right now is 

16 just fine, really good. 

17 MEMBER TURNER: My name is Joe Turner, 

18 and I'm president and CEO of Great Southern Bank. 

19 We have 4.9 billion in assets. We have 98 retail 

20 banking centers located from Minneapolis-St. Paul 

21 area on the north down to northwest Arkansas, 

22 Rogers, Arkansas, on the south. We also have 

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1 loan production offices in Denver; Atlanta; 

2 Dallas; Tulsa; Omaha, Nebraska; and Chicago, 

3 Illinois. 

4 And just like everybody I think our, 

5 you know, asset quality’s at record good levels. 

6 Competition seems to be heating up to me, and you 

7 know, I don't know exactly what's going on when 

8 we had our earnings call. A couple of weeks ago 

9 I said that our loan pipeline, you know, what's 

10 on the books and sort of recorded, is still really 

11 strong. But it feels like maybe we're getting 

12 to a bit of an inflection point. 

13 Competition does seem to be heating 

14 up. Spreads seem to be constricting a little 

15 bit. Maybe banks are starting to relax structure 

16 a little bit. So I don't know. I kind of agree 

17 with the comment. It feels like 2005-2006 and 

18 that's when all the bad loans were made or a lot 

19 of the bad loans were made that led to the 

20 problems in 2008. 

21 You know, I worry that maybe that 

22 could be the case. We're not seeing evidence. 

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1 We're not seeing the credit evidence of that. 

2 It's just, it's sort of -- it feels that way to 

3 me a bit. You know, on the regulatory side, the 

4 marijuana issue has caused more consternation 

5 than I ever dreamed it would. 

6 Missouri passed medical marijuana in 

7 November, and we get constant calls from 

8 customers about that, and it's really creating a 

9 problem. It's a creating a problem between our 

10 BSA folks and, you know, for instance our 

11 lenders. Our lenders will have maybe a retail 

12 customer who wants to lease to a medical 

13 marijuana dispensary, and our BSA folks are 

14 saying no, you know, because I think that's the 

15 law. It's just creating -- it's creating a lot 

16 of problem and a lot of consternation out there. 

17 We continue to work on CECL. We 

18 aren’t one of the fortunate banks that will have 

19 that delayed I think. We'll be responsible for 

20 having that implemented in January of 2020. So 

21 we continue to work on that. We're also 

22 interested in the continued, and appreciate the 

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1 continued discussion on the brokered deposit 

2 issue. 

3 I think the FDIC is -- I'm glad that 

4 they're taking a hard look at brokered deposit 

5 issues and specifically the national rate cap. 

6 That's all I have. Thank you. 

7 MEMBER PAINE: Joe, that came up a 

8 little quick. Hi, I'm Tiffany Paine from 

9 Security Bank in Bemidji, Minnesota. I am a 

10 fourth-generation banker. The fifth generation 

11 is now currently working in our Mortgage 

12 Department. Very excited about that. We're 150 

13 million. We manage another 120 in Freddie Macs, 

14 we service those. 

15 We lead another 30 in participations. 

16 We specialize in commercial, commercial real 

17 estate and mortgage. We've seen really strong 

18 loan demand, but it is starting to wane. Our 

19 town is about, proper, it's 14,000 people, about 

20 50,000 in the surrounding areas, and we have ten 

21 financial institutions, two credit unions, two 

22 locally owned banks. The others came from North 

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34 

1 Dakota and other areas. 

2 So the local competition is pretty 

3 strong, pretty stiff, both on the deposit and the 

4 loan side. There's some curious people locking 

5 in long rates for both loans and deposits. I'm 

6 not sure exactly how subprime lending is going to 

7 work out for them in the end, but it's not a place 

8 that we go to. 

9 We work a lot with the SBA. We work 

10 a lot with Freddie Mac and Rural Development. 

11 The demand is high for our real estate area, as 

12 far as we need inventory in town. But building 

13 costs are very high right now. So it is a 

14 challenge that we've also had demand for multi15 family homes and living. 

16 Because this is our busy time, we see 

17 our title companies and our appraisers really 

18 stretched thin, as I'm sure most people do, but 

19 you have limited access in rural communities to 

20 some of those, especially in the specialties with 

21 the commercial. We see more small community 

22 banks opting not to do in-house mortgages. It's 

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35 

1 just really complex and as they have people 

2 retire and don't have the specialty in-house, 

3 they're looking for other options. 

4 We actually are helping some other 

5 community banks by underwriting their loans and 

6 putting those on the books and working as a 

7 referral service. We started sharing our 

8 services with the audit and compliance area and 

9 felt like this is a natural progression because 

10 we have the expertise in-house to be able to work 

11 with those. 

12 We have had in the last year our 

13 safety and soundness, and then we got our 

14 compliance and our five-year CRA. So we've had 

15 all of our examinations, and I believe the first 

16 time I met Doreen, I had said we have great crews. 

17 Honestly, we have really good crews out of the 

18 Fargo and Grand Forks area. 

19 The process has gone really well for 

20 us. The pre-notification is invaluable. As you 

21 mentioned Alan, when you have limited staff, it 

22 takes a little while to gather that information. 

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36 

1 So that really, really helps us, and we sure do 

2 appreciate that. 

3 The flavor of examinations has changed 

4 over the last ten years, pretty dramatically 

5 since, you know, 2007, '08, and it has become 

6 very collaborative. I would like to personally 

7 thank everybody here for working through that 

8 process. That's, I think, been beneficial for 

9 both sides. 

10 We're in a growing community. Things 

11 are looking really well. We are being very 

12 cognizant of our underwriting because again, as 

13 Alan and Joe mentioned, it's going well. So 

14 let's be cautious, and let's be aware of what's 

15 going on out there. Thank you. 

16 MEMBER HANRAHAN: Good morning, 

17 everybody. I'm Dave Hanrahan. I'll just make 

18 two observations this morning. The first is I'm 

19 glad to see that on this afternoon's agenda is 

20 the Money Smart education material topic. That's 

21 a subject close to my heart. I've served on the 

22 ABA's Foundation Board for about three years, 

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37 

1 which deals in part with financial literacy and 

2 specifically elder fraud and elder exploitation 

3 is something that I continue to see more and more 

4 of. 

5 Now I am from New Jersey, but I bet 

6 you it's a nationwide thing, not only in our great 

7 state. Seriously, it's a tragic subject that we 

8 see so many elders exploited, and often exploited 

9 by the people closest to them, the people 

10 appointed to care for them or in trust for them. 

11 It's a subject that I think bankers and 

12 regulators are -- should be built to collaborate 

13 on. 

14 As a matter of fact, I talked to Corey 

15 Carlisle at the ABA, and he was very, very 

16 complimentary of the FDIC's material and the way 

17 that the Corporation works with the trade 

18 associations on the subject. So I'm looking 

19 forward to hearing more about that material later 

20 this afternoon. 

21 The second thing I'll comment on, and 

22 I know I sound like a broken record, is the 

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1 national rate cap subject. As Tom and as Joe 

2 made reference to earlier, I'm grateful that the 

3 FDIC is doing work on this. I found it very 

4 helpful that Lisa Roy attached in the emails in 

5 preparation for this meeting a link to all the 

6 comment letters that came in. 

7 I didn't read them all; I read a 

8 fraction of them, but there sure seemed to be a 

9 common theme to the need for a formulaic fix to 

10 the national rate cap and I'm very much looking 

11 forward to hearing more about that. 

12 MEMBER DAKRI: Good morning. My 

13 name's Asif Dakri. I am the CEO of Wallis Bank. 

14 Wallis Bank is a $750 million community bank. We 

15 have locations in three states and in five major 

16 metro areas. We're located in California, Texas, 

17 and now as of last month, Georgia. 

18 I'll start with the California 

19 markets. We’re in Southern California, the LA 

20 market specifically, it's a hot market. Real 

21 estate wise, housing is in great, great shortage 

22 there. There's a big issue with the 

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1 affordability of housing in the LA market. We're 

2 seeing a lot of people go further and further 

3 out, kind of what happened I guess back in 2006 

4 and '07, a similar type of the process that's 

5 going on there right now. 

6 We're seeing a lot of infill homes, 

7 where people are buying older homes, tearing them 

8 down and converting them into multi-family condos 

9 and what-not, trying to get some type of housing 

10 in the cities themselves. 

11 The labor market in California is very 

12 tight. There's a lot of -- the same thing I 

13 think is going on actually everywhere in the 

14 country, where you see unemployment at record 

15 lows. You see a big fight for people. I think 

16 in the banking world, there too we're seeing a 

17 lot of issues trying to hire people. Everyone's 

18 looking for the same type of people. 

19 In the Texas markets, we're in San 

20 Antonio, Houston, and Dallas. I'll start with 

21 Dallas. Dallas is an extremely hot market right 

22 now. They've had an influx of corporates moving, 

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1 you know. You might have heard that Toyota moved 

2 from California into Dallas. We've had other 

3 corporates move also into the Dallas market. 

4 That's created another housing 

5 shortage, if you will there, and a dramatic rise 

6 in real estate pricing, both on the commercial 

7 side and on the residential side. Again, a very 

8 tight labor market in the Dallas area, and 

9 everything seems to be moving in the right 

10 direction for them. But we'll see how it goes 

11 as we see some inflationary pressures hitting 

12 that area. 

13 San Antonio, again a very similar 

14 thing that we're seeing in Dallas also in LA. 

15 Tight labor markets. Unemployment's very, very 

16 low there. Real estate is doing very well. 

17 We've seen retail there at historical lows in 

18 terms of vacancies. They're at two and a half 

19 percent vacancies in the retail markets there. 

20 We do see a lot of influx of money coming through. 

21 San Antonio, being close to the 

22 Mexican border, has a lot of influence with what 

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1 goes on in Mexico. The thought process right now 

2 is a new government in Mexico that there's 

3 potential for additional money coming over the 

4 border into the U.S. As people are fleeing, 

5 well, the wealthy are getting a little bit 

6 nervous and fleeing some of the areas in Mexico 

7 and putting their assets into the U.S. 

8 The Houston market continues to 

9 rebound from our 2014 oil and gas issues that we 

10 had. The market is strong. We have some 

11 weaknesses in the office market still. A lot of 

12 that construction that was done in the end of 

13 '14, beginning of '15, was related to oil and gas 

14 corporations and that market really hasn't 

15 recovered. They're still hovering I believe 

16 somewhere in the 17 and 19 percent vacancy rate 

17 in the office market. 

18 The other weakness we see in Houston 

19 right now is hospitality. I think there was a 

20 mention of hospitality earlier. A little bit 

21 overdeveloped right now. So you know, I'm not 

22 seeing much in terms of new construction in the 

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1 hospitality market as we try to absorb what's 

2 been built in the last several years. 

3 Industrial is doing very strong 

4 actually across the board in Texas. I think the 

5 Amazon effect is really hitting everybody, and 

6 industrial continues to grow, and it continues to 

7 build and absorb. 

8 Atlanta, we just started Atlanta last 

9 month. Again, another hot market. I think labor 

10 issues there also in terms of finding the right 

11 people and we see wage pressures also. The 

12 market is good though. I guess overall, all of 

13 our locations, the market seems to be doing well 

14 as everyone else has said here, and we see that, 

15 you know, knock on wood, we hope that continues. 

16 From a banking perspective, again 

17 competition is strong. Loan pricing, as was 

18 mentioned earlier, also is we're seeing some 

19 interesting pricing going on, people going longer 

20 for lower rates. We see on the deposit end some 

21 of the markets, specifically Atlanta, we're in 

22 the 2.8 percent range for CDs which we found kind 

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1 of interesting. Very high what I believe in 

2 today's market. 

3 We see a lot of consolidation going 

4 on. I've seen recently a real flurry of activity 

5 on banks willing to sell, and I think that's 

6 directly related to deposits. There's a battle 

7 for deposits going on. 

8 We feel it and I think a lot of the 

9 other community banks feel it, and what I'm 

10 seeing now are the banks that have good stable 

11 deposits are looking to sell, because I believe 

12 there's a market for them right now. 

13 From a regulatory standpoint, we had 

14 an exam earlier this year. The exam went very, 

15 very well. I compliment FDIC for doing a good 

16 job of trying to modernize and get us to where we 

17 need to be. I think my only constructive 

18 criticism would be that you probably need more 

19 examiners. We found a little bit of an issue on 

20 timing, as the examiners were pulled to other 

21 jobs as they were on ours. 

22 So it took a little bit longer than 

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44 

1 maybe they were anticipating, but you know, 

2 you're part of the same labor markets that we 

3 are. So --

4 CHAIRMAN MCWILLIAMS: You take my 

5 examiners. 

6 (Laughter.) 

7 MEMBER DANNY KELLY: Most examiners 

8 should know better than to get in the banking 

9 business, but we are -- I'm Danny Kelly. I'm the 

10 CEO of Hometown Bank in Oneonta, Alabama. We're 

11 a $375 million very traditional community bank. 

12 We fund our balance sheet primarily with deposits 

13 and make loans to individuals and small 

14 businesses. We were one of those banks that 

15 chose to go lower longer, about seven and a half 

16 years ago. 

17 We of course keep a close eye and 

18 monitor those loans and average life on those 

19 things is 6.7 years, so we're in the money and 

20 have been in the money, and it looks like we're 

21 going to stay in the money at least for the short 

22 term. So again, very traditional. 

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1 From an economic perspective, we have 

2 a very diversified workforce. Most of our folks 

3 work in Birmingham or other areas. I don't know 

4 how much of this in the national news, but the 

5 automotive business is big in Alabama. We build 

6 most of the vehicles you see, and most of the 

7 parts for those vehicles. So now they've become 

8 more universal. You can make a part for a Honda 

9 that fits a Toyota and those kind of things. So 

10 again, we've grown. 

11 The other option, and we've all talked 

12 about the need for workforce, and that's 

13 something that the state of Alabama spent a lot 

14 of time and money on in developing that, and now 

15 we're seeing federal programs that are dumping 

16 money into that area where, you know, 

17 underemployed or people that need the training 

18 can get it, non-certificate training. 

19 That's a positive thing and something 

20 that every rural area, I think to speak to the 

21 rural issues, need to have a focus on because 

22 that is an opportunity. Those folks that are 

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1 undertrained, if they can just get up-trained a 

2 bit there's a real demand for those skills in 

3 those. 

4 We haven't really as a country or 

5 whatever, we haven't really put a lot of focus 

6 on, you know, just a skilled person or a skilled 

7 workforce without the need for a four-year 

8 college education. So that's something that 

9 we're seeing in the state of Alabama from a 

10 positive perspective is that concentration. 

11 Again, the only concern from a 

12 financial or from an economic perspective for us 

13 that I'm seeing is the acceptance of much lower 

14 cap rates from rental people, you know, the guys 

15 doing the commercial rentals, even the 

16 residential rentals. 

17 We've seen a lot of large transactions 

18 recently where, say, for instance, Encompass 

19 Health, which is one of the larger hospital 

20 owners in the country, sold their headquarters 

21 for 75 million bucks to some investment group, 

22 which is probably tied back to some private 

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47 

1 equity, and the cap rate on that was about four 

2 and a half percent. 

3 So to me that's just extraordinarily 

4 low, and that's something that we should be 

5 concerned about. Maybe this is just old school, 

6 but I'm a big -- I like to look at that cap rate 

7 to tell me how much risk our folks are willing to 

8 take, for how much little they're willing to take 

9 in return. We certainly measure it at the bank 

10 level, and I think that you need to be paying 

11 attention to that from what's happening with 

12 money flows. 

13 The big thing I think too that from a 

14 regulatory perspective, that is the change in our 

15 funding portfolio, you know, the mix, the 

16 portfolio mix and the funding. I know you've 

17 probably all looked at it, but if you could take 

18 it back ten years and see what that change has 

19 been, how much more has gone into the 

20 transactional type of accounts versus what we 

21 used to have in CDs or term-type deposits. 

22 You know, we get a lot of scrutiny for 

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1 liquidity. I understand that. I absolutely 

2 know liquidity is like the match, you know. You 

3 know the old saying about that. It goes away 

4 pretty quickly. So but I do wish there was more 

5 consistent measurement on that mix, and 

6 understand that some of these, what would --

7 traditionally what we would call hot money is not 

8 hot anymore. 

9 And it's been -- I mean in our case, 

10 we have some transactional accounts that's been 

11 on the books for 10 or 15 years, and in our 

12 opinion they're, you know, they're core, and 

13 they're not at all hot and anything that we need 

14 to be concerned. 

15 They're not volatile. I think that's 

16 one -- the same term they use. So from a 

17 regulatory perspective, I think there needs to be 

18 some consistency in how you look at that change, 

19 because ten years is pretty well a pattern, going 

20 away from the more term deposits. That's really 

21 all I have. Thank you. 

22 MEMBER WILLIAMS: I'm Len Williams 

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49 

1 with People's Intermountain Bank located just 

2 south of Salt Lake, about 40 miles south of Salt 

3 Lake in Utah County. We're a $2.3 billion 

4 community bank publicly held. We've got 26 

5 locations and have been around for 115 years. 

6 Utah economy has been strong. As a 

7 matter of fact, a recent fact I read, the Utah 

8 economy is the state that most closely mirrors 

9 the United States economy, as it compares the 

10 different types of industry. We've got some ag, 

11 we've got some tech, we've got some government. 

12 There's just a pretty broad base of industry in 

13 the market. 

14 Like everyone else I've heard today, 

15 we're still benefitting from low unemployment. 

16 We're also in a location that has pretty strong 

17 in-migration. With the expense in the Silicon 

18 Valley and some of the areas in California, it's 

19 a pretty easy move to Utah, and over the past 

20 couple of years the growth in the tech industry 

21 has been the strongest sector in our market. As 

22 a matter of fact, Facebook has built a huge center 

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50 

1 there. Adobe's got their second largest location 

2 there. 

3 Amazon has built a couple of 

4 warehouses there now. It continues to be a 

5 pretty easy place to do business, which has been 

6 great for us. It's also, it's been a great year 

7 weather-wise. I don't know if you saw on the 

8 news, but Snowbird was actually open for skiing 

9 on the 4th of July this year, when it was 90 

10 degrees, which is not the world's best snow but 

11 an interesting time to be in it. 

12 The banking industry in the state also 

13 is relatively robust. Utah is one of the states 

14 that not only allows but encourages the 

15 industrial loan companies, and there's been an 

16 onslaught and a lot of new applications. I'm 

17 sure you've seen with the FDIC coming through in 

18 that arena, and they're accepted well. 

19 It also brings a lot of banking talent 

20 into the market, particularly at the higher level 

21 where we continue to struggle is finding loan 

22 officers at a reasonable price. As far as our 

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51 

1 organization, again I just mirror the rest of the 

2 group. Asset quality's been good. It's having 

3 been in the business for 42 years, like many, and 

4 I've mentioned before, it just feels like it 

5 can't be this good that much longer. 

6 So through that process, what have we 

7 seen here in the last couple of years? Again, 

8 I'll quote some of the others. Rates are down, 

9 margins are down, terms are longer, and structure 

10 is looser, which always makes me a little bit 

11 nervous. We don't tend to play the structure 

12 game. 

13 We do have high enough net interest 

14 margin where we've gotten a lot more competitive 

15 on the rates, and we've got, our total loan 

16 portfolio’s tenor is 1.2 years. So a little bit 

17 of lengthening that hasn't hurt us on some of the 

18 terms that we've done as well. 

19 The last, really the last year, we've 

20 been in times of strong credit we've been 

21 fortifying the balance sheet, to the point -- and 

22 it surprises me a little that we haven't seen a 

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52 

1 lot of other banks building their ALLLs in these 

2 times. We've actually built ours to 1.8 percent, 

3 and we're carrying about 12-1/2 percent capital 

4 but still getting a two percent ROA and 14-1/2 

5 percent ROE. 

6 So you know, kind of the belief is 

7 while the earnings are strong, while the times 

8 are good, we want to continue to fortify that 

9 balance sheet to be more in an acquisition 

10 position when things start to turn a little bit. 

11 So that's a little bit knock on wood. 

12 It's been a good market. It still looks good, 

13 but just being the conservative nature that most 

14 bankers are, we've been trying to fortify things 

15 in the good times. 

16 MEMBER KENNETH KELLY: Thanks, Len. 

17 Good morning, everyone. My name is Kenneth 

18 Kelly. I serve as Chairman and CEO of First 

19 Independence Bank based in Detroit, Michigan. 

20 I'd like to talk today about a couple of things. 

21 One, our bank; secondly, the economy and some of 

22 the challenges that we're seeing at the National 

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53 

1 Bankers Association. 

2 So our bank is actually 49 years old 

3 serving in Detroit, predominantly commercial 

4 based, commercial real estate. We do some 

5 mortgages and we do some equipment leasing in the 

6 commercial space. So that's the brunt of our 

7 business model. 

8 We're seeing the economy move 

9 consistently, as everyone has stated, very 

10 steadily. We have started to see some pullback 

11 in terms of payments from a timeliness 

12 perspective that is creating some concern. 

13 Those have been paid in most cases on 

14 time, but we're seeing the acknowledgment that 

15 things are starting to slow. So we've 

16 acknowledged that and wanted to speak to that. 

17 So I'll piggyback on your comment just a moment 

18 ago regarding ALLL. 

19 Like any conservative banker, we'd 

20 like to have as much, I'll use the term hay in 

21 the barn as possible. But given some of the 

22 constraints around the formulation of doing that, 

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54 

1 it's creating some challenges because we just 

2 don't have the capacity to put all of that, if 

3 you will, hay in the barn. 

4 So given -- and let me just be 

5 specific on that. The ability to put the hay in 

6 the barn is based on the formula of your last 

7 three years or so. So we've seen historic lows 

8 as it relates to payments being late, and that is 

9 being a little bit problematic because we are 

10 concerned that once the hockey stick turns up, we 

11 will not have the time to catch up if that makes 

12 sense to you regarding that. So I appreciate you 

13 bringing that up. 

14 I'll try not to go over too many of 

15 the other topics that have been covered, but 

16 there are a couple that I do want to bring up, 

17 and I see those on the agenda. Chairwoman, I 

18 appreciate your leadership in leading in these 

19 areas. 

20 Opportunity Zones, CECL has been 

21 talked about. That is a concern of some of our 

22 members at the National Bankers Association and 

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55 

1 then the Ombudsman, I know he's going to give a 

2 presentation today. We'd like to have some 

3 interactive dialogue on that topic. 

4 Madam Chair, I would like to tell you 

5 in front of this body, thank you so much for your 

6 support in what you're doing as it relates to 

7 minority depository institutions. The report 

8 that's been presented to us as a body today I 

9 think is a testament to the FDIC's commitment to 

10 ensure and promote minority depository 

11 institutions across the country. 

12 One of the other items I'd like to 

13 bring up we see as a threat that we need to keep 

14 our eye on is technology. You saw the headlines 

15 I think maybe yesterday regarding the Chase and 

16 OnDeck, I'll call it feud or at least the breaking 

17 up of their relationship and OnDeck's immediate 

18 response was we're going to either seek a bank 

19 charter or we're going to go buy a bank. 

20 The reason I bring that up is it's 

21 been mentioned in several of the comments of my 

22 peers here the need to compete for deposits. 

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56 

1 We're seeing the technology companies being able 

2 to go out and make a play in this space in a way 

3 that we can't as it relates to being able to raise 

4 capital, et cetera. 

5 So I bring that comment up because we 

6 think that there has to be some regulatory 

7 guidance on what's happening as it relates to the 

8 logistics of money in the economy. So I want to 

9 make a point of making note of that. As it 

10 relates to financial literacy, one of the topics 

11 listed here, we think that is a key component to 

12 combating the unbanked. 

13 We know this body has led the effort 

14 around the country, looking at the unbanked. In 

15 Detroit, we have in particular about a little bit 

16 over average, higher unbanked population, and 

17 we're seeing that not only are those individuals 

18 unbanked but what's happening in the logistics of 

19 money is people are moving to more of a debit 

20 card for their paycheck. 

21 And while that may become a trend that 

22 does move forward, we believe that it keeps 

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57 

1 individuals away from the banking system in a 

2 scenario that we want to figure out how to 

3 address. 

4 The last comment I wanted to make is 

5 just regarding some of the compression that we're 

6 seeing. Rates, I think you may have mentioned 

7 2.8 percent on CDs. We're seeing a lifting on 

8 the bottom that basically I'll use this as a 

9 metaphor. There were individuals who were 

10 receiving 25 basis points that are now calling 

11 and asking for 2 or 2.2 as a rate of return. 

12 So we're seeing some compression on 

13 the bottom, along with the competition on the top 

14 side, where rates and banks are having to compete 

15 for loans going forward to keep forth with 

16 growth. So those are signs that we believe that 

17 may be showing a little bit of a slowing in the 

18 market, and I just want to share those with this 

19 body. Thank you. 

20 MEMBER DONNELLY: Good morning. I'm 

21 Chris Donnelly. I'm president and CEO of the 

22 Bank of the Prairie in Olathe, Kansas. We are a 

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58 

1 southwest suburb of Kansas City metro. Echo to 

2 most, the economy seems to be really well in 

3 Kansas City. It's balanced to small business. 

4 95 percent of our business is small business, and 

5 they continue to see a lot of work, a lot of 

6 opportunities. 

7 Their margins aren't as good as they 

8 were two or three years ago. They have a lot of 

9 volume, so it's a little bit of a compression in 

10 their margins. Our biggest issue is deposits. 

11 We continue to see large credit unions taking 

12 deposits, paying a lot higher rates than we're 

13 paying. We're seeing a lot of competition from 

14 bigger banks taking deposits. 

15 I think that the conversation on the 

16 rate cap is really an important one. The rate 

17 cap list was out last week, and I'd probably lose 

18 in each category even with the top -- adding 75 

19 basis points to it. One thing I would like to 

20 address, I think Jim addressed rural communities, 

21 and as Chairman of the Kansas Bankers Association 

22 I had the opportunity last week to visit 16 banks 

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59 

1 in Southeast Kansas. 

2 The largest bank was about 1.2 

3 billion; the smallest was 30 million. The 

4 smallest community I was in was 302 people, and 

5 those banks, those are all community banks. They 

6 all serve their community. That will be in most 

7 cases the only financial institution in that 

8 community. 

9 Some of the concerning things that 

10 came out, and I did -- I swore to them that I 

11 would share this is that they're seeing a lot of 

12 their rural housing market dry up and the houses 

13 that used to be owned by local rural people are 

14 now being turned into rentals and those people 

15 are renting instead of buying. 

16 That's a really difficult thing for 

17 Kansas because 95 percent of the state is rural. 

18 It's the difficulty in the home mortgage lending 

19 and making proper mortgage loan documentation, 

20 the cost they're seeing that. So that was 

21 concerning because I heard that from more than 

22 just one of those 16 bankers. 

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60 

1 They're trying to help their community 

2 survive, and in Kansas as small communities lose 

3 population, those communities dry up and go away 

4 and those banks go away after that. So anyways, 

5 that's just an issue that I wanted to share with 

6 the group, that we seem to have significant 

7 problems in rural Kansas maintaining population 

8 and maintaining reasons for people to be there. 

9 The more difficult it is for the local 

10 lenders, local community banks to provide 

11 products, the more difficult it is for that 

12 community to survive. So I'll yield the rest of 

13 my time. 

14 MEMBER EPSTEIN: Good morning. It's 

15 a real pleasure to be here. Keith Epstein for 

16 Roxboro Savings Bank. We're located in Person 

17 County, North Carolina. Person County is the 

18 county directly north of Durham County. We are 

19 part of the Durham-Chapel Hill MSA and we're sort 

20 of uniquely positioned in that we have customers 

21 in the metropolitan Durham area who are 

22 experiencing rapid growth. Just the demographic 

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61 

1 is very different. 

2 We have rural customers in Person 

3 County and to the north of us up to the Virginia 

4 state line, and then we have folks in Durham and 

5 Chapel Hill who are more affluent. There's 

6 really tremendous growth in that market, perhaps 

7 unsustainable. We are financing a number of 

8 rehabilitation projects and single-family home 

9 rehab in downtown Durham. There's a lot of 

10 gentrification that's going on and short term 

11 we're benefitting from that because of the 

12 opportunity to finance some of these projects. 

13 Long term we may be benefit because as 

14 gentrification takes hold, folks are priced out 

15 of Durham and they will likely move, you know, 

16 north into the surrounding counties. So that 

17 could be to our benefit, but we also understand 

18 that gentrification can breed some long-term 

19 issues, and some of you around the table may be 

20 contending with those in your market. 

21 I think Louise is not here at the 

22 moment, but I think affordable housing is a 

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62 

1 concern that she expressed at the last meeting, 

2 and we're certainly starting to see that in some 

3 parts of our market. We are primarily a housing 

4 lender. We have as a niche working with 

5 individual homeowners on construction loans, and 

6 we have the following of a number of low-volume 

7 custom homebuilders who appreciate the chance to 

8 have a relationship with a lender who understands 

9 their needs in terms of issuing draws and doing 

10 inspections and so forth. 

11 Those customers demand a high touch. 

12 We try to cater to customers that are service13 sensitive more so than price-sensitive. We don't 

14 always have that luxury, but that's where we 

15 think we can shine. 

16 The local housing market is terrific. 

17 The health can be measured by 7.8 percent and 5.7 

18 percent increases in median sales price year over 

19 year in Durham and the greater Triangle region 

20 respectively according to the May 2019 numbers 

21 produced by the Durham Regional Association of 

22 Realtors. 

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63 

1 I might add that that is growth on top 

2 of similar rates of growth for at least the last 

3 three years. I don't have that data, but it has 

4 continued to be strong in the housing area. 

5 We've seen population growth, we've seen 

6 migration in from other parts of the state and 

7 we're fortunate. 

8 That being said, this is an 

9 opportunity that we have taken to reaffirm our 

10 commitment to being a disciplined lender. There 

11 are a lot of loan opportunities and there is no 

12 need to stretch, and we're constantly reminding 

13 each other of that and asking our board to be 

14 mindful of adherence to policy, so that we can be 

15 a strong bank when the next recession hits. 

16 We're hoping that that won't be any time soon. 

17 We're really not seeing any indicators 

18 that it's on the horizon, but we know it's out 

19 there somewhere. 

20 One thing that's affecting our rural 

21 markets is a real transition from of course North 

22 Carolina's known for its tobacco farming. 

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1 There's a transition occurring from tobacco 

2 farming to hemp farming, and I know that this --

3 Bruce and I were discussing this last night, some 

4 similarities with what's transpiring in the 

5 agricultural market in Kentucky and other parts 

6 of the country. 

7 We're seeing an influx of money from 

8 out of state purchasing land either to grow hemp 

9 or with the intent to grow hemp in the next 

10 season. We're also seeing some infrastructure 

11 investments in warehouse space for distribution, 

12 greenhouse space. As a matter of fact, the North 

13 Carolina Agriculture Commissioner recently 

14 released some statistics. 

15 Over the last 24 months dating back to 

16 2017 when there were 2,200 acres and 242,000 

17 square feet of greenhouse space, in just that 

18 short period of time now have 8,000 acres and 3.4 

19 million square feet of climate-controlled 

20 enclosures designated for the hemp industry. 

21 Cannabis is not legally permitted in North 

22 Carolina to grow or for medical or certainly 

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65 

1 recreational use. 

2 But we are optimistic as we look out 

3 into the second half of this year and into 2020. 

4 We are confident that the economy will remain 

5 strong. I mentioned our construction lending. 

6 A number of the borrowers whom we are building 

7 for have homes that they will be selling when 

8 their new home is complete, and we take that as 

9 a sign that they have confidence at least into 

10 the medium term of continued strength in the 

11 housing market specifically, but the regional 

12 economy in general. 

13 On a number of homes we're fortunate. 

14 We have a real precious asset in our county, a 

15 beautiful lake, Hyco Lake, and there are no large 

16 subdivisions there. But there are a number of 

17 nicer homes and we're seeing a lot of second homes 

18 being built and future retirement homes and so 

19 forth. The fact that there's such activity there 

20 speaks volumes to us, that people do have 

21 confidence in where our economy is headed. 

22 Of course the strong economy presents 

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66 

1 some challenges. Like everyone else around this 

2 table, we are having difficulty finding talent. 

3 There are fewer and fewer community banks because 

4 of the consolidation that's occurred over the 

5 last decade, and so we are going to have to 

6 develop the talent we have determined as others 

7 have said. 

8 We'd like to commend the FDIC. We 

9 just had a CRA and compliance exam. That was a 

10 very constructive, positive exercise and the EIC 

11 really took great pains to educate us as to, you 

12 know, how they formulate the scope of the exam, 

13 how they make their determination, which ratios 

14 they just have to adhere to that are a part of 

15 the process, and then where there is some 

16 discretion that they can apply once they have a 

17 more lengthy interview with the management team 

18 and understand where we are employing our 

19 resources for the benefit of our community. 

20 Out of those conversations, we as a 

21 bank have some ideas and would welcome a chance 

22 in public or private to share some of those as 

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67 

1 the discussions around CRA modernization 

2 continue. We had a safety and soundness exam 

3 back in October, and likewise it was 

4 constructive. We really had some great 

5 suggestions in terms of our succession planning 

6 and our cross-training. 

7 We're a small organization. We have 

8 30 employees, so cross-training is an issue. We 

9 have certain people that can do certain things. 

10 They do them well, they've done them for a long 

11 time. But if they are out for any extended 

12 period of time the rest of us would be scrambling, 

13 and have a renewed appreciation for that person's 

14 importance within the organization. 

15 So the FDIC gave us some really good 

16 ideas as to how to expand upon our succession 

17 planning. We spent a great deal of time in our 

18 strategic planning session trying to implement 

19 some of those ideas, and we feel like we're 

20 probably a stronger organization long term as a 

21 result. 

22 Lastly if I may, one concern that we 

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68 

1 do have, it's a growing concern. It's been 

2 growing for a long time. There are fewer 

3 community banks that we have to compete with, and 

4 we offer something different than the regional 

5 and national banks. We have a niche, and we're 

6 grateful and we think we make a meaningful 

7 contribution to the local economy as a result. 

8 But filling the void seems to be the 

9 proliferation of credit unions, who are more or 

10 less operating as community banks doing small 

11 business lending and so forth. This point was 

12 really driven home just last week when the NCUA 

13 increased the threshold of which the qualified 

14 business loans, commercial real estate loans can 

15 be issued by credit unions, now up to a million 

16 dollars per transaction. 

17 Not aggregate exposure, but per 

18 transaction, up to a million dollars without an 

19 appraisal. So of course our specific concern is 

20 I'm requiring appraisals for those transactions. 

21 They're costing in our market about $2,500 if you 

22 have a MIA-designated appraiser complete the 

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69 

1 report. 

2 The report takes about three weeks 

3 from order to delivery. So I will now be not 

4 only challenged to be competitive on price 

5 because I don't have the tax subsidy, but now my 

6 third-party transaction costs are going to be 

7 greater and the time from origination to closure 

8 is going to be greater. That's a real concern, 

9 and while I wouldn't expect the NCUA to be 

10 terribly sympathetic to our competitive concerns, 

11 I would hope that they would be, maybe have a 

12 little bit greater awareness of some of the 

13 history of the financial institutions in our 

14 country. 

15 It's not quite an apples-to-apples 

16 comparison, but one time the savings and loans, 

17 who had very little commercial real estate 

18 experience, were encouraged to dive head first 

19 into that market, and the results were a bit 

20 disastrous. I can't help but think that the 

21 credit unions are not as well prepared as 

22 community banks and commercial banks would be to 

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70 

1 issue business loans secured by commercial real 

2 estate. 

3 Yet they're able to do so relying 

4 almost exclusively on their internal expertise. 

5 That just puzzles me a little bit. I appreciate 

6 you allowing me to mention that. So things are 

7 good and we're grateful for the chance to express 

8 ourselves in this forum, and Chairman, you 

9 thanked us all for our participation and we want 

10 to thank you for not just your willingness to 

11 listen but your enthusiasm for listening. We 

12 appreciate it. 

13 MEMBER DIBIASI: Good morning. I'm 

14 Fred DiBiasi, president and CEO of American 

15 Savings Bank in Middletown, Ohio. It's certainly 

16 a privilege to be here today. I don't want to 

17 spend a lot of time reiterating what has already 

18 been said, but I do want to touch on a few things. 

19 Our bank is 44 million in assets. We are 

20 certainly I would imagine the smallest bank 

21 represented here by a long shot. 

22 Alan to your point, you mentioned 15 

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71 

1 employees. We have ten, so I don't know how 

2 you're running so inefficiently but maybe we can 

3 talk a little bit afterwards. 

4 (Laughter.) 

5 MEMBER DIBIASI: With that being 

6 said, we're in southwestern Ohio, equidistance 

7 between Cincinnati and Dayton. Just to give you 

8 an idea of what we've been through, it's hard to 

9 believe it's been ten years. 

10 We're a rust belt, traditional rust 

11 belt community and ten years ago Forbes Magazine 

12 listed Middletown as one of the ten fastest dying 

13 cities in America. I'm pleased to report today, 

14 ten years later, the funeral hasn't happened yet 

15 and we still very much have a pulse and we're 

16 alive and well, and I'm proud to say that. 

17 I'm not going to get into a lot of the 

18 strategies we employed to improve. Obviously 

19 some of it's been a rising tide. But at the same 

20 time, you know, we're a proud community that just 

21 refused to believe in that designation. 

22 I know one of the tools that was made 

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72 

1 available to us that we did take advantage of a 

2 land bank that was formed in our county, and 

3 through the Countrywide settlement that came 

4 through the Attorney General's Office and now 

5 Governor Mike DeWine we were able to take 

6 advantage of some of that funding, and we were 

7 able to eliminate over 400 blighted and tired 

8 housing stock in our community, which certainly 

9 helped. 

10 You know, fast forward today. You 

11 know, demand for housing for the first time since 

12 the Great Recession is finally exceeding the 

13 supply, you know. At all price points, it's 

14 difficult now to find housing in our community. 

15 Any house at any, in practically all 

16 neighborhoods stay on the market less than a 

17 month. They're moving at a rapid pace and being 

18 absorbed quickly. 

19 So that's certainly encouraging. I 

20 know, you know again, not to touch on anything, 

21 but delinquency at our institution is at an all22 time low. It certainly makes it nice to come to 

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73 

1 work every morning, you know. We are not dealing 

2 with asset quality issues and delinquency. It 

3 seems like all other challenges seem to be a lot 

4 more manageable when you're not fighting, you 

5 know, asset quality issues. 

6 So we're happy about that. On the 

7 flip side, you know, 44 million is still 44 

8 million and, you know, we found long term, given 

9 just the environment in general it's just 

10 difficult, relevant and to sustain that 

11 indefinitely. So we made a decision, it's been 

12 a long process in the making, that we're in the 

13 process of merging with another community bank in 

14 our county. 

15 While it pains me to lose a banking 

16 charter, we felt that long term, you know, this 

17 was the best thing for our community, our 

18 depositors, our customers, our employees and we 

19 feel -- again it was a slow process. We were 

20 very deliberate about it. It was about four 

21 years in the works, and we're not quite there yet 

22 but we're getting close. We feel that it's --

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74 

1 when there are opportunities for like-minded 

2 institutions with similar philosophies, we're 

3 both mutual organizations and we feel like just 

4 bringing some scale into the equation just had to 

5 be done long term. 

6 We tried to be a little more forward7 thinking than just, you know, we didn't have to 

8 do anything today. But you know, ten years from 

9 now I think if we look back, I think we're going 

10 to be pleased that we did -- at least that's the 

11 hope anyway. So with that being said, you know 

12 again I'm going to be, wrap up my comments. 

13 Again, very privileged to be here and 

14 grateful for the opportunity to speak to this 

15 group and tell our story a little bit. So thank 

16 you. 

17 MEMBER BESHEAR: I guess I'm the last 

18 one. I'll be brief. Chairman MCWILLIAMS, thank 

19 you very much for having us here. I also want 

20 to recognize our State Bank Commissioner Mick 

21 Thompson, who just started a safety and soundness 

22 exam at my institution on Monday. So you're 

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75 

1 doing a great job Mick. 

2 (Laughter.) 

3 MEMBER BESHEAR: I don't want to 

4 rehash what has been said here. One of the areas 

5 that I wanted to talk about is we're a recently 

6 certified minority depository institution. I 

7 have not had a chance to read the booklet that 

8 we've got here, but I'm very interested in 

9 hearing about our speaker here later on today. 

10 One of the issues as being a recently 

11 certified MDI is collaboration with other banks, 

12 and how we go about recognizing that 

13 collaboration and what sort of credit do they 

14 really get for that collaboration. Another thing 

15 that was spoken to earlier was we're looking for 

16 some clarification on some legislation, I guess, 

17 for how to bank or whether we can bank medical 

18 marijuana businesses. 

19 We're anxious to see that occur, and 

20 we're also, like everybody else here, seeing a 

21 lot of competition in the Oklahoma City market, 

22 that is basically increasing rates on deposits 

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76 

1 and basically decreasing the rates we're able to 

2 quote on loans. So our spreads are being 

3 compressed. So with that being said, I'll 

4 finish. Thank you, Chairman. 

5 MR. DAVIS: Great, and with that it's 

6 currently about 10:25. We've got a break coming 

7 up, let's call it a ten-minute break. Reconvene 

8 at 10:35. Thank you. 

9 (Whereupon, the above-entitled matter 

10 went off the record at 10:22 a.m. and resumed at 

11 10:36 a.m.) 

12 MR. DAVIS: Okay. If folks could 

13 make their way back to their seats, we'll get 

14 started with the next panel. 

15 (Pause.) 

16 MR. DAVIS: Okay. We're going to now 

17 provide the Committee with an update on several 

18 supervisory issues. From our Division of Risk 

19 Management Supervision, we have Doreen Eberley, 

20 the director; Rae-Ann Miller, an associate 

21 director who oversees the risk management policy; 

22 Robert Storch, the FDIC's chief accountant; Ryan 

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77 

1 Billingsley, a corporate expert on capital 

2 markets; and Martin Henning, Deputy Director of 

3 Operational Risk. I'll turn it over to Doreen, 

4 who will kick things off. 

5 MS. EBERLEY: Okay. Thanks a lot, 

6 Chad. So I think as we've got an order that 

7 we're going to go through today. Ryan first is 

8 going to talk about the community bank leverage 

9 ratio and kind of where we are in that process. 

10 Bob's going to cover reduced reporting in Call 

11 Reports for certain institutions with assets of 

12 less than $5 billion. 

13 Rae-Ann next is going to talk about 

14 comments that we received in response to an 

15 advanced notice of proposed rulemaking on the 

16 brokered deposit and interest rate regulations, 

17 and she'll also in the course of that 

18 conversation, Danny, hit on the issue that you 

19 raised about volatile deposits and the discussion 

20 that you may have read in the Report of 

21 Examination. So we'll touch on that. 

22 Then Martin is going to review an 

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78 

1 interagency statement that was issued last week 

2 on risk-focused Bank Secrecy Act and Anti-Money 

3 Laundering Supervision and Examinations. Then 

4 maybe before we get started, I'll hit real 

5 quickly on the other issue that was raised in the 

6 last discussion for questions for us on 

7 succession planning. 

8 So the direction should be all key 

9 employees. So not all employees, but key 

10 employees, and we would expect an institution to 

11 identify who their key employees are that they 

12 need to have that succession planning for. So I 

13 wanted to get that question answered for you. 

14 Okay, Ryan. 

15 MR. BILLINGSLEY: All right. Let's 

16 talk a little bit about capital. So I'm going 

17 to go into the community bank leverage issue in 

18 one minute. I want to take a sidestep and talk 

19 about a rule that was finalized just early this 

20 month actually, what we call the capital 

21 simplifications rule. It made some 

22 modifications to how you calculate Tier 1. 

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79 

1 So remember in 2017 we proposed a rule 

2 that would move the threshold for how you deduct 

3 mortgage servicing assets, certain DTAs, 

4 investments in financial institutions from 10 

5 percent to 25 percent, your so-called threshold 

6 deduction amounts. That rule was actually 

7 finalized in July and will take effect next year. 

8 So effectively what that means is, for 

9 example institutions with concentrations in MSAs, 

10 that threshold where they make a deduction will 

11 go from 10 percent of common equity to 25 percent 

12 of common equity. That will take effect next 

13 year. 

14 Separately, there was an aggregate 

15 threshold deduction that would happen for those 

16 three asset classes. So if you had mortgage 

17 servicing assets, certain DTAs, or investments in 

18 the capital of unconsolidated financial 

19 institutions that in aggregate exceed 15 percent 

20 of your common equity, you would also have to 

21 take a deduction. 

22 That aggregate threshold was 

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80 

1 completely eliminated, so you don't have to worry 

2 about that any longer. So you only have to focus 

3 on those three asset classes individually, and 

4 the threshold was raised -- the threshold for 

5 deduction was raised to 25 percent. 

6 So I just wanted to briefly touch on 

7 that, because it could have implications for the 

8 next thing I'm going to talk about, which is the 

9 community bank leverage ratio. So I think a 

10 couple of folks who were sitting at the table 

11 requested some feedback or some updates on where 

12 we are. 

13 I'm afraid I can't give you the answer 

14 key, which is probably what you expected. But I 

15 can give you some high-level remarks on how the 

16 comment process went, how it finished up, and 

17 kind of where we are. 

18 So the last time we were together, we 

19 were in the middle of the comment process. The 

20 proposal went out in February. The comment 

21 period ended in early April, and I think I updated 

22 you guys and said that at that time, we had about 

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81 

1 160 comments received. 

2 Well, we ended up having over 600, 

3 which is a pretty healthy number, so thank you if 

4 you were one of those, one of those 600. I 

5 thought what I would do is bunch those comment 

6 letters into some themes that you probably have 

7 heard, and things that we're taking on board 

8 quite seriously. 

9 So the first one was a strong 

10 preference for using existing Tier 1 capital in 

11 the numerator of this leverage ratio. For those 

12 familiar with the proposal, we proposed to use 

13 something simpler, just some sort of a balance 

14 sheet driven and a likely number, which is 

15 completely different and separate than Tier 1 

16 capital which you're familiar with. 

17 I can say that an overwhelming 

18 majority of commenters just preferred that we 

19 stick with Tier 1. It's something you 

20 understand, something your boards understand, and 

21 we hear you loud and clear on that one. The 

22 other -- the other two areas of comments that I 

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82 

1 wanted to raise to your attention that we're 

2 taking quite seriously are what I think I can 

3 characterize as a fairly strong opposition to the 

4 PCA proxies that we introduced in the proposal, 

5 and I think we might have had some discussions 

6 about this last time as well. 

7 So in the proposal, how it will work 

8 is when you drop below a community bank leverage 

9 ratio of 9 you have two options. So you could 

10 elect to go back to the risk-based system, or you 

11 could live in the community bank leverage ratio 

12 subject to that, those PCA proxies. So that 

13 effectively meant that if you drop below nine, 

14 you could be adequately capitalized or you could 

15 elect to go back to risk-based. 

16 We got some strong opposition to the 

17 PCA proxy idea, with a preference for just let us 

18 go back to risk-based and maybe think about a 

19 short grace period to do so. So I think that 

20 comment was I think received by actually the most 

21 people, and we're taking that one on board, 

22 considering that as we move forward. 

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83 

1 Lastly and probably not surprisingly, 

2 one of the comments we received was a strong 

3 desire to lower the calibration. So the 

4 legislation suggests that we pick a ratio or 

5 mandates we pick a ratio between eight and ten. 

6 We chose nine, and I think there's a strong 

7 preference by commenters to consider eight, 

8 something lower than nine. 

9 So those are the -- those are the 

10 three big ones we got. We did get comments on 

11 some of the criteria to be a qualifying community 

12 bank, such as certain concentrations in MSAs and 

13 how we calculate the off-balance sheet criteria 

14 and things like that, which I think are great 

15 comments and very helpful. 

16 But those three I mentioned just now, 

17 I think those are the real big ones. We're 

18 really focused on those three right now. I can't 

19 give you an update as far as timing, but I can 

20 tell you it's a front burner issue for us, and I 

21 will actually stop there and I'm happy to take 

22 any questions, comments, jeers or cheers on 

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84 

1 community bank leverage ratio. 

2 MEMBER TURNER: Ryan, can you tell us 

3 who will qualify? Can you -- I mean specifically 

4 what size of bank; how off-balance sheet 

5 commitments might affect qualification? Those 

6 are the two questions I would have. 

7 MR. BILLINGSLEY: Sure. So the 

8 legislation is pretty clear. The size is ten 

9 billion and under, which I think is most. When 

10 we -- the legislation also says we can create a 

11 definition of a quote-unquote qualifying 

12 community bank considering certain risk profiles, 

13 and you were talking about off-balance sheet 

14 commitments. 

15 MEMBER TURNER: Uh-huh. 

16 MR. BILLINGSLEY: So when we 

17 formulated the off-balance sheet risk criteria, 

18 we said hey, you know. If you're under ten 

19 billion and you have off-balance sheet exposures 

20 of less than 25 percent of your total assets, you 

21 know, you meet this sort of qualifying criteria. 

22 Well, one of the comments we got was 

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85 

1 how do we measure that 25 percent? I don't think 

2 it was super clear to folks when they read the 

3 proposal. So what I can say is that what we were 

4 -- how we were envisioning that aspect to be 

5 calculated is if you think how you fill out 

6 Schedule RC-R today, you have a lot of off7 balance sheet lines you have to fill in, sort of 

8 the notional amounts of those things and some of 

9 those things get credit conversion factors and 

10 what-not. 

11 So you can think of sort of the 

12 notional amount of those off-balance sheet items 

13 as how you calculate your 25 percent, with a few 

14 key carve-outs. So we would not expect you to 

15 add things like unconditionally cancellable 

16 commitments to that, to that number. We got 

17 comments about how, you know, mortgage banking 

18 exposures might go into that off-balance sheet 

19 filter, things like rate locks. 

20 A lot of those things don't go into 

21 your risk-based calculation today, so they would 

22 not go into this off-balance sheet filter moving 

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86 

1 forward. So I think that's an area. If we move 

2 forward with such a criteria where there's a lot 

3 of room for this clarification, simplification, 

4 make sure it's clear. 

5 I can say that, you know, as proposed 

6 roughly 80-85 percent of banks under ten billion 

7 would qualify, so it's a giant chunk. And then 

8 we got comments that, you know, depending on 

9 where you hit the ratio, you can even get more. 

10 So is that helpful or --

11 MEMBER TURNER: Yeah, no. That's 

12 great. Yeah, that's very helpful. 

13 MEMBER DONNELLY: Ryan how -- kind of 

14 help explain the process from now. You got 600 

15 comments in there. Somewhere in the building 

16 somebody's looking at them. What is the process, 

17 so I can take that back and explain the process 

18 now that the comment period's over? 

19 MR. BILLINGSLEY: Sure. 

20 MEMBER DONNELLY: Where do we go from 

21 here? 

22 MR. BILLINGSLEY: That's a fair 

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1 question. So typically how it works is we -- we 

2 have staff who at the FDIC work closely with staff 

3 at the OCC and at the Fed. So we do a lot of 

4 joint rulemakings with those guys, because it 

5 impacts the same firms. 

6 So we spend a lot of time going 

7 through those comments, digesting them, coming up 

8 with recommendations for folks like the Chairman 

9 and Doreen to consider as we move forward. So 

10 we're still in that process now, trying to like 

11 wrangle all the comments, put together a final 

12 package for our Board's consideration. That's 

13 exactly where we are right now. 

14 And I can tell you that, you know, 

15 like I said before, it's a front burner issue so 

16 I can't give you timing. But it's, you know, 

17 hopefully in the near future you'll see a final 

18 rule. But the deliberation around comments, you 

19 know, we have staff read through all the comment 

20 letters, digest them all and try to figure out, 

21 you know. 

22 If you can think about the written 

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1 comment process with the interagency, you can't 

2 possibly make every commenter happy because 

3 there's -- you can't do everything for everyone 

4 because it doesn't make sense, not mutually 

5 exclusive comments. 

6 MEMBER DONNELLY: Sure. 

7 MR. BILLINGSLEY: So going through 

8 that process, figuring out how we move forward, 

9 what's the best way to take on board those 

10 comments and move forward with a final rule we 

11 feel good about is the process we're in right 

12 now. 

13 MEMBER DONNELLY: And the final 

14 decision-making is right here? 

15 MR. BILLINGSLEY: Amongst the other 

16 banking agencies --

17 (Simultaneous speaking.) 

18 MEMBER DONNELLY: Thank you. 

19 MR. BILLINGSLEY: Yeah, exactly. 

20 MEMBER DONNELLY: Sorry. Just had to 

21 ask. Thank you. 

22 MR. BILLINGSLEY: Sure, yeah. 

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1 MR. STORCH: I guess it's my turn. 

2 Good morning and I'm pleased to be with you once 

3 again, updating you on developments affecting the 

4 Consolidated Reports of Condition and Income or 

5 more affectionately known as the Call Report. In 

6 June, the banking agencies, and I won't say 

7 affectionately by whom. 

8 In June the banking agencies approved 

9 and published a final rule to implement Section 

10 205 of the Economic Growth, Regulatory Relief and 

11 Consumer Protection Act. Section 205 requires 

12 the agencies to issue regulations to allow for 

13 reduced reporting in the Call Reports in the 

14 first and third calendar quarters, for 

15 institutions that have less than $5 billion in 

16 assets and meet other appropriate criteria. 

17 Under the final rule that the agencies 

18 adopted besides the $5 billion asset-size test, 

19 the other criteria for eligibility to file the 

20 051 Call Report are not much different than they 

21 are today, where we have a billion-dollar size 

22 limit for the 051. 

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1 An institution must have no foreign 

2 offices, is not an advanced approaches 

3 institution for regulatory capital purposes, and 

4 the new one is that it's not treated as a large 

5 or highly complex institution for deposit 

6 insurance assessment purposes. That comes into 

7 play sometimes around the $5 billion size mark. 

8 It wasn't really relevant at a billion dollars. 

9 And these eligibility criteria are the 

10 same as those in the proposed Section 205 rule 

11 that the agencies issued for comment in November 

12 of 2018. So the final rule in the agencies' view 

13 at least meets the statutory requirements of 

14 Section 205 by expanding eligibility for filing 

15 the 051 Call Report to institutions with one 

16 billion or more or less than five billion in total 

17 consolidated assets, and reducing their reporting 

18 frequency for a range of data items in the 051 

19 Call Report for the first and third calendar 

20 quarters beyond those that already had reduced 

21 reporting in those calendar quarters. 

22 The agencies chose to use the existing 

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91 

1 streamlined FFIEC 051 Call Report as the version 

2 of the Call Report to implement Section 205, 

3 because it's already the version of the Call 

4 Report that collects the least amount of 

5 information compared to the other versions, the 

6 041 and the 031 for banks with foreign offices in 

7 general. 

8 There already is reduced reporting 

9 frequency in the first and third quarters, which 

10 was one of the objectives the agency set when 

11 they first implemented the FFIEC 051 in March of 

12 2017 and then further reduced reporting burden in 

13 that report in June of 2018. The majority of 

14 institutions with less than five billion in total 

15 assets already use the FFIEC 051 Call Report are 

16 familiar with it and wouldn't have to go through 

17 any changes if we were to introduce a fourth 

18 version of the Call Report. 

19 Of course an otherwise eligible 

20 institution is not required to file the FFIEC 051 

21 Call Report and has the option to file the FFIEC 

22 041 call report. More than three quarters of the 

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92 

1 approximately 4,800 institutions with less than 

2 $1 billion in assets already file the FFIEC 051, 

3 and by expanding eligibility to $5 billion in 

4 total assets about 550 more institutions will be 

5 eligible to file the FFIEC 051. 

6 Also in conjunction with the Section 

7 205 final rule, the agencies approved a number of 

8 changes to the FFIEC 051 reporting requirements. 

9 These reporting changes, also with the increase 

10 to $5 billion in the asset size eligibility 

11 criterion for this Call Report have been 

12 submitted to the U.S. Office of Management and 

13 Budget pursuant to the Paperwork Reduction Act 

14 and these reporting changes will take effect 

15 September 30th, 2019, subject to OMB approval. 

16 The specific reporting changes 

17 include a reduction in the reporting frequency 

18 from quarterly to semi-annually for certain 

19 existing data items in the FFIEC 051 Call Report, 

20 including reducing the detailed regulatory 

21 capital risk-weighting data, details on troubled 

22 debt restructurings, website addresses and trade 

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93 

1 names and certain trust data. 

2 So this further increases the number 

3 of FFIEC 051 data items for which semi-annual 

4 reporting will apply. 

5 In addition, for those institutions 

6 with $1 billion or more in total assets that are 

7 now eligible to file the 051, certain data items 

8 pertaining to estimated and uninsured deposits, 

9 disaggregated data on the credit loss allowances, 

10 and certain data on consumer deposit account 

11 products that are currently reported in the FFIEC 

12 041 are being added to the FFIEC 051, but 

13 generally will be collected only semi-annual or 

14 annually rather than quarterly. 

15 These items would not be required from 

16 institutions with less than $1 billion in total 

17 assets that file the FFIEC 051 Call Report. 

18 In the Section 205 final rule, the 

19 agencies indicate that they are committed to 

20 looking for ways to further reduce the reporting 

21 burden associated with the FFIEC 051 Call Report, 

22 including for the reporting frequency, reducing 

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94 

1 the reporting frequency in the first and third 

2 quarters. 

3 The banking agencies have begun 

4 discussions on what these next steps will entail, 

5 while taking into consideration the need to 

6 collect sufficient information for the agencies 

7 to fulfill their statutory roles of chartering, 

8 licensing, supervising and insuring depository 

9 institutions. 

10 And of course any proposed changes 

11 coming out of these next steps efforts would be 

12 issued for public comment. Ryan touched on a 

13 couple of capital rules, and they have some Call 

14 Report consequences. 

15 So I'll just bring to your attention 

16 the CBLR proposal, because it's an entirely 

17 different framework than the existing risk-based 

18 capital framework, would lead to a change in the 

19 reporting of capital data in the Call Report and 

20 that's looked at as one possible area where 

21 smaller institutions would be able to benefit 

22 from a reduced reporting burden. 

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95 

1 The agencies did issue a proposed Call 

2 Report schedule for CBLR information in April. 

3 The comment period ended in June. Surprisingly, 

4 we got no comments on the Call Report proposal, 

5 probably because you got 600 on the rulemaking 

6 proposal. To the extent, based on the comments 

7 that the agencies received, and you talked about 

8 the process for evaluating them, if there are 

9 modifications that ultimately get made to the 

10 proposal that was issued for CBLR, those 

11 corresponding changes would be made to the Call 

12 Report collection of data for CBLR as well. 

13 And then the reporting changes in the 

14 Call Report for CBLR would take effect in the 

15 quarter when the CBLR itself would take effect, 

16 whenever that may be. And then with respect to 

17 capital simplifications, Ryan talked about the 

18 changes in thresholds. The existing Call Report 

19 Schedule RC-R is built around the existing 

20 thresholds that applied to the common equity Tier 

21 1 calculation. 

22 So we'll have to go through a notice 

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96 

1 and comment process to alter Schedule RC-R to 

2 accommodate the simplifications rule. So that 

3 proposal is being developed and should be issued 

4 for public comment in the coming weeks. With 

5 that, we can turn it to any questions you may 

6 have. 

7 (No response.) 

8 MS. MILLER: Okay, all right. I'll 

9 go. Thanks, Bob. So thanks everybody for your 

10 comments on the brokered deposit regulations. 

11 You know, we're hard at work on that. Back in 

12 December, we issued, our board issued an advanced 

13 notice of proposed rulemaking, and the idea there 

14 was to obtain some input on our brokered deposit 

15 regulations, which also have the interest rate of 

16 regulations embedded in there. 

17 We were looking at and you raised some 

18 of these issues earlier today, you know. Markets 

19 have really changed since even the last time we 

20 changed our regulations in '09, in terms of 

21 technology, the market itself, the types of 

22 products that are involved. 

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97 

1 So we asked about all aspects of the 

2 regulation, but we were particularly interested 

3 in two areas. Number one, the way we have 

4 interpreted what constitutes a deposit broker, 

5 what does it mean to facilitate the placement of 

6 deposits, as well as the way we calculate the 

7 interest rate caps that are applicable to less 

8 than well capitalized banks. 

9 We received about 130 comments in 

10 total. The Chairman has expressed a desire for 

11 us to tackle the issue in two parts basically. 

12 So first focusing on the calculation of the rate 

13 caps that are applicable to less than well 

14 capitalized institutions, and then moving on to 

15 broader policy issues related to brokered 

16 deposits. 

17 So we're actively involved in the 

18 rulemaking process. Even in the ANPR is 

19 considered the rulemaking process. So I'm just 

20 going to provide sort of a general overview of 

21 the comments that we received, let you know that 

22 we're certainly hard at work on that first part 

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98 

1 of the rulemaking. Plus, if I revealed anything 

2 else, my lawyer would probably tackle me. She 

3 just snuck in. 

4 So we talked to this group a few 

5 meetings ago probably now, you know. The 

6 national rate calculation first was put on the 

7 books in 1992, and from then to 2009 the 

8 calculation was pegged to Treasuries. The way 

9 we did it was we used a percentage of Treasury. 

10 So for smaller denomination deposits that were 

11 fully insured we used a 1.2 times, and then for 

12 larger at the time was over 100,000. We called 

13 those jumbo. It was pegged to 1.3 times, a 

14 similar tenor for Treasuries, and that was the 

15 national rate. 

16 And then the cap, which was, you know, 

17 applicable to less than well capitalized 

18 institutions, added 75 basis points to that 

19 national rate. So this worked fairly well for 

20 most of the period 1992 to probably mid-2000's, 

21 since deposit rates and Treasuries were sort of 

22 aligned moving in the same direction. But the 

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99 

1 meaningfulness even during that period of that 

2 flat 75 basis points was really highly correlated 

3 to the absolute level of rates at any given time. 

4 And then during the crisis, you'll 

5 remember that sort of the relationship between 

6 deposit rates and Treasuries broke, and that was 

7 because yields on Treasuries plummeted when 

8 folks, you know, in the global crisis flew to 

9 quality. So we changed the calculation in 2009 

10 and it was effective in January 2010, and we moved 

11 it from a peg to Treasuries to actual rates paid. 

12 The actual rates paid are based on a 

13 survey of various product types and maturities, 

14 and that survey is done for us by a company and 

15 we publish that weekly. At the time, we kept the 

16 75 basis points to calculate the caps applicable 

17 to less than well capitalized banks. Another 

18 change that people sometimes forget is we made 

19 that the presumption. We made the national rate 

20 the presumption for the applicable rate. 

21 But that presumption is rebuttable, in 

22 that an institution can seek a high rate 

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100 

1 determination from us if they believe that their 

2 local rates are higher. Now during the heat of 

3 the crisis, this presumption held. So you know, 

4 when we had hundreds of problem banks, we were 

5 processing hundreds of rate determinations, and 

6 so the presumption sort of removed that burden as 

7 well. 

8 So I mentioned the process became 

9 effective in 2010. It raised the caps during the 

10 crisis. So we had already troubled banks that 

11 were deeply, deeply in distress and didn't 

12 automatically throw them into a liquidity issue. 

13 So according to the preamble at that time, the 

14 new calculation had, and we believe continues to 

15 have, at least several advantages. 

16 So first of all, it took advantage of 

17 new data on actual rates paid, and that data was 

18 not available in 1992 so that's why we went to 

19 Treasuries as a proxy. Relatedly, the data 

20 covered non-maturity deposits. And so several 

21 of you mentioned how things have really changed. 

22 Think about how they've changed since 1992. 

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101 

1 The regulation didn't really consider 

2 at that time that non-maturity deposits could 

3 actually be brokered. But that's certainly a 

4 bigger piece of the pie now. For those types of 

5 deposits, using Treasury as a peg is really not 

6 ideal because obviously Treasuries do have a 

7 maturity. So the crisis, you know, as the crisis 

8 resolved, you know, the rates stayed very low for 

9 a fairly long period of time. 

10 We had another issue where those 75 

11 basis points became less effective as a governor 

12 for those less than well capitalized banks. So 

13 in other words, you know, 75 basis points over 

14 zero is not really a cap or a restricter at all. 

15 So that was a different kind of problem. 

16 And then in 2015 interest rates 

17 started to rise, and we had a situation where 

18 banks especially the large banks were still flush 

19 with cash and were very slow to raise their rates. 

20 So the national rate has definitely grown a 

21 little bit, but very, very slowly. At the same 

22 time, we've got a market, some of you have 

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102 

1 mentioned it. 

2 It's really heated at, especially at the 

3 offering. I think it was Kenneth was mentioning 

4 people with 25 basis points have suddenly woken 

5 up and said oh my goodness, others can pay two. 

6 I want two now. And so that took a while but 

7 certainly is working its way through the system. 

8 We see a number of promotions. You'll see off9 tenor CDs with higher rates. You might see cash 

10 deals for moving checking accounts. 

11 So a lot of interesting things that 

12 are not accounted for in the current national 

13 calculations. So another thing that's occurred 

14 is that because of all these market dynamics and 

15 the fact that the national rate is so low, nearly 

16 all of the less than well-capitalized banks at 

17 this point are seeking local rate determinations 

18 rather than relying on the presumption. So we're 

19 sort of back to where we were before we changed 

20 it to a presumption. 

21 So the commenters in the ANPR raised 

22 a lot of these points. You've raised some of 

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103 

1 them here, and I'll just give you sort of a flavor 

2 of some of the suggestions they had to fix it. 

3 So some suggested including other factors in the 

4 peg beyond just published rates. So some of them 

5 talked about is there a way to factor in these 

6 special features? 

7 Some advocated for one bank, one vote 

8 versus all branches. So right now if you're a 

9 bank with -- meaning you're one of the large 

10 institutions, you have -- everybody offers a one11 year CD. Every single branch that offers that 

12 CD gets a so-called vote in the process. Some 

13 talked about including credit unions in the 

14 national rate calculation, not just a local rate 

15 calculation. You will recall they are allowed 

16 in the local rate calculation. 

17 And then others talk about the rise of 

18 Internet banks and Internet competition, and is 

19 it really the appropriate way to talk about 

20 market power by branch and should it really be by 

21 some other factor, to recognize the power of 

22 those institutions. So pricing power, and those 

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104 

1 institutions tend to price at the higher, higher 

2 levels as well. 

3 So we had other comments related to 

4 what it means to be significantly above the 

5 prevailing rate, and it was recognized that this 

6 idea about a flat rate has its limitations. One 

7 of our staffers says, you know, it's sometimes 

8 like a clock. It's right twice a day. You know, 

9 so depending on where rates, the absolute level 

10 of rates are depends on the meaningfulness of the 

11 flat rate. 

12 So some talked about using a blended 

13 approach, where you could use the higher of 

14 perhaps the old way we did things with Treasury, 

15 or the 75 bps. And then we have still others 

16 that asked us to search for a more dynamic 

17 approach, maybe something that could sort of 

18 stand the test of time would be applicable in 

19 various rate and market scenarios. 

20 So those are sort of the high-level 

21 comments that we received. We are working very 

22 hard. We're trying to propose changes in the 

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105 

1 short order in an NPR. The process there is we 

2 would get a package together for our board, who 

3 would vote on it. We would issue that for public 

4 comment, and look at those comments and take them 

5 into consideration before issuing a final. 

6 Unlike the capital rule that Bobbie 

7 mentioned, some of the rules I work on, this is 

8 an FDIC-only regulation. So we don't have --

9 while we do talk to our sister regulators about 

10 the process, this is actually a rulemaking that's 

11 reserved for us. 

12 Some other comments we received on 

13 brokered kind of relates to what it means to 

14 facilitate. We've got a lot of comments about 

15 affiliates. Hey, this is a new way of doing 

16 business where we're all one family. Brokered 

17 sweeps, types of programs that 

18 perhaps when the law was put 

19 savings accounts, prepaids, 

20 program managers and that ilk. 

were not around 

in place, health 

other types of 

So that's the --

21 those will be considered in the second step of 

22 the rulemaking. 

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106 

1 Finally, Doreen just asked me to touch 

2 base on some other commenters and some of the 

3 things you said here before about the idea of 

4 volatile deposits and from a supervisory 

5 perspective, we really became aware of an issue 

6 probably towards the end of last year, where 

7 banks were concerned that examiners were 

8 characterizing, you know, regular old deposits as 

9 volatile funding sources in the exam report and 

10 presenting them that way, even if they were 

11 complimentary of the risk management of those. 

12 And so we clarified instructions in 

13 our exam manual and to examiners in our training 

14 about the difference between characteristics of 

15 the deposit and types of deposits. So we 

16 basically instructed not to list deposits in the 

17 exam report as volatile, but actually talk about 

18 the types of deposits they are, and if the 

19 characteristics indicate that they are less than 

20 stable or volatile, then that's where the 

21 discussion would go. 

22 So hopefully that clarification is 

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107 

1 working its way through the exam process. That's 

2 all I have. 

3 MEMBER HANRAHAN: Rae-Ann, thanks for 

4 the history on the evolution of the national rate 

5 cap. That's very helpful. Even though the 

6 relationship between market rates and Treasuries 

7 broke down for a while, intuitively it just makes 

8 sense to me that that should be a consideration 

9 for the formula at 120 or 130 percent or what 

10 have you. 

11 If the U.S. government can borrow 

12 money at one rate, it makes sense that banks might 

13 have to pay a little bit more than that to borrow 

14 money. So I saw at least one commenter, and you 

15 just made reference to somebody suggesting a 

16 greater of test between market rates and the 

17 Treasury. Is that something that the FDIC's open 

18 to considering? 

19 MS. MILLER: Yeah. I mean we're 

20 considering, you know, all the comments that had 

21 been provided and you know, there's a number of 

22 ways you could go. So this is good. This is an 

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108 

1 interesting process, where you know, in all of 

2 our rulemakings we try to consider an approach 

3 and then alternatives. So we'll be talking about 

4 things like that in the NPR. 

5 MEMBER HANRAHAN: Okay. 

6 MEMBER TURNER: One question I had 

7 Rae-Ann, it seemed to me -- it seemed to me really 

8 from a regulator's perspective, there's a 

9 dangerous kind of a situation given where the 

10 national rate cap is now, you know if -- and I 

11 don't know how common this is. But if you're --

12 if you examine a bank and you think for one reason 

13 or another the bank's doing okay, they have 

14 strong levels of capital but for one reason or 

15 another you believe well, we want you to maintain 

16 maybe a little higher than the well-capitalized 

17 level because you have a little more risk in your 

18 loan portfolio or we see some operational issues 

19 that we're concerned about, you put that in a 

20 memorandum and then they're under a capital order 

21 which throws them under this -- the national rate 

22 cap situation. 

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109 

1 You know, just we wrote a comment to 

2 you and you know, I don't feel like we're high 

3 rate payers. But a big chunk of our CD portfolio 

4 is over the national rate cap. And so is there 

5 any thought to kind of moderating that effect, 

6 where you know, if you're in compliance with a 

7 capital memorandum, a capital directive that's 

8 been issued to you in a memorandum, then you 

9 wouldn't be deemed to be less than well 

10 capitalized. 

11 MS. MILLER: I think that's a very 

12 good point Joe. But before you even go there, 

13 there is still the local rate determination. So 

14 in that case if you were over the national, and 

15 this is what's been happening is for institutions 

16 that are in trouble or having some problems, they 

17 come to us and typically they'll get that. 

18 So understand that's a stopgap 

19 measure. But I think yeah, I mean being flexible 

20 and being situation focused for enforcement 

21 actions is something we're very serious about. 

22 If there's an institution, you know, that's but 

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110 

1 for that particular provision would be adequately 

2 or well capitalized then we're going to 

3 definitely consider that. 

4 MEMBER TURNER: I could just see a 

5 regulator thinking I probably should. Prudent 

6 regulation would require me to, you know, put a 

7 capital directive on this bank. But I really 

8 don't want to because it may throw them into a 

9 liquidity crisis. That's not -- that's not the 

10 kind of influence you want your examiners to be 

11 under. 

12 MS. MILLER: Right, right. I think 

13 that's right. It requires flexibility. It 

14 requires an institution-by-institution approach 

15 and no one-size-fits-all. 

16 MEMBER TURNER: And then the only 

17 other comment I would make, and I know you're 

18 aware of this, but the current survey, I don't 

19 know that it captures so much rates paid as it 

20 does rates offered. Those really aren't the 

21 rates -- I mean the rates that I'm sure you're 

22 getting from Great Southern branches aren't what 

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111 

1 we're actually paying in most cases. So and I 

2 assume that's probably true, you know, across the 

3 country. 

4 MEMBER DONNELLY: Rae-Ann if I may, 

5 I'll let my comment stand for my -- I don't want 

6 to change my comment. But the decision when we 

7 have to ask for an exemption or whatever you want 

8 to call it, is that a regional or is that a FDIC, 

9 a Washington decision? 

10 MS. MILLER: That is delegated to the 

11 region. 

12 MEMBER DONNELLY: Okay, thank you. 

13 MEMBER EPSTEIN: Rae-Ann, may I make 

14 one quick comment? When you look at perhaps 

15 regional rates as a consideration for the 

16 national rate cap, is there any thought of using 

17 another credible wholesale funding source that 

18 does take regional competitive differences into 

19 effect, such as Federal Home Loan Bank advance 

20 rates? 

21 MS. MILLER: We did get -- we did get 

22 a number of comments about that, and so we're 

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112 

1 definitely looking at that issue. 

2 MEMBER EPSTEIN: Thank you. 

3 MS. EBERLEY: Okay, Martin. 

4 MR. HENNING: Well good morning. My 

5 job is to update you on the interagency work to 

6 improve the effectiveness and efficiency of our 

7 BSA/AML supervision. I think you've heard about 

8 this before but last Monday, the 22nd, we issued 

9 with our fellow regulators our third joint 

10 statement, and it focuses on our methods for risk 

11 focusing examinations. 

12 It's in your packet. I think it's the 

13 last attachment for this session. As a reminder, 

14 the first statement we issued last year revolved 

15 around sharing BSA/AML resources and particular 

16 situations, and gave examples of situations where 

17 that would be in our view reasonable. The second 

18 statement after that was a statement supporting 

19 innovation in BSA/AML, and certainly we see lots 

20 of examples in companies and banks doing that, 

21 and particularly in the BSA/AML space. So that 

22 was the second statement. 

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113 

1 This statement focuses really on 

2 improving the transparency around our own 

3 planning and actually conducting examinations to 

4 be risk-focused. The statement says examiner 

5 risk focusing really starts with good bank risk 

6 focusing. 

7 Those are my words, and it talks a 

8 little bit about what you probably already know, 

9 that banks that manage their BSA/AML risk have 

10 good risk assessments, that characterize for 

11 management and the board of directors where that 

12 risk lies, what kinds of things they need to be 

13 concerned about and how to design effective 

14 programs or for example, detecting suspicious 

15 activity. 

16 And the statement says that that's 

17 something that obviously our examiners should be 

18 and do rely on coming in and thinking about what 

19 the scope of the examination is going to be, what 

20 kinds of resources they need to bring in to do 

21 that examination, and how much time they need to 

22 spend on it. 

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114 

1 A second example of risk focusing and 

2 leveraging is in the independent testing and 

3 audit. So if an institution has a good risk 

4 assessment process for understanding their risk 

5 and implements a program and then has independent 

6 test and audit of that program on an ongoing 

7 basis, again that is something that examiners can 

8 utilize to understand the conditions at the 

9 institution with regard to BSA/AML and leverage, 

10 and would impact again their scoping of their 

11 work and the allocation of resources. 

12 The statement goes into a little bit 

13 of depth on some other things examiners look at, 

14 like you know, compliance with previous -- any 

15 actions regulators took previously. Certainly 

16 talking with management before the examination 

17 starts to understand if there are material 

18 changes in the products, geographies, you know, 

19 other factors that might influence BSA/AML risk. 

20 Obviously where the profile is not 

21 changing in terms of the complexity, you would 

22 expect and everything else being equal that the 

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115 

1 examiner's allocation of resources would be lower 

2 than otherwise would be the case. You know, the 

3 bottom line it says in the conclusion, examiners 

4 should be allocating more resources to higher5 risk situations in institutions and lower 

6 resources to lower risk. 

7 It gives a couple of examples at the 

8 end. Request lists should be shorter when the 

9 risk and the complexity is smaller. Transaction 

10 testing can also be less when the risks just 

11 aren't there. So I would add that it's not in 

12 the statement. At the FDIC, we're spending a 

13 fair amount of time making sure we're consistent 

14 across the country in this regard. 

15 We've actually got a new work program 

16 that examiners began using this year that helps 

17 them identify consistently the characteristics to 

18 look at. We had several different ways in a 

19 couple of regions to look at the characteristics 

20 of an institution from a BSA/AML standpoint and 

21 come to a conclusion about the level of 

22 complexity. 

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116 

1 We've taken those examples, joined 

2 them together and then implemented regional work 

3 or I'm sorry a national work program that we 

4 believe will cause our examiners to be even more 

5 consistent in their view of BSA/AML risk going 

6 forward. So that's really the update on that 

7 statement. There's more to come. There's an 

8 interagency working group that meets every week, 

9 in fact met this morning. 

10 The principals are meeting every 

11 month. There is more work underway, but that's 

12 the update on the third, the third statement that 

13 we've made. Be happy to take any questions you 

14 have. 

15 MEMBER SHETTLESWORTH: Just a 

16 comment. Some anxiety we're seeing on our end 

17 is in the marijuana space. Not from the 

18 standpoint that we're interested in banking, 

19 directly banking that industry, but more than one 

20 occasion we've had a loan transaction where a 

21 tenant now is in the marijuana space and occupies 

22 that of our customer. 

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1 It's interesting, because when you 

2 have your customers fill out the questionnaire 

3 and what their bank is and it says are you 

4 directly or indirectly involved in marijuana 

5 making, our customers want to answer correctly. 

6 They don't want to lie, so they answer yes because 

7 I have a tenant in that space who is paying that. 

8 I am theoretically indirectly involved in that 

9 space. 

10 It's causing a lot of anxiety from the 

11 bank level as well as our compliance consultants, 

12 who are kind of helping us advise, or advise us 

13 during this process. This issue I'll bring up 

14 with our FDIC examiners at the end of September 

15 when they start, because I'd like to get their 

16 feedback on it. 

17 But it's a really interesting 

18 situation where you have some consultants 

19 seemingly interpreting the rule in their way, and 

20 I don't know -- in their own way, basing it on 

21 the percentage of income that that industry may 

22 create for that one real estate property. It's 

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1 a bizarre phenomenon, because whether it's 100 

2 percent or one percent, I mean it's just an 

3 interesting situation. 

4 I don't think there is any definition 

5 like that in the regulatory -- in the rule book 

6 anywhere. So just be aware that that's causing 

7 some sensitivity, and I don't want to be in a 

8 situation where I can't bank my customer because 

9 they now have a tenant who occupies this space 

10 when that's helping repay our loan. So more of 

11 a comment to just kind of help us with that issue, 

12 because it's going to come up again. 

13 MR. HENNING: Yes, and as a matter of 

14 fact I recall that that I think the last time my 

15 colleague Lisa Arquette talked to this group 

16 about this issue, that was exactly the example. 

17 That's a preeminent example of a CRE property 

18 where tenants might be marijuana businesses. 

19 MS. EBERLEY: And I would just 

20 encourage you to reach out to FinCEN. Call their 

21 800 number and ask the question. 

22 MEMBER SHETTLESWORTH: Sure. 

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1 MS. EBERLEY: About whether under 

2 FinCEN's interpretations as opposed to a 

3 consultant's, would you even be required to file 

4 SARS in that situation. 

5 MR. DAVIS: Okay, thank you. Next up 

6 is Anthony Lowe, the FDIC's Ombudsman. He'll 

7 provide an update to the Committee. 

8 MR. LOWE: Okay, good morning 

9 everyone. 

10 PARTICIPANTS: Good morning. 

11 MR. LOWE: Chairman MCWILLIAMS, 

12 Director Gruenberg and all the members of the 

13 Advisory Committee. I'm very honored to be able 

14 to join you again today to talk with you about 

15 some of the important work that we're doing at 

16 the Office of Ombudsman. 

17 This morning I'm going to spend a few 

18 minutes with you and I'm definitely going to 

19 invite you to have some questions for me, about 

20 an initiative that we're leading with regard to 

21 review of the FDIC's guidelines for filing 

22 appeals of material supervisory determinations. 

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1 For a historical background, the 

2 process that we have now was implemented back in 

3 1995 as required by the Riegle Community 

4 Development Regulatory Improvement Act of 1994, 

5 to establish an independent interagency appellate 

6 process with regard to decisions made by the 

7 FDIC. 

8 Appeal decisions by the SARC or 

9 Supervisory Appeals Review Committee averaged 

10 seven per year for the first five years of the 

11 process, 1995 through '99. 

12 However, for the previous five-year 

13 period, the volume of appeals has represented 

14 less than one-tenth of one percent of the 

15 aggregate risk management and consumer compliance 

16 examinations conducted by the FDIC, and I have 

17 some charts on the next slide that we'll take a 

18 look at. 

19 So we asked the question why is this 

20 level so low, and I'll ask you all if you have 

21 some comments here to definitely weigh in here. 

22 I met with my group and we came up with three 

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1 primary, you know, thoughts in this regard. It 

2 could simply be that there's an absence of a 

3 disagreement with the examination findings; a 

4 lack of industry knowledge about or confidence in 

5 the appeals process, or an unwillingness to 

6 potentially upset a favorable relationship with 

7 the examination team. 

8 You know, we haven't done really a 

9 study or don't have any empirical evidence, you 

10 know, to define if it's one or the other. I 

11 personally think it's probably a combination of 

12 all three, and again I do welcome your input here 

13 with your thoughts in this regard. 

14 These slides do give you some 

15 information with regard to the volume of appeals, 

16 reviews and appeals that we've had over the last 

17 five years, and as a frame of reference again, we 

18 do have approximately 3,000 aggregate risk and 

19 compliance examinations each year conducted by 

20 FDIC. 

21 If you do consider that we do also 

22 have IT examinations, CRA reviews, municipal 

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1 security dealer reviews, trust examinations and 

2 some other type of examinations that we do issue 

3 ratings, and these would be material supervisory 

4 determinations. 

5 Unbelievably, this less than one6 tenth of one percent rating or ratio would be 

7 even less or much more severe. So I think it's 

8 important to think about, you know, what is a 

9 material supervisory determination and broadly 

10 defined, it's virtually any finding, conclusion 

11 or decision outside of a determination to pursue 

12 a formal corrective action that's derived from an 

13 examination, certain types of application denials 

14 and the laundry list that we have here with regard 

15 to MRBAs, violations, classified assets, the ALLL 

16 adequacy, virtually anything that you can think 

17 about with regard to the conduct of an 

18 examination is generally going to fall into that 

19 definition of a material supervisory 

20 determination. 

21 I did want to talk a little bit about 

22 the current process that we have here at FDIC. 

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1 Generally, we do anticipate and hope that banks 

2 will make a good faith effort, and I've listened 

3 to the conversation during the round table this 

4 morning. It does appear that you all have taken 

5 it onto yourselves to have discussions, engage 

6 with the examiners during the course of the 

7 examinations and try to resolve any disagreements 

8 that you might have with regard to your 

9 examination findings. 

10 If that process is unsuccessful, it's 

11 hoped that you would escalate that to a 

12 management-level official and if needed, all the 

13 way to the regional director and hopefully get it 

14 resolved. Unfortunately, there will on occasion 

15 be, you know, those opportunities where the 

16 informal route does not prove successful, and we 

17 do have the occasion for banks to pursue under 

18 our guidelines a review of a material supervisory 

19 determination. 

20 The first step for a bank to pursue, 

21 depending on if it's a compliance or on the risk 

22 side, is to approach the division director in 

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1 writing with a request for a review. Now this 

2 needs to be done within 60 days after the bank 

3 has been issued or has received a written 

4 communication of a material supervisory 

5 determination. In its simplest form, this is 

6 usually when the bank receives a report of 

7 examination. 

8 Generally, this -- the request for 

9 review needs to be in writing. It should be 

10 approved by the bank's board of directors. It 

11 should clearly indicate what the impact of this 

12 area that the bank is asking for review has on 

13 the bank, and it should clearly indicate why they 

14 think the area needs to be reconsidered. 

15 The division director generally has up 

16 to 45 days and that can be extended to issue an 

17 opinion or a finding with regard to that request 

18 for a review. Any questions so far, comments? 

19 After the division director issues 

20 their finding, there is an opportunity if the 

21 bank does not agree with the division director's 

22 finding or their decision, that a formal appeal 

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125 

1 can be filed with the Supervisory Appeals Review 

2 Committee. This has to be done within 30 days 

3 after the division director has issued their 

4 opinion. 

5 At that stage, the bank can ask to 

6 have the opportunity to an oral meeting in person 

7 with the Supervisory Appeals Review Committee. 

8 I understand that the Chairman of that Committee 

9 is a very forthcoming person, very open to having 

10 banks come in. I think the Chairman is here 

11 right now. But the Committee, you know, does 

12 have oral meetings oftentimes and generally any 

13 information that has been presented at the 

14 division director level also is presented at the 

15 SARC review level. 

16 Generally, no new information can be presented at 

17 the SARC level unless it has been approved in 

18 advance by the SARC Chairman. 

19 So with the backdrop of the 

20 historically low volume of reviews of appeals and 

21 anecdotal information from our regional ombudsmen 

22 about concerns from bankers and at least one 

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126 

1 member of this Committee who has talked to me in 

2 confidence about concerns about potential adverse 

3 impacts if banks do file appeals, we're going to 

4 be launching over the next couple of months a 

5 two-pronged strategy to solicit input from the 

6 industry on our current appeals process. 

7 The first part of this strategy, which 

8 will be launched within the next couple of weeks, 

9 will consist of the issuance of a financial 

10 institution letter soliciting comments and 

11 suggestions on all avenues that banks seek for 

12 resolving disputes over examinations and other 

13 material findings through discussions with 

14 examiners, our regional office staff, division 

15 directors and all the way up to the Supervisory 

16 Appeals Review Committee. 

17 This will be done through a request 

18 for information or RFI, and it would include a 

19 series of questions. I think right now the draft 

20 has about 13 questions that we're going to be 

21 asking the industry for feedback on. I'll just 

22 read a handful of these questions, and again I 

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127 

1 definitely do want your feedback on these. 

2 Just a couple of these questions. Do 

3 barriers or concerns exist with disputing MSDs, 

4 requesting reviews by division directors or 

5 appealing findings to the SARC? Is the 

6 composition of the voting members of the SARC 

7 appropriate and should the non-voting membership 

8 of the SARC be changed or expanded? Are there 

9 ways to improve the process of informally 

10 resolving disagreements between banks and FDIC 

11 regional management? Should the list of 

12 appealable material supervisory determinations 

13 in the SARC process be expanded to include other 

14 findings? 

15 So again, it's kind of open-ended type 

16 questions and definitely would appreciate you 

17 taking some time to look at that FIL when it comes 

18 out, and giving us, you know, some input. 

19 The second part of this roll out 

20 consists of a series of listening sessions that 

21 we're going to be hosting around the country with 

22 my staff and Legal Division. We're currently 

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128 

1 working to determine locations and the time, but 

2 we're planning to have at least one event in each 

3 of our regions around the country. 

4 These events will have a fairly open 

5 agenda with a focus again on discussing our 

6 current strategy or our current guidelines for 

7 appeals, but also soliciting comments and 

8 recommendations for improving our processes. 

9 All of these strategies for the most part are 

10 designed with the primary goal of increasing 

11 transparency and ensuring fairness in our 

12 supervisory processes. 

13 But also even more so, ensuring 

14 confidence by bankers in the appeals processes. 

15 So I'm welcoming your comments now or later. I 

16 do have my contact information on the final 

17 PowerPoint slide back there. My email address 

18 is jMCWILLIAMS@fdic.gov. 

19 (Laughter.) 

20 MR. LOWE: I'm sorry, mlowe@fdic.gov. 

21 So I'll stop right there --

22 MEMBER KENNETH KELLY: You said the 

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129 

1 first one because you were expecting glowing 

2 reviews, right, from Chairman MCWILLIAMS. 

3 Again, Kenneth Kelly. I want to ask the 

4 question, and thanks for providing this 

5 background. I think it's very helpful for us to 

6 have context as it relates to this issue. 

7 There are members who when they're 

8 impacted by these issues, they are very impactful 

9 to them and statistically I really appreciate the 

10 numbers you put up there. But for that one, and 

11 I can't think of another metaphor, it's like 

12 being in the Gulf of Mexico and going in and 

13 coming out with a flesh-eating bacteria. 

14 For all the people that came out okay, 

15 it feels okay. But for that one, it's painful. 

16 And so I say that to say is there a process, and 

17 let me just be real clear. This is not just an 

18 FDIC issue; this is a broader issue consisting of 

19 the sisters of the other regulatory bodies. Is 

20 there a way that we could consider having a peer 

21 review be a component of that process? 

22 Now I know the Ombudsman is internal 

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130 

1 to the organization. But is it likely that that 

2 there may be some receptivity to allow other 

3 bankers to maybe be a part of that at some point 

4 in that chain, where the grieving institution 

5 could have their voices heard from a different 

6 perspective? 

7 MR. LOWE: I would say that nothing's 

8 on or off the table at this point. Right now, 

9 again we're putting out the FIL and the request 

10 for information. I would ask the question, you 

11 know, how would you envision that? Would that 

12 be at the informal stage or the formal stage or 

13 --

14 MEMBER KENNETH KELLY: And this is a 

15 suggestion, because this is not anything that's 

16 been empirically studied, but it would be 

17 informal initially to see, because most of the 

18 time -- it is being heard, is a part of that 

19 process and ensuring that someone who can sit and 

20 relate to your issues, who allow you to hear them 

21 can be a component of that process. 

22 Now let me be real clear. This is not 

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131 

1 to usurp the regulatory body's governance. I'm 

2 not asking that at all, but it's just a 

3 suggestion. Would it make it worth the while to 

4 have a peer group at some stage of that appeal or 

5 review process to be a component of it? It's 

6 just a suggestion. 

7 CHAIRMAN MCWILLIAMS: And so I'll 

8 take this one. Ken, the problem we're going to 

9 run with something like that, while I hear you on 

10 having a peer review type of setup is that the 

11 confidential supervisory information has to be 

12 protected. A lot of these, from my experience 

13 now sitting on SARC for over a year, are going 

14 through pages and pages of material supervisory 

15 information. 

16 So I'm not sure how exactly how that 

17 could be set up. The reason I have tasked the 

18 Ombudsman's Office into looking at the appeals 

19 process is because we have got to make it 

20 effective, and we have to give an opportunity to 

21 banks to not just feel like they have a fair shot 

22 at this, but to actually have a fair shot at this. 

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132 

1 MEMBER KENNETH KELLY: Right. 

2 CHAIRMAN MCWILLIAMS: The way it's 

3 worked thus far is that we occasionally, you 

4 know, if we have a tie on the SARC, the decision 

5 stands. So you could have members of the SARC 

6 Committee who are actually agreeing, you know. 

7 But so we're looking at all of that. Also the 

8 Ombudsman doesn't sit on the SARC, and anyhow 

9 we're just opening up this and saying give us 

10 your input, recognizing that some things we can't 

11 do practically because of the statutes. 

12 But we are open to any ideas you may 

13 have, and again if you have ever had an 

14 opportunity to deal with our appeals process, it 

15 will be immensely valuable if you could offer 

16 that information and your experience, you know, 

17 to me at jMCWILLIAMS at the fdic.gov or Anthony 

18 and his staff. 

19 As I go around the country and I talk 

20 to bankers, you know, I and Anthony frankly hear 

21 most often we don't want to upset our examining 

22 team. That's what I hear most often as to why 

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133 

1 people are not willing to engage with our appeals 

2 process and formally file. Up until recently, 

3 even when you got the survey post-exam, it's an 

4 anonymous survey, you know. You get those 

5 surveys after the exam and it's an anonymous 

6 survey. 

7 We had, I would say, four out of ten 

8 people respond because again, people are telling 

9 me oh, we don't want to send the survey, you know, 

10 findings back to the supervisory team. So we 

11 actually now the Ombudsman's Office is sending 

12 out the survey. It truly is anonymous. 

13 Anthony's hands are at times tied because if a 

14 bank reaches out and says we have a complaint 

15 about this, unless the bank authorizes Anthony to 

16 go further and actually share any of the 

17 information that they bring to Anthony’s

18 attention, he can't really do a whole lot. 

19 He can tell us I have heard from a 

20 bank without saying anything beyond that. So we 

21 need to make the process function in a way that 

22 folks feel they have a true shot at arguing their 

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134 

1 case. One thing that I've experienced from my 

2 time on the SARC is that a lot of people when 

3 they come to plead their case and disagree with 

4 the findings, they will bring information that 

5 happened after the date of the examination 

6 report. 

7 Unfortunately, we can't reverse and go 

8 back in time and apply the current lens to January 

9 of last year. But you know, that's something we 

10 can't change. But we can certainly do 

11 constructive changes to the process. We can do 

12 constructive changes to the membership of the 

13 Committee. We can enhance the role of the 

14 Ombudsman. Any other ideas that you have, we 

15 would be more than willing to entertain and hear 

16 from you. 

17 MEMBER KENNETH KELLY: Sure, thank 

18 you. 

19 MEMBER LEAVITT: Anthony, I just want to 

20 compliment. This is Tom Leavitt of Northfield 

21 Savings Bank. The field outreach of the 

22 Ombudsman's Office, Sherryann Nelson, our 

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135 

1 regional ombudsman for the New York region, 

2 visited a week ago. Was very thorough in 

3 explaining what the office does, the independent 

4 role of the ombudsman within the FDIC, the 

5 reporting chain, the appeals process. It didn't 

6 hurt that she's a delightful human being, and 

7 made it very comfortable to share observations 

8 about the examination process and what we were 

9 going through the last couple of years in a 

10 positive way, but also some areas where we felt 

11 we could make some advances ourselves and with 

12 our regulators. 

13 So I think that outreach, she said 

14 she's going to get to 80 banks this year, will go 

15 a long way toward upping that ratio of appeals 

16 that are legitimate and people feeling 

17 comfortable filing those. 

18 MR. LOWE: Thank you. 

19 MEMBER HANRAHAN: Anthony, the stats 

20 you have on page three of your presentation are 

21 helpful. I don't know if you plan to include 

22 those in the FIL that you put out, but that would 

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136 

1 be of value to bankers I think. One thing I 

2 don't see included in the stats is the number of 

3 appeals that are successful, at least from the 

4 perspective of the appellant. 

5 If you can do so in a way that makes 

6 sure the data is anonymous, I would encourage you 

7 to do that, although saying that I admit that can 

8 cut both ways. For example, if it shows that a 

9 pitifully small number of the appeals were 

10 successful, it could reinforce some jaded 

11 opinions about whether it's even worth it to go 

12 through the appeals process. Nevertheless, that 

13 -- I think that data could be very interesting to 

14 bankers to see. 

15 MEMBER DAKRI: Yeah. I think the 

16 transparency would be worthwhile, to have that 

17 either way. 

18 MR. LOWE: Yeah. 

19 MEMBER EPSTEIN: I have a quick 

20 question and a comment. In number one, this is 

21 a just a prime example of the sincerity of the 

22 commitment to transparency. We've been hearing 

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137 

1 about over the last year, year and a half and I 

2 certainly applaud that effort and willingness to 

3 get out into the field and go see bankers and 

4 make it convenient for us to participate. I 

5 appreciate that. 

6 Does your office have any role in 

7 appeals, either from proposed banks, de novos 

8 that have been denied, FDIC coverage or that feel 

9 like the conditions set forth for them to receive 

10 approval are unfair or cannot be met? 

11 MR. LOWE: No, we don't have any 

12 official role in that process. We do have a role 

13 that, you know, after a bank has opened if they 

14 do, are successful in getting de novo deposit 

15 insurance, a state non-member, I think it's 

16 within 180 days we do go and visit that 

17 institution and we talk about the application 

18 process, how did that process go, how was the 

19 exchange of information? Was there anything that 

20 they thought was, you know, inappropriate or 

21 anything they, any recommendations that they have 

22 about the process? 

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138 

1 So we do have a post-mort that we do 

2 with the institutions that do actually open, and 

3 you know, try and determine is there -- are there 

4 some changes that we need to consider with regard 

5 to the process. 

6 MEMBER EPSTEIN: Has there been any 

7 thought in expanding your role to having 

8 engagement with the proposed bank if the proposed 

9 bank wanted to reach out to your office? 

10 MR. LOWE: They can reach out to us 

11 at any point in time if they, you know, think 

12 there's, you know again, something unfair or 

13 something that's not being done with regard to 

14 the existing guidelines. We can always have that 

15 discussion with them, yeah. But we're not part 

16 of the decision-making process. 

17 MEMBER WALKER: Anthony? 

18 MR. LOWE: Yes ma'am. 

19 MEMBER WALKER: First of all, I want 

20 to apologize for being late. It's very good to 

21 be here. Just a quick comment and I agree with 

22 Thomas. It's all about relationship and 

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139 

1 understanding and knowing. So have you thought 

2 about, and maybe it's too much work, of having 

3 the Ombudsman be included in the call at the 

4 beginning of an examination, for safety and 

5 soundness or compliance, to be on that call as an 

6 independent person, and in that way they're 

7 getting to know the team as well over time? 

8 MR. LOWE: You mean the first day call 

9 to the bank? 

10 MEMBER WALKER: Yep, the first day 

11 call. 

12 MR. LOWE: Have not though about that. 

13 We'll consider that. 

14 MEMBER MALEY: Just one comment. 

15 Lori Maley, Bank of Bird-in-Hand. I think 

16 hopefully what you're seeing with some of the 

17 results is that the exam process is more 

18 streamlined, and I think it's improved. I mean 

19 I've been in banking 30 years, and honestly the 

20 past exam we had as I spoke before, it was 

21 seamless. 

22 There was communication before, and I 

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140 

1 think, you know, bankers will pick their battles. 

2 I think they should understand that part of that 

3 is there needs to be two-way communication. It's 

4 not just communication during the examination. 

5 You should have open communication. I don't 

6 think examiners like to be surprised. They want 

7 heads up if there's issues. So hopefully we're 

8 seeing a little bit more of that. 

9 MR. LOWE: Uh-huh, good. 

10 DIRECTOR GRUENBERG: Anthony, I do 

11 think that what we're talking about here is, in 

12 some sense, dispute resolution if there's a 

13 difference of view between the examiner and the 

14 institution on a material supervisory decision. 

15 And I think the appeal all the way through the 

16 process to the board-level committee is almost by 

17 definition going to be the extraordinary case. 

18 To go through the process at the 

19 regional director, at the division director and 

20 then ultimately taking it to a, you know, a quasi21 appeal process with board member and inside 

22 representatives of the inside directors, in which 

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1 the institution will often engage counsel to 

2 support their presentation. 

3 That, you know, is in some sense the 

4 extreme and I think the numbers on those kinds of 

5 cases, it doesn't particularly shock me in terms 

6 of the numbers. The real test of the system, you 

7 want that ultimate appeal review in the extreme 

8 case to work well. But it's really the earlier 

9 stages in the process and how differences get 

10 resolved hopefully in a more informal way, 

11 optimally between the examiner and the 

12 institution but at the regional director level as 

13 well. 

14 To me in some sense is where most of 

15 this work is going to get done. So looking at 

16 how the process is working not only when appeals 

17 go to the division director or to the SARC, but 

18 also to the regional director level, and getting 

19 some sense how that process is working to me is 

20 pretty important as a line of sight into this 

21 issue, because my guess is that the large 

22 majority, if not the vast majority, of issues are 

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1 going to get resolved there, and how well that is 

2 working is really pretty important, I think, for 

3 the large majority of cases. 

4 The real threshold here is can we 

5 establish -- it's always going be tricky it seems 

6 to me. Not having been an examiner, Anthony has 

7 been for about 30 years I think. It's always 

8 going to be tricky for any time somebody's in 

9 charge of you or supervising you or overseeing 

10 you and you have a difference with that. That's 

11 a pretty tricky proposition. 

12 Bringing that difference to that 

13 person's attention or more to the point, if you 

14 can't get a satisfactory outcome, taking the 

15 difference above that person to that person's 

16 superior is inherently a dicey proposition in any 

17 organizational arrangement. You know, I think 

18 what we would be aiming for is a system where 

19 there's sufficient understanding by all parties, 

20 that this is part of the process, that an 

21 institution has to feel that it's got the ability 

22 to have a difference of opinion. 

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1 I mean that's not an easy thing to do. 

2 That's a hard thing to build into a system like 

3 this. I would like to think that's what we're 

4 working toward here. I think that's what Anthony 

5 is trying to do with this, you know, initiative. 

6 But moving us to a place where there's better 

7 understanding by the institutions and by our 

8 examiners that this is part of the process, clear 

9 understanding that there's a role. 

10 An institution feels that there's a, 

11 you know, an outcome is not the right one based 

12 on the rules and the law, there's got to be an 

13 acceptance that this is part of the process and 

14 an understanding on the part of the institutions 

15 that they can exercise this without consequence. 

16 I think that's what we're working 

17 toward. It seems to me that's always going to 

18 be kind of sensitive. But that's what we're 

19 working at here. But I do think in many ways the 

20 key -- it's important that the whole process work 

21 well. But that stage of the examiner to 

22 institution and division director, regional 

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1 director, where most of this interaction takes 

2 place, is particularly critical to making, to 

3 making this work. 

4 MEMBER TURNER: One comment I would 

5 have to kind of tag along with that, I think the 

6 first line of defense that the FDIC has to 

7 antagonistic relationships between the FDIC and 

8 insured institutions is examiners-in-charge. 

9 You know, I've been through a lot of 

10 examinations. 

11 Most have been good because I think 

12 the examiners are well trained at the FDIC. But 

13 it seems to me that the most effective kind of 

14 personality type of examiners-in-charge are those 

15 that are -- have a bit of a judicial temperament, 

16 as opposed to a prosecutorial temperament. You 

17 know, those that sort of sit back and want to 

18 assess the, you know, kind of the evidence. 

19 I think back to, you know, our credit 

20 people were arguing about a classification with 

21 the -- somebody reviewing asset quality, and a 

22 very effective examiner-in-charge that we've had 

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1 said look, let's just agree -- let's agree to the 

2 facts. We can all sit down, we can write down 

3 the facts with respect to this particular credit, 

4 and then we can take a look and decide, you know, 

5 does this constitute a substandard credit or is 

6 it a watch credit, pass credit or whatever it is. 

7 I think the person that's really 

8 effective at that, you're going to have a lot 

9 fewer examination issues with those kinds of 

10 people. I don't know exactly, you know, how the 

11 promotion process goes in the FDIC. But there 

12 may be people that are just better suited not to 

13 be examiners-in-charge. 

14 There may be people who have 

15 personality types that just that's not going to 

16 be where they're, you know, best utilized. But 

17 I don't know how that works at the FDIC, if it's 

18 once you're here X years you get promoted or --

19 but it's something that, you know, I mean I can 

20 think of the people at our bank that wouldn't be 

21 suited to that sort of supervisory role. 

22 MR. LOWE: Great. If there's --

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1 MEMBER KENNETH KELLY: Anthony, I'll 

2 just say real quickly, just want to commend you 

3 for what you're doing. I think the effort to get 

4 out and visit is a great communications tool for 

5 institutions to really appreciate what you're 

6 trying to accomplish. From this body and my 

7 perspective, I think that in itself will be very 

8 helpful, along with what Director Gruenberg just 

9 mentioned. 

10 MR. LOWE: Thank you. 

11 MR. DAVIS: Okay. If there's nothing 

12 else, we'll move to the next panel. Thank you, 

13 Anthony. Next up is Brandon Milhorn, our chief 

14 of staff. He's going to provide an update on the 

15 Subcommittee on Supervision Modernization. 

16 They met for the second time last 

17 month and Dave, I know as a member of the 

18 Committee, obviously feel free to chime in here 

19 as well, I'm sorry, as the Subcommittee. Feel 

20 free to chime in as well, but I'll now turn it 

21 over to Brandon. 

22 MR. MILHORN: Sure. Thank you, Chad 

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1 and good morning to everyone. As Chad mentioned 

2 and for those of you who aren’t familiar with the 

3 Subcommittee, this January the Chairman set up a 

4 Subcommittee on Supervision Modernization. The 

5 goal is to bring in some community banks, some 

6 former examiners, some former regulators, as well 

7 as some technology experts who may or may not 

8 have any experience with banking but have some 

9 willingness to interact and engage with the FDIC 

10 and look at our examination process, sort of pull 

11 it apart, think about how technology and training 

12 and process improvements can make our supervision 

13 more effective, more efficient and less 

14 burdensome for our community banks. 

15 The Subcommittee started meeting 

16 earlier this year. We've met twice now. Our 

17 goal is to make recommendations and produce a 

18 report for the full Community Bank Advisory 

19 Committee to consider, and report out to the 

20 FDIC. 

21 From a process standpoint, our first 

22 meeting was spent primarily on educational topics 

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148 

1 for the understanding of the examination process, 

2 particularly for those members that may not have 

3 been accustomed to the process. Based on those 

4 briefings, we divided up into multiple working 

5 groups, and I'll just run through the topics that 

6 the working groups are working on. 

7 We have an examination workflow, data 

8 and technology access or analysis working group. 

9 Essentially the goal there is to look at our 

10 safety and soundness and compliance examination 

11 process and understand from soup to nuts what 

12 data we're looking at, how we deploy people, how 

13 we deploy technology from the beginning of exam 

14 to the end of the exam, to understand if there 

15 are any processes that are redundant, if there 

16 are any new technology or data that we can take 

17 advantage of to improve that process. That 

18 Subcommittee is ongoing. 

19 Within that group, we tried to 

20 identify the most challenging components of an 

21 exam, and loan review by far stood out as the 

22 most complicated and challenging component of our 

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149 

1 exam. Just for some context, our average hours 

2 spent on loan review over the last two years, the 

3 average 425,000 hours per year during exams on 

4 loan review, and over 80 percent of that was at 

5 our community banks. 

6 It's roughly the equivalent of some 

7 350 man hours. We had those numbers recently. 

8 I forgot them. But that's an incredible amount 

9 of time that we spend on loan review. 

10 Next, we have a sentiment analysis and 

11 open source information. Can we -- with the 

12 question of how can we use available information 

13 from outside sources to scope our examinations 

14 more effectively. 

15 We also have a group looking at the 

16 Call Report. The purpose of that review is to 

17 think, make sure we understand what data we need, 

18 how we use the data that we ask for and if we 

19 change the mechanism for collecting the 

20 information or getting the information from 

21 institutions, would that -- whether it's in 

22 instead of quarterly it's more often, would that 

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150 

1 change the amount and type of data that we would 

2 request in the context of the Call Report? 

3 We're also looking at examiner 

4 deployment and separately examiner training in 

5 working groups. Then finally we're examining how 

6 we can more effectively use the Division of 

7 Insurance and Research to support our examination 

8 teams. Those are our working groups. Right now 

9 they're meeting with Subcommittee members. 

10 They're collecting data from FDIC employees. 

11 Our goal is by September-October to 

12 produce a set of recommendations and then by the 

13 end of the year to turn that into a formal report. 

14 For those that have not heard my speech before, 

15 our goal here is to really reimagine how the FDIC 

16 supervises its institutions. Not just to 

17 automate manual processes, and not just to look 

18 at how technology can be used. Our goal is sort 

19 of across the board. Technology, people, 

20 processes, to make sure that we're not just doing 

21 things the same way we've always done them 

22 because we can. That's easy to do. 

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151 

1 What's hard to do is think about how 

2 your process can change to accommodate new 

3 approaches and new technology. I think we've 

4 done that very successfully. If you look at our 

5 risk scoping on our compliance exams, I think 

6 that's improved our outcomes. 

7 RMS has engaged in several commendable 

8 workstreams over the last several years, 

9 including our forward-looking supervision and 

10 risk-scoping workstreams to reenvision how we do 

11 exams and to make sure that we're doing it in the 

12 most effective and efficient way. 

13 But we're asking more -- we're trying 

14 to ask -- Dave can speak to this, much more 

15 fundamental questions about the process, and to 

16 think about it in ways that maybe you haven't 

17 thought about it before, you know, and to also 

18 consider how our efforts, whether it's because 

19 we're conducting more efficient examinations, can 

20 encourage community banks to adopt new 

21 technologies or new back office approaches to 

22 their operations, that not only will make them 

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152 

1 more efficient, more effective, more competitive, 

2 but also make our supervision more effective in 

3 the process. 

4 That I think is a summary of where the 

5 Subcommittee is at. I've saved you from a 

6 PowerPoint death. But I'm happy to take your 

7 questions if you have any at this time, or to 

8 have Dave update us on --

9 MEMBER HANRAHAN: That's a great 

10 summary, Brandon. There's little I can add. I 

11 will say that I thought I knew a fair bit about 

12 exams coming into the Subcommittee. I know now 

13 way more about the exam process. 

14 In addition to the Subcommittee 

15 members, there are several times that many people 

16 of staffers working on this, and it's clear that 

17 they've taken the Chairman's charge to heart, to 

18 think with a clean slate on the exam process, and 

19 I'm proud to be a part of the process. 

20 MR. MILHORN: Thank you very much. 

21 Yes sir. 

22 MEMBER DONNELLY: I have a question. 

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153 

1 I'm not sure I understood. You quoted the number 

2 of hours spent and you say 80 percent of those 

3 hours are on the community banks. Why is that? 

4 What is the reasoning that we're -- is it if you 

5 total up all the loans, they're not all on those 

6 80 percent of community banking. There's a lot 

7 bigger institutions and it totals up --

8 MR. MILHORN: Well as Doreen can 

9 probably speak more effectively to that. But I 

10 think the -- one of the biggest challenges is the 

11 paper-based --

12 MEMBER DONNELLY: Technology. 

13 MR. MILHORN: Is the technology, 

14 right. We've seen tremendous, whether it's 

15 through Project FIVE or some of our that helps 

16 banks digitize their loan files. We've seen 

17 tremendous benefits from a supervision standpoint 

18 in hours spent on site and off site at 

19 institutions that are able to digitize their loan 

20 files. 

21 But you know, when you've got boxes 

22 and boxes and boxes of paper and you've got to 

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154 

1 bring that in and review it, that just creates 

2 additional challenges. You know, one of the --

3 this is actually an interesting topic I think 

4 that I love to talk about, is we're looking at 

5 improved sort of -- you know, innovative, 

6 creative acquisition ideas to support these 

7 topics and the development of technology. One 

8 of the challenges with government procurement 

9 overall is, you know, we think of big giant 

10 programs. We set, you know, single standards for 

11 how things should be done and then we go out and 

12 procure massive monolithic technology. 

13 We're trying to think of things 

14 differently, and think of how we can use our 

15 resources and our perspective on the marketplace 

16 to encourage market-based development of 

17 technologies. One of the -- if you look at what 

18 the Department of Homeland Security has done with 

19 some border security screening technology 

20 initiatives, what the Department of Defense, 

21 particularly the Special Operations Command has 

22 done, you know. 

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155 

1 What they will do is they will seed an 

2 idea into the marketplace if it's a market, if 

3 it's something that the marketplace needs. So 

4 think of loan review technology, AI/ML-based 

5 review, natural language processing, additional 

6 assistance with digitizing loan files. If you 

7 can seed that into the marketplace in a manner 

8 that supports your, the FDIC's loan review 

9 standards, that becomes a valuable tool for 

10 institutions. 

11 But what's interesting about the model 

12 that SOCOM and DHS have used is that by allowing 

13 the market participants to continue to maintain 

14 the IP, the government doesn't own it, they're 

15 allowed to then sell it. That seed money creates 

16 a huge venture capital pool for those 

17 institutions so I can get additional bang for my 

18 buck, a multiplier on the seed funding that we 

19 used for those market participants. 

20 And then as you walk them through from 

21 the thought stage to the prototype to the demo to 

22 the test, and then finally to the final product, 

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156 

1 it really produces some very good market-driven 

2 solutions that weren't driven by, you know, 

3 exacting technical standards from an agency, but 

4 were allowed to develop outside the agency. 

5 What we've seen in other agencies is 

6 you get a mix of participants that you would 

7 expect, but you also get some new participants 

8 who are willing to come in and think differently 

9 about a process. So that's some of the things, 

10 some of the creative techniques that we're 

11 looking at using with respect to loan review. 

12 But to me, that's just the tip of the 

13 iceberg, because we can deploy these techniques 

14 across many different market challenges. As the 

15 Chairman looks to set up the FDIC's tech lab, 

16 whether we're talking about tech sprints or pilot 

17 programs or working with institutions on 

18 technical assistance, our ultimate goal is to 

19 reduce the cost of community banks adopting 

20 technology, so that they can become more 

21 competitive into the future. That's not just 

22 better for them, but better for us. 

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1 MEMBER KIMBELL: If I could just add 

2 something too. I'm all for efficiency, yet too 

3 I'm also for looking someone in the eye and 

4 shaking their hand. 

5 MR. MILHORN: Absolutely. 

6 MEMBER KIMBELL: So I would not -- I 

7 would definitely not want to see us move to a 

8 situation where I never get to meet my examiners. 

9 MR. MILHORN: Yeah. In fact --

10 MEMBER KIMBELL: That would be a very 

11 scary thing, especially for me in a rural area to 

12 -- it's okay for examiners to walk inside our 

13 doors and to see us and to meet us and to see our 

14 surroundings and what we, where we live and what 

15 we deal with. I think that's very important. 

16 MR. MILHORN: You know one of the 

17 things I --

18 MEMBER KIMBELL: I cannot forget 

19 that. 

20 MR. MILHORN: One of the things I 

21 always try to make clear when I talk about 

22 supervision modernization is this is not about 

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158 

1 onsite/offsite, right? A lot of people think 

2 this well, the more we do offsite and the more 

3 we -- that's not, that might be an outgrowth, but 

4 it's not the goal. 

5 What my goal when I think about it is, 

6 you know, how can you identify risk early, work 

7 with an institution to mitigate risk early, and 

8 in the process make our supervision more 

9 efficient. I don't think you'll ever be able to 

10 substitute, particularly on the management side, 

11 that face-to-face contact, that direct engagement 

12 with an institution. 

13 But if you think about, you know, the 

14 12-month, 18-month examination cycle and the 

15 amount of hours that we spend and the number of 

16 examiners that end up in your institutions, my 

17 question and I pose it as my own thoughts not 

18 necessarily the FDIC's position, but is -- if we 

19 expand that out over time and we change the way 

20 that we dialogue with institutions over time, and 

21 we change the timing with which -- at which we 

22 get information from institutions, can we make 

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159 

1 that process more effective? 

2 In the process, do we understand the 

3 institution's business model a little bit better? 

4 So that actually there's more engagement, more 

5 direct engagement over time leading to a more 

6 risk-scoped exam that's just as effective and 

7 efficient at the end of the day. I think to me, 

8 that's how I think about the process that we're 

9 going through on the Subcommittee. 

10 MEMBER LEAVITT: I know we're on a 

11 time stop, so 30 seconds. I just want to say I'm 

12 encouraged by your -- because we were a beta for 

13 our part of New England, first bank to go through 

14 the Project FIVE earlier this year. It was 

15 clunky all around, and it ended up being a hybrid 

16 loan review for that reason, part onsite, part 

17 offsite. 

18 Ultimately in that is a sauce 

19 someplace that's going to work for all of us, I 

20 think. We'll get modernized. We'll get some 

21 guidance from you on digitizing the loan files in 

22 a format that is retrievable by both parties, so 

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160 

1 that we're looking at the same thing when we're 

2 having our conversation either face-to-face or 

3 over the phone, and I think there's promise in 

4 it. Thank you. 

5 MR. MILHORN: Well thank you very 

6 much. We appreciate you participating in that 

7 pilot. We've got to show a willingness to 

8 participate in pilots just like that with our 

9 institutions. We've got to encourage 

10 institutions who are willing to look at new 

11 technologies and new ways to doing back office 

12 operations to take those on and let other 

13 institutions know hey, that made our -- that made 

14 our exam that much more successful and when you 

15 get out and spread those, right, good news, it 

16 will come back and hopefully –

17 CHAIRMAN MCWILLIAMS: Unless it was 

18 clunky, in which case we would like you to not 

19 spread the news. 

20 (Simultaneous speaking.) 

21 MR. MILHORN: We're working on that. 

22 MEMBER KENNETH KELLY: Brandon, 

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161 

1 question. I got maybe a little confused. Your 

2 previous statistic, 425,000 work hours, is that 

3 right? 

4 MR. MILHORN: Yes. 

5 MEMBER KENNETH KELLY: So was it 80 

6 percent of that is applied to smaller community 

7 banks --

8 MR. MILHORN: It was over 80 percent 

9 of those hours are spent at community banks. 

10 MEMBER KENNETH KELLY: Okay, and so 

11 that's because of process, not normalized --

12 MR. MILHORN: I believe process. 

13 MEMBER KENNETH KELLY: --normalizing 

14 it for sample size? 

15 MR. MILHORN: Right. 

16 MEMBER KENNETH KELLY: So it has 

17 nothing to do with who you're sampling and why 

18 you're sampling? 

19 MR. MILHORN: Right. Yeah, those are 

20 overall hours. We have breakdowns of the data, 

21 but I just -- the overall number, because I think 

22 that gives you a perspective on the amount of 

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162 

1 hours that we spend on that topic, and how 

2 technology might be deployed to make that more 

3 efficient. 

4 MEMBER DeBIASI: And just one quick 

5 comment on the risk of -- I can definitely attest 

6 to the fact. It's making an impact. Certainly 

7 for our institution it's become impactful, and 

8 again we do measure it somewhat on the time spent 

9 in the institution, because with our ten 

10 employees it's all hands on deck while the 

11 examiners are in the building. 

12 So anything that could be done to 

13 streamline that process, we're appreciative. I 

14 think certainly strides have been made, and we're 

15 -- it's a game changer for us and it has been. 

16 You know on the safety-and-soundness side, I do 

17 agree there has to be some interaction. I still 

18 believe with an institution our size, what it 

19 boils down to I truly believe is at what risk are 

20 we to the fund? 

21 With our 30 million in deposits and 

22 our capital levels, I still believe 80 percent of 

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163 

1 our story can be gleaned off the Call Report and 

2 there just isn't a whole lot there, that we're 

3 just -- I think $30 million for the FDIC is 

4 probably rounding in terms of the risk to the 

5 fund. 

6 But with that being said, I still 

7 believe there needs to be interaction, needs to 

8 be a process. But I do believe, you know, that 

9 the safety and soundness piece of it, we're 

10 hopeful that will continue to move in that 

11 direction as well, you know, in terms of the --

12 MR. MILHORN: That is certainly the 

13 plan, and you know, we respect -- I think we need 

14 to respect the business model and business 

15 approach of all the institutions that we 

16 ultimately have to supervise. But if we can 

17 encourage additional improvements in the process 

18 and encourage institutions to voluntarily take 

19 that up, I think that's a great approach that I'd 

20 like --

21 MEMBER PAINE: Brandon, I do have a 

22 question. How many community banks are on your 

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1 Committee and what is the size range of that? I 

2 guess the reason why I bring that up is because 

3 when you take about technology, what is in the 

4 budget for a $30 million bank is not in the budget 

5 for a $3 billion bank? 

6 MR. MILHORN: Sure, absolutely. So 

7 we have banks ranging from David Hanrahan's old 

8 institution, all the way up to a representative 

9 from BB&T. We have banks in between. 

10 (Simultaneous speaking.) 

11 MEMBER HANRAHAN: There's five. 

12 There's five bankers on the Committee I think? 

13 MR. MILHORN: Yes. 

14 MEMBER PAINE: So the smallest is 500 

15 million? 

16 MR. MILHORN: Yes. 

17 MEMBER PAINE: Okay, and so 

18 percentage of your institutions that you examine, 

19 what percentage is that representation? Meaning 

20 how many banks do you have that are under 500 

21 million? 

22 CHAIRMAN MCWILLIAMS: Doreen, you 

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1 have the number. 

2 MS. EBERLEY: I don't have that 

3 number. 

4 MR. MILHORN: We can get that for you. 

5 (Off microphone comment.) 

6 CHAIRMAN MCWILLIAMS: Yeah, 90 

7 percent of loans. 

8 MEMBER PAINE: So I mean that's the 

9 concern that I would bring up. If you're 

10 focusing on the top ten percent of the banks that 

11 you're examining to modernize, you're not --

12 (Simultaneous speaking.) 

13 MEMBER PAINE: But you see what I'm 

14 saying. That is the concern of that --

15 MR. MILHORN: Yeah. So we understand 

16 those costs. We understand those cost 

17 constraints, and we're one of the -- at least 

18 from my standpoint, I don’t ever want to be in a 

19 position where we're unnecessarily burdening an 

20 institution with technology mandates. Our goal 

21 on the Subcommittee is to look for mechanisms to 

22 reduce those costs or to encourage institutions 

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1 to adopt new technology and new solutions, 

2 because it's in their interest. 

3 Maybe it decreases the cost of 

4 complying with the cost of participating in 

5 exams, or maybe it just makes them more 

6 efficient, and maybe there are other mechanisms 

7 that we can use to encourage adoption. Those are 

8 all issues that we're looking at, because we 

9 understand that our community banks don't have 

10 the research and development budgets that --

11 MEMBER PAINE: So are you looking at 

12 when you're looking at the smaller banks, are you 

13 looking at the statistics saying who's affected 

14 under the largest percentage of our banks that we 

15 examine? And then how many of those hours are 

16 you spending? So how many hours do you spend in 

17 banks under 500 million? 

18 MR. MILHORN: Yes. We have that 

19 data. 

20 MEMBER PAINE: And so -- yeah. So 

21 just curiosity saying, you know, this is the 

22 volume of who we're dealing with on a regular 

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1 basis and the lowest risk. 

2 MR. MILHORN: Right. 

3 MEMBER PAINE: So it's a bit of a 

4 challenge, and I understand you having to balance 

5 that out because we are the lowest risk. But if 

6 it's the majority of the hours, how are you 

7 dealing with that? 

8 MEMBER HANRAHAN: Yes. Tiffany, 

9 you're raising a great point and let me tell you 

10 that in the couple of meetings I've participated 

11 in, I applaud the FDIC finding ways to encourage 

12 and invite innovation for bankers to adopt. 

13 There was one moment where I sensed the 

14 conversation was headed towards mandating it, and 

15 I made sure to push back on that. I'm not saying 

16 that was an FDIC emphasis. 

17 There were some -- there are some non18 bankers on the Committee, which was a brilliant 

19 idea to have those, a lot of those tech folks on 

20 there. But they don't have the same perspective 

21 as you and I naturally, right? So where the 

22 conversation seemed to be headed towards well, 

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1 why don't you just tell banks that they have to 

2 take all the loan files and do this, I made sure 

3 to make sure that us smaller guys were -- our 

4 interests were represented along those lines. 

5 MR. MILHORN: You know, as I think 

6 about the process again, at least my goal is to 

7 make it cost effective for smaller institutions 

8 that decide to adopt more technology to do so. 

9 Not to mandate it and who to make it a 

10 possibility. 

11 MEMBER PAINE: Yeah. It just -- it 

12 feels like the -- and it's coming, so but it feels 

13 a little bit like when the Fed required the cash 

14 letters to be electronic and not the physical 

15 checks going back to the Fed, and the 

16 conversations that -- and too it's how you 

17 present that to your banks, because we literally 

18 had the Minneapolis Fed come to us and talk to us 

19 and say well, you really don't have a choice and 

20 you're not very smart if you don't adopt it. 

21 Obviously that's not a recommended way 

22 to go about that. But it is a challenge when you 

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169 

1 can barely afford the online banking and the IT 

2 security, and to have to add this process. 

3 MR. MILHORN: Yes, yes. 

4 CHAIRMAN MCWILLIAMS: And if I can 

5 just -- and I think Marty had something to say as 

6 well. But if I can just add, the whole purpose 

7 of the Modernization Subcommittee was to look at 

8 how we can get us to a better place where, you 

9 know, for small banks with 10-15 staff, right, 

10 and ten the more efficient one, right? 

11 That you know, what I'm hearing around 

12 the country is that, you know, we have a staff of 

13 ten and you send me three examiners, and the state 

14 sends me three examiners and I have eight people 

15 dedicated out of my ten to those six examiners, 

16 and they are there for three weeks. 

17 Then all of a sudden the bank is not 

18 doing the business of banking. They're doing the 

19 business of responding to the regulatory body. 

20 There's a place and opportunity for that, but if 

21 we can get the same quality of the exams, the 

22 same -- and by the way Bruce, you'll never be so 

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170 

1 lucky not to meet our examiners I regret to tell 

2 you. 

3 But you know, if we can do more of 

4 that stuff and that's why you're seeing some of 

5 the -- you know, I like the comments I'm hearing 

6 and thank you for that. You know, there was so 

7 much work done pre-exam that they walked into our 

8 institution fully prepared, that's the exactly 

9 the point of this. What else can we do to provide 

10 fewer people? 

11 The idea here is not to mandate. I 

12 went to Silicon Valley and I met with some tech 

13 companies on how they're collaborating with 

14 banks. You know, oh you should ask banks to do 

15 this. I'm like I'm not asking banks to do any 

16 of that. But thanks for promoting your business. 

17 So it's -- the idea is what tools do 

18 you need from us and what tools could we utilize 

19 to get to that place, because that's where the 

20 world is going. And you know, I won't comment 

21 on the Fed. I'll leave it to that. Marty, did 

22 you have -- you seem to have --

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171 

1 DIRECTOR GRUENBERG: Since you asked, 

2 just I thought Tiffany was, made a very helpful 

3 point, because I do think the majority and 

4 substantial majority of the institutions we 

5 supervise have assets under 500 million. So the 

6 issues in terms of adoption of technology become 

7 particularly sensitive and challenging. 

8 It's one of the core challenges for 

9 the future of community banking that we've talked 

10 about, beyond the examination process. So you 

11 know, being sensitive and thoughtful to the set 

12 of issues around that is really going to be key. 

13 I think there's room for improvement in the 

14 examination process to make it more efficient, 

15 and hopefully less costly to the bank and to us, 

16 understanding at the heart of it is still a 

17 supervisory process of people dealing with people 

18 and making judgments about the management 

19 capabilities or the individuals running the 

20 institutions still remains though, at least from 

21 my experience, the heart of the examination 

22 process. 

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172 

1 So trying to work both sides of that 

2 is really the challenge here, and particularly 

3 for the smaller institutions where the --

4 particularly the IT challenge and investment 

5 challenge may be greater. 

6 MR. MILHORN: I agree, and the 

7 questions the Chairman noted is how can we use 

8 technology to enhance that engagement process, 

9 and to make the engagement that we have to 

10 undertake more effective? So that, you know, 

11 we're not taking over your bank for the entire 

12 examination period. 

13 MEMBER DeBIASI: Well again, one last 

14 point. I think the technology thing is huge, and 

15 I think if it could be demonstrated that the FDIC 

16 can cut down hours with technology and, you know, 

17 obviously would be a financial impact. I was 

18 wondering if there's any incentives that would be 

19 available in terms of credits to premiums, things 

20 like that for implementing certain technology 

21 that would create efficiencies and less hours for 

22 the FDIC? 

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173 

1 I'm just curious if that's even a 

2 possibility or legal or if that's something that 

3 could be considered. 

4 MR. MILHORN: I think it's something 

5 that we can take a look at. Great. 

6 CHAIRMAN MCWILLIAMS: So you want us 

7 to pay you not to see us? 

8 (Laughter.) 

9 CHAIRMAN MCWILLIAMS: We'll think 

10 about it. 

11 MR. HANRAHAN: That's one way of 

12 putting it. 

13 MR. MILHORN: I don't think that's 

14 what he said. 

15 MR. DAVIS: All right. With that, 

16 unless there's any very, very quick comments 

17 left, I will say let’s break for lunch and meet 

18 back here at 1:00 p.m. 

19 (Whereupon, the above-entitled matter 

20 went off the record at 12:16 p.m. and resumed at 

21 1:30 p.m.) 

22 MR. DAVIS: Okay. If everyone could 

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174 

1 please take their seats, we'll get started with 

2 the afternoon portion of the agenda. Okay, 

3 welcome back everyone. We now have Betty 

4 Rudolph, the FDIC's National Director for 

5 Minority and Community Development Banking. 

6 Betty is going to provide an update on minority 

7 and community development financial 

8 institutions. 

9 MS. RUDOLPH: Okay. Thanks, Chad. 

10 We're just going to talk about a few topics today, 

11 tell you a little bit about the industry, a 

12 research report that we recently published in 

13 June which I think is in your packet, talk a 

14 little bit about our FDIC initiatives and talk 

15 about a new Committee or a Subcommittee of this 

16 Community Banking Advisory Committee that we're 

17 putting together, and then finally end with a 

18 discussion about Opportunity Zones. 

19 So the MDI industry is 148 

20 institutions across the country. Mostly they're 

21 located in urban areas, 238 billion in assets. 

22 The median size is about $336 million. So this 

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175 

1 is about less than three percent of the banking 

2 industry overall. I would like to note that 

3 three minority depository institutions are 

4 represented on this Committee, and so I'd like to 

5 recognize Asif, Ken Kelly and Dick Beshear are 

6 all CEOs of minority banks. 

7 The definition for a minority bank is 

8 that it's either 51 percent minority owned or a 

9 majority of the board of directors is minority 

10 and the institution they are serving is minority. 

11 I'm going to quickly go through. I have a lot 

12 of slides on the study on minority depository 

13 institutions we issued in June. 

14 It's an update of a research study 

15 that we put out in 2014 that talks about the 

16 demographics, the geography of the industry, 

17 financial performance and social impact. So we 

18 updated this study at the request of the 

19 industry, and these four findings that are up on 

20 the slide right now are what all my subsequent 

21 slides will be about, and I'll probably go 

22 through the financial performance slides fairly 

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176 

1 quickly since I know we're constrained for time. 

2 So MDI financial performance 

3 significantly improved after the crisis. MDIs 

4 consolidated just like community banks, but at a 

5 more moderated rate. And then the last two 

6 findings there, we do have some slides on the 

7 social impact, which is that MDI customers live 

8 in low- and moderate-income communities at a much 

9 higher rate than non-MDI institutions, and that 

10 minority banks are really important service 

11 providers to minority populations, and you can 

12 see that when you see when you see some of the 

13 graphs that we're going to go over. 

14 In terms of numbers, since 2001 we 

15 started with 164 banks and I mentioned we're down 

16 to 149 as of the end of 2018. There's been a 

17 significant change in the composition of that, 

18 with sort of Asian banks comprising about 50 

19 percent of the population, a decline in African 

20 American banks and a slight increase in Hispanic 

21 and Native American banks. 

22 You can see that on this slide from -

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177 

1 - for sort of the asset size on the left. The 

2 numbers are 73 Asian banks, 23 African American, 

3 35 Hispanic and 18 Native American. But you can 

4 see on the right-hand side the share of assets 

5 that those institutions have. Asian banks are, 

6 you know, overwhelmingly the largest size, 

7 followed by the Hispanic institutions. 

8 In terms of the balance sheet for 

9 minority depository institutions, this slide 

10 shows the difference between community banks and 

11 minority banks, and I guess a couple of the key 

12 takeaways from this is minority banks originate 

13 fewer mortgages than community banks overall. 

14 They virtually do no agricultural lending and the 

15 primary focus is on commercial real estate. 

16 So community banks overall, 25 percent 

17 in commercial real estate and minority banks, 60 

18 percent. 

19 One of our statutory goals for the 

20 minority banking program is to preserve the 

21 minority character in cases of merger and 

22 acquisition, and that includes failing banks and 

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178 

1 they're actually statutory factors that we look 

2 at when we're marketing a failing bank. 

3 This slide is showing that in terms of 

4 the number of assets, that we have done actually 

5 a very good job of preserving the minority 

6 character in cases of voluntary mergers as well 

7 as bank failures. So over 85 percent of the 

8 assets of failing MDIs over this 18-year period 

9 have been absorbed by other minority 

10 institutions. 

11 So the geography of MDIs. This chart 

12 just shows that minority banks on the left-hand 

13 side, those are metropolitan statistical areas in 

14 the pink and the gray, and most minority banks 

15 are located in metropolitan areas. If you look 

16 at the right-hand side for community banks 

17 overall, you can see sort of the dots for 

18 community banks headquarters all over the 

19 country. 

20 So minority banks really are more 

21 urban institutions, and so for the remainder of 

22 the study we mostly looked at community banks to 

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179 

1 compare to minority banks that are not rural 

2 institutions. 

3 So I mentioned we'll go quickly 

4 through the financial performance slides. What 

5 these show is, for example, here are the pre-tax 

6 return on assets. The shaded part in blue is 

7 sort of the range of observations for minority 

8 banks from the 25th to 75th percentile. So you 

9 can see in 2009, for example, there were a number 

10 of minority banks that had minus 3 pre-tax ROA. 

11 So that's sort of the range in the shaded part. 

12 Minority deposits who are 

13 institutions are the black line and we're 

14 comparing them there to metro area non-farm banks 

15 in the sort of reddish color, and non-MDI, non16 community banks, so usually larger banks with the 

17 yellow line. But the takeaway there is that 

18 everybody pretty much in metro areas was affected 

19 by the crisis. You can see the range for 

20 minority banks was much greater. 

21 The same thing on the right-hand side. 

22 MDI credit quality has improved since the 

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180 

1 recession. Obviously, the range of experience 

2 was much higher during the crisis. 

3 Revenue performance stronger at MDIs 

4 than at non-MDI, non-community banks. You can 

5 see the trend there post-crisis, that MDIs are 

6 pretty much on par with other metro area non-MDI 

7 institutions. And then on the right-hand side, 

8 MDIs generate greater net interest income than 

9 their non-MDI counterparts, and you can see sort 

10 of the range of difference there between metro 

11 community banks and non-MDIs. 

12 So while revenue is a good story, 

13 overhead expenses are much higher for minority 

14 institutions, which you can see on the left-hand 

15 side in terms of non-interest expense. The range 

16 for minority banks is much higher in that shaded 

17 blue. The black line is much higher than metro 

18 area community banks, as well as on the right19 hand side just showing the trend and efficiency 

20 ratio. Then we broke that out by asset size and 

21 showed something here that's probably of no 

22 surprise to anyone here, that smaller 

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181 

1 institutions generally have higher efficiency 

2 ratios than larger institutions for many reasons, 

3 but economies of scale being one of those. 

4 So take a minute to talk about the 

5 social impact portion of the study, and this 

6 slide is showing that what we call the median 

7 institution, that means on the left-hand side 

8 there, African American MDIs, that the median MDI 

9 which means that half of all African American 

10 MDIs serve populations of African Americans 

11 greater than 78 percent and half less. 

12 We used median rather than average to 

13 just adjust for anomalies when you have large 

14 institutions in that population. So you could 

15 say for the average, but we actually use the 

16 statistical median. But what this is showing is 

17 that a median African American MDI served census 

18 tracts with populations of 78 percent low- and 

19 moderate-income in 2011, and 69 percent in 2016. 

20 You can see that Hispanics also served 

21 greater numbers of Hispanic populations, Asian 

22 MDIs. Then the two groups on the right-hand side 

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182 

1 in the chart show for non-minority metro area 

2 banks the rate of serving populations of low- and 

3 moderate-income, as well as for non-MDI, non4 community banks. So this is showing what we 

5 would -- what many minority banks have said well, 

6 we've known this for years. 

7 I think that the value in the study is 

8 showing that sort of an independent party is 

9 actually showing this, and some of these charts 

10 are very, very effective in showing that. So 

11 here, the median African American is serving 

12 African American populations at a much higher 

13 rate than non-MDIs. 

14 So African American in 2011 banks are 

15 serving 72 percent, census tracts for 72 percent 

16 of the population is African American, compared 

17 to four percent for their counterparts in the 

18 metro areas and five percent for non-MDI, non19 community institutions. The same pattern holds 

20 true in 2016. 

21 So just run through the rest of these. 

22 The same pattern holds for Hispanic institutions 

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183 

1 and Asian institutions as well. We also looked 

2 at the share of Home Mortgage Disclosure Act, 

3 folks who file HMDA for mortgages, for properties 

4 in low- or moderate-income areas. So you can see 

5 here again, African American MDIs, Hispanic, 

6 Asian are penetrating those census tracts at a 

7 much higher rate than non-MDI institutions. 

8 The same goes for HMDA mortgages for 

9 African American populations, for Hispanic 

10 populations and Asian populations. The last 

11 group of indicators we looked at were the share 

12 of SBA 7(a) loans, Small Business Administration 

13 loans originated to businesses in low- or 

14 moderate-income census tracts. 

15 That was also much higher for MDIs. 

16 There was some change between the years and our 

17 statisticians tell us that that was not 

18 statistically significant. But for African 

19 American and Asian and Hispanic institutions, 

20 that was due to sort of the sample size of those 

21 populations. 

22 And then for SBA loans, the same 

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184 

1 pattern holds. They're serving census tracts 

2 with high minority populations for African 

3 American, Asian American and Hispanic borrowers. 

4 I think I'll pause there and see if there are any 

5 questions about the study before I move into some 

6 of the other areas. 

7 MEMBER PAINE: Do you track Native 

8 American statistics? 

9 MS. RUDOLPH: We do, we do. That's a 

10 great question Tiffany. There are 18 of those 

11 institutions, but because many of them are 

12 located in rural areas and because there are 

13 small numbers, for example, of SBA loans, they 

14 were not included in that social impact section 

15 of the study. But we do focus on them very 

16 closely. 

17 Okay. So at the beginning of 2019, 

18 we set some ambitious goals for 2019 in terms of 

19 increasing our engagement and collaboration with 

20 minority depository institutions, and we have 

21 scheduled some collaboration roundtables. Some 

22 of you that are on the Committee might remember 

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185 

1 I presented in October about a collaboration 

2 resource guide that we published at the end of 

3 2017 that talked about how minority institutions 

4 could collaborate with larger institutions, with 

5 non-minority institutions and those institutions 

6 might be able to receive some credit under the 

7 Community Reinvestment Act. 

8 We've promoted that at a lot of our 

9 minority roundtables. We sent out a financial 

10 institution letter to all institutions talking 

11 about that, and what we're trying to do this year 

12 is really sort of engage institutions in building 

13 partnerships together. 

14 So we hosted at the end of June a 

15 roundtable where this was a pilot. We invited 

16 ten large institutions, ten billion or larger 

17 from our New York region to meet with seven 

18 minority institutions in our New York region, and 

19 to sit down and talk about partnership 

20 opportunities. 

21 Prior to that meeting, each 

22 institution filled out a little template which 

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186 

1 was organized around CRA categories, so lending 

2 and investment test. So minority banks filled 

3 out, you know, here's what would be on my wish 

4 list for partnering, and large banks said this is 

5 what I would really like to partner with. 

6 We received very good feedback on that 

7 session, and we'll be following up in about 90 

8 days towards the end of September to check in on 

9 sort of partnerships that have taken place. But 

10 what we found that when people are meeting and 

11 talking, it's a lot easier to facilitate those 

12 partnerships than when we're just sending out a 

13 resource guide. I think Dick you had a question 

14 about collaboration earlier, what can we do to 

15 facilitate institutions knowing more about CRA 

16 credit they might get from partnering. 

17 That came up at our 2019 interagency 

18 conference in June as well, and we have kind of 

19 a three-pronged effort on that. The first one 

20 is that our CRA policy folks are working with the 

21 OCC and the Fed to find a way to put something on 

22 the performance evaluation form for CRA that 

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187 

1 specifically acknowledges MDI partnerships. 

2 And then engaging in some examiner 

3 training and also doing additional outreach, 

4 which could involve working with CRA officers’

5 associations and others to sort of publicize our 

6 resource guide that talks about collaboration. 

7 MEMBER BESHEAR: Thank you. 

8 MS. RUDOLPH: Yeah. So we're 

9 planning another roundtable now in our Atlanta 

10 region for later this year, and we'll continue to 

11 sort of cycle through our regions. I mentioned 

12 the 2019 interagency conference we had. I think 

13 we got very positive feedback on that. I think 

14 that minority banks enjoy that opportunity to 

15 come together and network, and also learn about 

16 specific topics. 

17 We're conducting a number of webinars. 

18 Our main focus sort of from a national 

19 perspective has been on franchise marketing. So 

20 when I -- not that we have lots of failures. We 

21 heard this morning we haven't been having many 

22 failures. But we want institutions to be 

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1 prepared and to be knowledgeable about the 

2 process for bidding on a failing institution. 

3 So we've held three nationwide 

4 webinars so far this year for minority bankers on 

5 sort of how to follow that process. And as I 

6 mentioned earlier, there are specific statutory 

7 benefits for minority banks. We market 

8 nationwide to all eligible minority banks when a 

9 minority institution is failing. 

10 We do have a pretty robust technical 

11 assistance program which is ongoing, as well as 

12 outreach. We offer to have our regional director 

13 meet with the Board of Directors of any minority 

14 bank once a year, and then the research study we 

15 just talked about. And then the final initiative 

16 I wanted to spend a couple of minutes talking 

17 about is a Subcommittee of the CBAC, of this 

18 Committee, that we're putting together to focus 

19 exclusively on minority depository institutions. 

20 So it will be focused on identifying 

21 tools and resources to support MDIs and identify 

22 any barriers to profitability and ability to 

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1 serve customers. Similar to the Supervision 

2 Modernization Committee that Brandon talked about 

3 earlier, that Subcommittee would be structured to 

4 report back to you all as a Committee. Under the 

5 Federal Advisory Committee Act, we're not 

6 actually able to receive recommendations directly 

7 from Subcommittees, but we can from the full 

8 Committee. 

9 So our goal is to have a first meeting 

10 later this year in the fourth quarter, and we're 

11 putting together the Subcommittee initial 

12 membership list now. Ideally we'd like it to be 

13 eight, but certainly no less than six CEOs of 

14 minority depository institutions, including one 

15 of you on this Committee. I think it would be 

16 helpful to have a bridge between the Subcommittee 

17 and the CBAC Committee. 

18 So I think I will pause there and see 

19 if there are any questions or comments about our 

20 MDI initiatives this year. 

21 MEMBER DAKRI: Betty, I think from my 

22 side, I think what would be really important 

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1 would be the collaboration efforts and getting a 

2 bit more clarity for the larger banks or the non3 MDI bank to see what actually benefit do they get 

4 with partnering and collaborating with an MDI. 

5 I think that's been the biggest issue that we've 

6 seen out there, is that the other banks don't 

7 understand what benefit there is, you know, from 

8 a regulatory standpoint too as far as CRA and 

9 things of that nature. 

10 MS. RUDOLPH: Right. 

11 MEMBER DAKRI: So I think whatever you 

12 can provide to help clarify that, that would be 

13 great. It makes our life easier too when we go. 

14 We keep on telling them, hey you get this and 

15 they're like I don't see it. 

16 MS. RUDOLPH: Right, right. 

17 MEMBER DAKRI: So --

18 MS. RUDOLPH: Okay, good. Thank you. 

19 CHAIRMAN MCWILLIAMS: And I've been 

20 talking about it as I go around the country and 

21 telling banks that there may be a missed 

22 opportunity for them here, especially if they say 

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191 

1 that they are looking for CRA credits. 

2 Partnering up with an MDI could provide that 

3 venue so --

4 MS. RUDOLPH: The last topic I wanted 

5 to talk about is Opportunity Zones. I wanted to 

6 do just a quick show of hands, you know. How 

7 many people heard of Opportunity Zones? 

8 And what we're thinking about is -- so 

9 I think most of you know it's a tax provision 

10 that was in the 2017 tax bill. Governors have 

11 approved or IRS I guess has approved 8,700 zones 

12 across the country. There's no specific role 

13 carved out in that tax provision for banks, but 

14 it is a business opportunity with investment in 

15 Opportunity Zones, you know. 

16 Estimates are fairly high of capital 

17 that is deployed in those zones. I think they're 

18 about 190 estimated Opportunity Funds today, and 

19 so what we’ve started to do is just engage in how 

20 can we, the FDIC, become involved in maybe 

21 facilitating ways for banks to take advantage of 

22 this opportunity. 

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1 So one of the things we're looking at 

2 is the President signed an executive order 

3 creating a White House Council on Opportunity and 

4 Revitalization, and it includes a dozen cabinet 

5 agencies. There's an opportunity for 

6 independent agencies to be part of that, and so 

7 one of the things we're looking at and working 

8 with, the Department of Housing and Urban 

9 Development is in the lead on that initiative. 

10 We've been talking with them about 

11 adding Chairman MCWILLIAMS to the Committee. One 

12 of the things she could bring is sort of the 

13 voices of rural banks, community banks, minority 

14 banks, CDFI banks to the Committee, which doesn't 

15 really have any direct representation in terms of 

16 the voice of bankers at the table. 

17 And so we thought this Committee, in 

18 addition to other, our other advisory committees, 

19 might be a source of information from you all who 

20 are on the ground. Because it's a tax provision 

21 and it's not a federal program, I think that a 

22 lot of agencies are having a hard time sort of 

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1 getting ahold of what's our role here. 

2 The nice thing about the Council is 

3 that it's supposed to be looking for ways to 

4 remove barriers and find incentives for really 

5 encouraging investment in these economically 

6 distressed areas. So that's one of the things 

7 we would be looking for you, maybe potentially at 

8 the October meeting, to have a longer discussion 

9 about what you all are seeing out there on the 

10 ground. 

11 CHAIRMAN MCWILLIAMS: And I think 

12 that is a fair question. Do you even know which 

13 Opportunity Zones are in your areas? Have you 

14 like mapped out your geographic coverage? So if 

15 I end up being on this Council, I would love to 

16 get your input as kind of your representative as 

17 I go there, as to what community banks in those 

18 areas would need. 

19 MS. RUDOLPH: So the other thing we 

20 did, we have some things we can bring to the 

21 table. We recently did some mapping exercises 

22 where we mapped out the Opportunity Zones with a 

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194 

1 special look at tribal areas. And so you can see 

2 where the 8,700 Opportunity Zones are located. 

3 The other thing we did is look at for 

4 different types of institutions, where bank 

5 headquarters are and where their branches are, 

6 and sort of the percentage of branches and 

7 headquarters in Opportunity Zones. So you can 

8 see there in blue for community banks, 18 percent 

9 of their headquarters are in Opportunity Zones; 

10 14 percent, almost 15 percent of their branches. 

11 CDFI banks, a little bit higher percentage on 

12 their headquarters, 29 percent, 21 percent of 

13 their branches. 

14 For minority banks, 21.6 percent of 

15 their headquarters are in Opportunity Zones and 

16 almost 31 percent of their branches. So we think 

17 there's some opportunity here. I think we would, 

18 as the Chairman said, we would like to hear from 

19 you maybe at the next meeting of sort of what are 

20 the barriers and is there something we can do. 

21 Alan. 

22 MEMBER SHETTLESWORTH: Betty, is 

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195 

1 there any conversation going on about the 

2 possibility of if a bank or any bank lends in, 

3 specifically in an Opportunity Zone, if that 

4 would be automatically eligible for CRA credit? 

5 Is that in the realm of possibilities? 

6 MS. RUDOLPH: So that has been 

7 discussed, and I think the answer is not 

8 automatically. But we have been meeting with our 

9 CRA policy people to look at that. But I don't 

10 think it would be sort of a blanket, yeah. Good 

11 question. 

12 MEMBER WILLIAMS: Excuse me, we 

13 happen to be actually headquartered in an 

14 Opportunity Zone and the way they went about it 

15 at least in Utah was kind of interesting. The 

16 cities could identify and recommend areas for 

17 these zones, and very few did it. 

18 But I have spent a little bit of time 

19 with the Mayor of the town we're headquartered 

20 in, and what they're finding is the biggest issue 

21 is understanding of the program out there and 

22 what it's for and who can qualify for it and how 

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196 

1 it works. 

2 We're ready to lend as much as 

3 possible and it's a pretty good deal. Frankly, 

4 a lot of the Opportunity Zones, I think if you 

5 drove through some of the areas you wouldn't 

6 describe them as Opportunity Zones. We're right 

7 in the middle of a tech hub. There's an old part 

8 of town that's included, and a significant part 

9 of town, that there's a huge kind of 

10 redevelopment opportunity for people to step up 

11 for but nobody's aware of it. 

12 MS. RUDOLPH: Have you -- are you 

13 aware of qualified Opportunity Funds within that 

14 area? 

15 MEMBER WILLIAMS: No. 

16 MS. RUDOLPH: Okay. So one of the 

17 things that we're looking at as sort of serving 

18 as a resource, and I know there are a number of 

19 them out there, but sort of publishing on our 

20 website. Where are the Opportunity Funds? 

21 There are others that have compiled this. 

22 Because it's not a federal program though, it's 

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197 

1 sort of a voluntary basis so there are different 

2 groups that are compiling this information. 

3 But we could put on our website sort 

4 of sources that you could look to, to look at 

5 that, because I think ultimately it really comes 

6 down to your state and local laws on investment, 

7 on taxes and incentives. So that's not something 

8 like from a federal program level that's really 

9 easy to do. But we think we could provide some 

10 resources at least, yeah. 

11 MEMBER WILLIAMS: It would be 

12 helpful. 

13 MS. RUDOLPH: Okay. 

14 MEMBER KENNETH KELLY: Betty, you 

15 mentioned the number of funds that you have a 

16 count of at this point. Is there a number? Did 

17 you mention 100 plus? 180, 190? 

18 MS. RUDOLPH: I mentioned 190 so --

19 MEMBER KENNETH KELLY: 190. 

20 MS. RUDOLPH: So I think there are a 

21 couple of different sources of that. Novogradac 

22 is a company that has done a lot of work in this 

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198 

1 space. So they've reported 197, and then there's 

2 a National Council of State Housing Agencies. 

3 They've compiled a lot of information on these 

4 funds and what types of investments they want to 

5 make. There are about 160 there. So --

6 MEMBER KENNETH KELLY: Okay, great. 

7 Thank you. 

8 MS. RUDOLPH: Yeah, and increasing 

9 all the time I might add. 

10 MEMBER KENNETH KELLY: Thank you. 

11 MS. RUDOLPH: I think the last slide 

12 we had was just to show for committee members. 

13 We have four of you that are -- actually have 

14 headquarters located in Opportunity Zones. So 

15 Tiffany, I think your institution. Len, Kenneth 

16 Kelly and Dick, right, are all in Opportunity 

17 Zones. Yeah. So we'll tee that up if you all 

18 think that would be worthwhile spending of our 

19 time for the October meeting. 

20 MEMBER KENNETH KELLY: Yeah. There's 

21 a lot of buzz around the country on this topic, 

22 and I think Len said it best. People, there's a 

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199 

1 lack of understanding of how to engage in the 

2 process. Most people know that it's there, but 

3 what does it mean to engage? I can tell you I've 

4 had conversations at fairly high levels at the 

5 state level on this topic. There are some funds 

6 that are looking at nationally how do you really 

7 compile a fund and then most important how do you 

8 figure how to invest those funds in these 

9 specific areas. 

10 So I believe that the banking industry 

11 should be and figure out how to be a leader in 

12 this space. It's just kind of what we do and I 

13 think we should be leaders in being sure that 

14 these dollars are deployed into these less15 privileged areas, to create jobs and create 

16 opportunity. 

17 So I'm looking forward to the October 

18 discussion on that. We'll be happy to 

19 participate. 

20 MS. RUDOLPH: All right. 

21 MR. DAVIS: Great. Thank you, Betty. 

22 Next up we have updated Money Smart Financial 

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200 

1 Education materials from our Division of 

2 Depositor and Consumer Protection. Our 

3 presenters are Luke Reynolds, who is the chief of 

4 Outreach and Program Development, and Bobbie 

5 Gray, who is a supervisory community affairs 

6 specialist. Thank you. 

7 (Pause.) 

8 MR. REYNOLDS: Good afternoon Madam 

9 Chairman and members of the Committee. I'm 

10 pleased to share some updates on the Money Smart 

11 Financial Education Program. I think everyone 

12 here knows of Money Smart. 

13 I just want remind everyone that there 

14 are Money Smart materials starting for children 

15 from kindergarten all the way up to older adults, 

16 and there's some discussion this morning on older 

17 adult curriculum. 

18 We recently surpassed one million 

19 copies ordered of Money Smart for older adults, 

20 and Money Smart for older adults recently 

21 received an award from the American Society of 

22 Aging. We're going to hear talk today is our 

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201 

1 most recently updated Money Smart product, Money 

2 Smart for Adults. 

3 This is the most recent update of the 

4 original Money Smart product that we first 

5 released in the year 2001. That was recently 

6 updated informed by research and feedback from 

7 banks and other organizations that have used 

8 Money Smart over the years. It still has an 

9 emphasis on real-life skills and choices, and its 

10 goal is to provide participants with practical 

11 knowledge and resources they can use to manage 

12 their finances and options to move toward a 

13 banking relationship. 

14 Options to move towards a banking 

15 relationship is important because having a bank 

16 account is obviously a key stepping stone to 

17 economic inclusion and economic opportunity. 

18 The target audience for Money Smart for Adults 

19 are adults who have low- or moderate-incomes, who 

20 have limited or no experience with financial 

21 institutions, who are establishing their 

22 financial lives and who want to improve their 

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202 

1 financial situation. 

2 For example, there are more than one 

3 in four people in the U.S. who are unbanked or 

4 underbanked are an excellent example of the 

5 target audience for Money Smart for Adults. But 

6 that said, Money Smart for Adults is flexible 

7 enough that it can be used with other 

8 populations. For example, we see it used in 

9 workplaces with employees who earn more than low10 or moderate-income. 

11 The 14 modules cover topics such as 

12 basic bank products and services, developing a 

13 spending and saving plan, managing debt and 

14 making safe and affordable housing decisions. In 

15 particular, we have modules on credit and 

16 preparing financially for a disaster. Every 

17 module includes materials for the trainers as 

18 well as the participants to take home. 

19 Each module is broken up into 

20 sections. For example, the module on credit 

21 reports has sections specifically on what's in 

22 credit reports; how to build, repair, and 

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203 

1 maintain a credit history; and disputing errors. 

2 Bobbie will now talk a little bit about how we 

3 promote Money Smart and how banks use Money 

4 Smart. 

5 MS. GRAY: Thank you, Luke. Good 

6 afternoon Madam Chairman, Committee members. 

7 Thank you for this time to speak with you today. 

8 As Luke mentioned, he's talked about the Money 

9 Smart. I'm just going to share some of the 

10 resources that we have available to support those 

11 delivering financial education. 

12 We have instructor supplements. We 

13 have a comprehensive guide to presenting. One 

14 doesn't need formal training to conduct Money 

15 Smart. Everything a trainer needs is included 

16 in this guide to presenting. We also have new 

17 with the release of the Money Smart for Adults 

18 real-world scenarios for financial inclusion, and 

19 that's for instructors who are -- have people 

20 with disabilities in their class. So it's real21 life scenarios for them. 

22 In addition, for promotional 

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1 resources we have a variety of flyers and cards. 

2 We offer some train the trainer. We have 

3 promotional videos. We're going to show you just 

4 a small snippet of one now if that's okay. It 

5 is from Module 6 that Luke just discussed, about 

6 credit reports. 

7 [VIDEO PLAYING.] 

8 MS. GRAY: So that was just a snippet 

9 of one of the promotional videos that we share 

10 with our stakeholders, as they are -- as we want 

11 them to use the Money Smart curriculum. Credit 

12 remains one of our popular topics in the new 

13 curriculum. So this short promotional video is 

14 posted to our website, just so that they can find 

15 out what's in this module. 

16 In addition, we offer some virtual 

17 training on webinars. We do, we host one 

18 quarterly in addition to some that we can 

19 customize for financial institutions and our 

20 Alliance partners, which I'll talk about a little 

21 bit more. Also here in headquarters and our 

22 colleagues nationwide, we also offer some free 

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1 train the trainer. 

2 So what are some of the ways 

3 organizations use Money Smart? I'll just quickly 

4 share a couple of examples from some of the 

5 financial institutions. For example, one of the 

6 groups of financial institutions partnered with 

7 other community groups and government entities 

8 using the Money Smart in their coalitions since 

9 its inception in 2014. 

10 Some of the work that they've been 

11 able to do is volunteering at homeless shelters 

12 and substance abuse centers. There was a 

13 community bank in Chicago who's been using Money 

14 Smart for five years and they've partnered again 

15 with other municipalities and libraries and 

16 community groups. So they host the meetings for 

17 local citizens. They also serve as guest 

18 speakers, as well as Luke mentioned, offering the 

19 training through financial wellness to their own 

20 staff. 

21 Then finally one other example, I have 

22 many and they share with us through some of our 

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206 

1 one-on-one calls with partners, some of the 

2 outreach that we do at partner meetings and our 

3 Alliance peer–to-peer trainings. But for 

4 example, one bank reached out to talk about 

5 perhaps cobranding the Money Smart, so that they 

6 would offer it to their employees, but then bring 

7 it to their community, to individuals of all ages 

8 through their community development staff. 

9 We also have an online newsletter, 

10 Money Smart News. Individuals can subscribe. 

11 Here, they will receive alerts when the Money 

12 Smart program is updated. We also share best 

13 practices and stakeholders will share their 

14 success stories and lessons learned on how to use 

15 the curriculum. 

16 You heard me just mention our 

17 Alliance, because collaboration for us is key. 

18 So we're successful at collaborating and training 

19 organization staff to deliver the curriculum 

20 versus Bobbie Gray going out and maybe teaching 

21 one class herself. And so we call them our Money 

22 Smart Alliance Program, and to date we have more 

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207 

1 than 1,200 Alliance members. 

2 We streamlined our process to be 

3 online, so we're happy that in addition to some 

4 of the partners we had since inception, we also 

5 have some brand new Alliance members. They agree 

6 to teach and promote the Money Smart. They host 

7 trainings. We encourage them to collaborate. 

8 We encourage them to reach out to financial 

9 institutions and other stakeholders in their 

10 area. 

11 We have an interactive online website 

12 where they can search to see what other partners 

13 are in their area. Again, they can also serve 

14 as peer-to-peer, in our peer-to-peer trainings 

15 that we host. They can also influence any 

16 updates we hear from them, as Luke mentioned. 

17 When we're seeking to update the curriculum, they 

18 also serve as training sites and test the 

19 curriculum. 

20 So again, our model is FDIC. We 

21 supply the resources and provide free training to 

22 instructors. The instructors will then deliver 

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208 

1 the training into the community, and then we feel 

2 that participants are able to make sound 

3 financial decisions for themselves through the 

4 confidence and knowledge through practice. 

5 And finally, we have on our website 

6 again, this is where you will learn how to access 

7 the curriculum, other strategies for financial 

8 education around youth savings and through youth 

9 employment, and join the Alliance. Thank you. 

10 MEMBER SHETTLESWORTH: Can I just 

11 add a comment? Just to give you guys some real 

12 world perspective from what we've done with this. 

13 About a year, year and a half ago we started 

14 working with an organization in Albuquerque that 

15 reached out to us, because they're trying to 

16 develop this program to effectively go help folks 

17 pay off their title loans. There's a huge 

18 problem with that in New Mexico. 

19 This is a program. It's a faith-based 

20 organization. It's across the country, and this 

21 program actually started out of Texas, either 

22 Dallas or Houston, and they're expanding it over 

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209 

1 here. So I worked with them in the last year. 

2 So our bank has worked with them to kind of 

3 develop the forms and applications they need. 

4 But the whole key to the program here 

5 is that this organization will assign two people 

6 per -- to kind of mentor this group. So the 

7 loans are designed to be 12 to 24 months or 

8 whatever, but they're going to mentor them during 

9 this whole process because financial education is 

10 probably the biggest piece of the puzzle. 

11 And so as soon as I -- we literally 

12 closed our first loan. It was like a $1,200 loan 

13 for these folks. It's going to save them -- in 

14 at least 12 months it's going to save them like 

15 four or five hundred dollars. It's kind of 

16 ridiculous. 

17 But then as soon as this SmartMoney 

18 email from the FDIC within the last 30 days, 

19 whatever, I forwarded it over to them because I 

20 wasn't aware of the train the trainers piece, and 

21 this is exactly what these folks are doing. 

22 Because our staff, we don't have enough time to 

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210 

1 be able to do this with all of our customers like 

2 we would like. 

3 But now that this material is there, 

4 as soon as I head back, I'm going to send this 

5 off to them because this is perfect information 

6 for them. So --

7 MR. REYNOLDS: Thank you sir. 

8 MS. GRAY: Thank you. 

9 MEMBER EPSTEIN: Is there any 

10 component here on entrepreneurship, or is there 

11 any thought to expanding the scope of the program 

12 to cover entrepreneurship? The reason I ask, we 

13 had an opportunity to create a focus group with 

14 the high school in our market. We have a virtual 

15 enterprise class, and we had participated in some 

16 of the interviews as the students interviewed for 

17 the various senior positions within the 

18 organization for the school year. 

19 We took it a step further and invited 

20 the class to literally step out of the classroom 

21 and into our board room, and we had them provide 

22 us feedback on our products and services, our 

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1 facility. We went over our -- we did sort of a 

2 mini-presentation of what we do to, you know, at 

3 our annual meeting and encouraged them to ask 

4 questions and so forth. It was really energizing 

5 to see the enthusiasm that the students had. 

6 But for lack of any kind of a 

7 curriculum, you know, it was a sort of a one-off, 

8 and it may be something that we would do each 

9 year with each incoming class. But if we had a 

10 curriculum and I'm certainly not qualified to 

11 construct one, but that you all might be able to 

12 put forward, then that's something that we could 

13 continue with and maybe build upon. 

14 I know that in some of the smaller 

15 communities where there aren't necessarily 

16 opportunities to work for larger companies that 

17 have a variety of positions and advancement 

18 opportunities, you know, the citizens are really 

19 either faced with the choice of moving out of the 

20 community to go to work for a larger company where 

21 there is opportunity, or if they are so inclined, 

22 become entrepreneurs. 

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1 That certainly would benefit us long 

2 term and give them a greater ability to stay home, 

3 if you will. 

4 MEMBER KENNETH KELLY: Was that 

5 included in your Smart, Money Smart for Small 

6 Business or no? 

7 MR. REYNOLDS: Yes. So there's two 

8 answers to that question. On the youth side, we 

9 have two modules in Money Smart for young people, 

10 the grade 9 to 12 curriculum. I believe it's 

11 modules -- I mean lessons 21 and 22. It's just 

12 -- it's all about entrepreneurship. So it will 

13 be perfect for setting -- it could be perfect for 

14 a setting such as this. 

15 So lesson plans for teachers to help 

16 young people understand entrepreneurship, and we 

17 would welcome input on how we can better promote 

18 those lessons. Then the next panel just after 

19 us for adults will hear about Money Smart for 

20 Small Business, which is our curriculum in 

21 partner -- that we developed in partnership with 

22 the U.S. Small Business Administration. 

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1 But beyond those two resources, we 

2 invite other ideas and we'll certainly give some 

3 thought on how perhaps we can figure out how in 

4 a setting such as yours, we can better support 

5 banks in using the lessons from Money Smart for 

6 young people. 

7 MEMBER EPSTEIN: Well, that sounds 

8 like you have some good programs and maybe it's 

9 just a matter of awareness on our part and some 

10 of the other banks. So thank you for promoting 

11 that. 

12 MR. REYNOLDS: Thank you. 

13 MEMBER WALKER: What about student 

14 loans? Have you thought about adding something 

15 in here for that just in general? 

16 MR. REYNOLDS: We do. In Money 

17 Smart for Adults, we have content for people who 

18 have student loan debt, to help them understand 

19 the resources available to them. In Money Smart 

20 for young people, we don't want to duplicate what 

21 other agencies have. So we provide information 

22 that helps an overview of options and then helps 

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1 people connect into the great tools from federal 

2 student aid, the Department of Education and the 

3 CFPB. So yes we do. 

4 MEMBER KENNETH KELLY: Good job. 

5 MR. REYNOLDS: Thank you. 

6 MS. GRAY: Thank you. 

7 MR. DAVIS: Thank you very much. So 

8 it is 2:15. It is 2:15 now. Let's take a ten9 minute break, and then I think we're going to 

10 flip the next two sections because we have some 

11 outside folks joining us for the SBA session. So 

12 back here at -- between 2:25 and 2:30. 

13 (Whereupon, the above-entitled matter 

14 went off the record at 2:17 p.m. and resumed at 

15 2:32 p.m.) 

16 MR. DAVIS: Okay. We're going to go 

17 ahead and start the next panel, because I know 

18 we've got a few people that need to leave here 

19 shortly for flights. As I said, we're going to 

20 flip the next two panels. So now we're going to 

21 start a panel discussion with FDIC and the Small 

22 Business Administration collaboration efforts. 

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1 Lekeshia Frasure, Frasure, who is 

2 acting chief of Community Affairs in our Division 

3 of Depositor and Consumer Protection will serve 

4 as the panel moderator. She is joined by Allen 

5 Gutierrez, who is an Associate Administrator in 

6 the SBA Office of Entrepreneurial Development; 

7 Emerson Hall, Acting Associate Director in the 

8 Division of Depositor and Consumer Protection; 

9 and Jim Watkins. Thank you. 

10 MS. FRASURE: Good afternoon Madam 

11 Chairman and Committee members. I have the honor 

12 of moderating this panel today as it relates to 

13 the FDIC and Small Business Administration 

14 collaboration efforts. Our first speaker today 

15 will be Mr. Allen Gutierrez, which is the 

16 Associate Administrator for the Office of 

17 Entrepreneurial Development at SBA. 

18 Allen will provide us today an 

19 overview on the responsibilities of the Office of 

20 Entrepreneurial Development at SBA, in addition 

21 to the SBA's three response partners, Senior Core 

22 of Retired Executives, better known as SCORE, 

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1 Small Business Development Centers, also known as 

2 SBDCs, and Women Business Centers. 

3 Our second speaker today will be Mr. 

4 Emerson Hall, Acting Associate Director in our 

5 Division of Depositor and Consumer Protection. 

6 Emerson's remarks will highlight three areas 

7 particularly: the FDIC's relationship with the 

8 Small Business Administration; he'll share some 

9 examples of small business initiatives conducted 

10 and/or coordinated with the SBA in our six 

11 regions; and also a brief overview of the FDIC 

12 and SBA developed tools to assist bankers, small 

13 business owners and small business technical 

14 assistance providers. 

15 Lastly, we will have Jim Watkins, our 

16 Senior Deputy Director for our Division of Risk 

17 Management and Supervision, who will address any 

18 questions that are related to how examination 

19 staff consider and analyze SBA loan portfolios 

20 during our bank examination. I'll turn it over 

21 to Allen. 

22 MR. GUTIERREZ: Great. Thank you 

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1 very much. Good afternoon. For those who are 

2 leaving on a flight, can you raise your hand? 

3 (Show of hands.) 

4 MR. GUTIERREZ: All right. Don't ask 

5 any questions, we can get through this. 

6 (Laughter.) 

7 MR. GUTIERREZ: Just kidding. So 

8 it's great to be here and certainly as we’re

9 mentioning the subject matter in terms of our 

10 partnership, which is something at SBA the last 

11 couple of years, last two years to be exact, that 

12 is one of the many things that we're doing at SBA 

13 is creating that stronger partnership with, 

14 amongst other agencies in that aspect. 

15 So we not only hear from our hot off 

16 the press. We have an MOU with the FDIC in 

17 working together in a lot of the areas. More 

18 specifically from an aspect of the lender 

19 relationship side and our Office of Capital 

20 Access. But another example outside of here, for 

21 example, we have a strong MOU with USDA, with 

22 Agriculture I mean and so -- and other agencies 

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218 

1 that we're looking at. 

2 How do we maximize what we're doing as 

3 it relates in the small business sector, in 

4 entrepreneurship, in access to capital and so 

5 forth and government contracting, and how do we 

6 complement or work together, maximize the 

7 economies of scale with other agencies? 

8 So certainly I have Linda Riley here 

9 with me as well. She's from the Office of 

10 Capital Access, so I wanted to introduce Linda as 

11 well. I know that you guys had some snacks out 

12 there, but certainly I was going to bring a cake 

13 and you're going to say why? Because today's the 

14 SBA's birthday. So it's -- we turn 66. So we 

15 have one more year and then we can retire. 

16 (Laughter.) 

17 MR. GUTIERREZ: But we're excited. 

18 You know, we certainly continue to look at a lot 

19 of ways, you know, certainly how the agency was 

20 created in the 1950's is not where we're at now, 

21 and certainly technology, partnerships, and 

22 communities, and everything else associated is 

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1 what can we continuously be from our previous 

2 administrator, Administrator Linda McMahon, 

3 looking at ways to really have the agency in the 

4 21st century and how can we be readily available 

5 for all entrepreneurs and business owners across 

6 the country, not only in urban areas, but also 

7 rural areas too? 

8 There's a lot of things that we're 

9 doing out of my office that relates to that, from 

10 that standpoint. So as Lekeshia mentioned, you 

11 know, certainly the Office of Entrepreneurial 

12 Development is one of the four houses that we 

13 would say. There's the Office of Capital Access, 

14 there's the Office of Government Contract and 

15 Business Development, and then the other one is 

16 the Office of Disaster Assistance, which a lot of 

17 individuals, you know, everyone’s familiar with 

18 FEMA when there's disasters happen. 

19 But SBA, we work very closely with 

20 FEMA, and a lot of the things that we do and we 

21 provide not only assistance in disaster areas to 

22 business owners, but also homeowners in a lot of 

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220 

1 different areas in that aspect. So that's the 

2 other hub. 

3 So from my office, we have what I call 

4 the three lanes per se, you know, in the highway, 

5 which is the Small Business Development Centers, 

6 which is over 900 centers across the country that 

7 provide counseling and training to entrepreneurs 

8 and small businesses. That's primarily the 

9 distribution channel is through the host 

10 organization is primarily institutions of 

11 education. So universities from that 

12 standpoint. 

13 There are 63 of them across the 

14 country and then it goes down, dwindles as they 

15 then create a stronger footprint in either the 

16 region or their state as it relates to being 

17 readily available in terms of service centers 

18 from that standpoint. 

19 Then we have the SCORE, senior retired 

20 individuals. So those are retired executives 

21 that are over 300 offices across the country that 

22 provide assistance for primarily really to be 

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221 

1 honest the target mark there is very entry. I 

2 have an idea, I have a thought, I have something 

3 that I'm thinking about doing. How do I get 

4 started or what do I do? 

5 And it's not only how to get started 

6 but a lot of times too the counselor, the mentor 

7 really assists him or her. Sometimes it's saying 

8 well, you sound like you really -- is this not 

9 the business you're doing? You want to get into 

10 this arena. So a lot of times it's redirecting 

11 them and assisting them, and trying to cut off 

12 some of the failures as it relates, you know, 

13 entrepreneurship and starting a business from 

14 that standpoint. 

15 And then the other lane I'd say is the 

16 Women Business Centers. The Women Business 

17 Centers, we have over 114 across the country. I 

18 was just in Idaho last week, and we opened up two 

19 new centers there in Idaho. We have a couple of 

20 states that in the next couple of months we are 

21 going back and announcing the opportunity, South 

22 Carolina, Mississippi, Alaska and West Virginia. 

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1 Currently, we're not -- we don't have 

2 a Women Business Center. Either they self3 terminated or have dropped out. So we're in the 

4 process of doing the bidding. These are all 

5 grants per se by the way, all these three lanes 

6 from the standpoint overall. So those I would 

7 say, those are constant, those are the main three 

8 lanes. 

9 I don't know if in your states do you 

10 have HOV lanes or hopefully you don't have to pay 

11 for them. But now it seems like every HOV lane 

12 you've got to pay, right, which is if you don't 

13 have that pass then you can't go through. But 

14 so I call the other area the HOV lane. 

15 Those are the initiatives, the areas 

16 that we look at are what are the things that from 

17 the vision of the Administrator and myself as 

18 well, that we can look at, think outside the box 

19 of reaching out to more entrepreneurs and so 

20 forth. 

21 So some of the recent ones. One, for 

22 example, regional innovative clusters. Those 

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223 

1 are individual locations that are more in detail. 

2 You take one step down from any of the resource 

3 partners that I mentioned, and what they are is 

4 like for example in St. Louis it's biofuels 

5 region automated cluster. 

6 So if you're into -- in that 

7 particular industry, you go to that particular 

8 cluster and get a lot of hands on approach, and 

9 assisted in the next level per se of contracts 

10 and opportunities, private sector and the 

11 government side as well. 

12 We have -- or I just recently 

13 announced a month and a half ago a match 

14 competition. It's not for individuals; it's for 

15 individuals that want to start and get involved 

16 in their idea. What I mean by that is I don't 

17 know if you're familiar, just a show of hands. 

18 You heard about Maker Spaces. Anybody familiar 

19 with Maker Spaces? 

20 So I was given an example of, you 

21 know, the individual down the street starts 

22 making cakes and everyone's like, “Oh, these are 

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224 

1 really good cakes. You should really think of 

2 starting a bakery.” But they're just starting, 

3 you know. They're just doing it for a passion, 

4 and they don't have the ovens, they don't have 

5 the know-hows and so forth. So go to a maker 

6 space that focuses on bakery, and they have all 

7 the ovens and so forth. 

8 So they can use the facilities, use 

9 all their equipment, but also get training and 

10 assistance in counseling on that aspect. So 

11 we're excited about that. We expanded that to 

12 competition, $1 million across the country. We 

13 had an overwhelming interest in it. It's going 

14 through the judging process right now. We had 

15 over 160 across the country that were interested 

16 in it. 

17 We'll be announcing that in the next 

18 week or two. In terms of the finalists and 

19 rolling that out structured-wise. So we're 

20 excited about that in term of Makers. That 

21 really, that's an added outside the box approach. 

22 It's a very -- there's an association. Across 

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225 

1 the country, it's growing in a lot of different 

2 -- especially in rural areas by the way too. 

3 So we're excited about from that 

4 standpoint. We also have Emerging Leaders. 

5 Emerging Leaders is a seven-month cohort plan 

6 that we -- this year I have over 60 organizations 

7 across the country, and that also is an 

8 opportunity to assist mainly in emerging markets, 

9 in emerging cities in terms of taking that 

10 business to the next level. 

11 So they've been in business at least 

12 two years, have one or two employees. But we've 

13 seen an overall success in these last ten years 

14 of the impact it does for that particular 

15 business in terms of increase in sales, in terms 

16 of increase in employees, expanding and so forth. 

17 So a very good track record on that aspect and 

18 it's in its tenth year like I mentioned in terms 

19 of Emerging Leaders. 

20 I know that earlier there was talk 

21 about and we'll discuss a little bit more on Money 

22 Smart. But the other thing that we're looking 

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226 

1 at too is capabilities to have online, right. 

2 Not to diffuse the brick and mortar and the 

3 infrastructure that we have as it relates to the 

4 three lanes that I mentioned, but how can we 

5 always be available 24-7 as the Small Business 

6 Administration across the country? 

7 Even though we have 68 district 

8 offices, we're in every single state across the 

9 country and territories and so forth. But as we 

10 know, small businesses or entrepreneurs, they're 

11 either working full time and thinking of starting 

12 a business and sometimes they can't get during 

13 the day to our district office or our counseling 

14 or seminars and so forth. 

15 So we are later this year we'll be 

16 rolling out a women digitalization platform, 

17 really to enhance with subject matter experts 

18 that really engages the individual for the 

19 entrepreneur women that are in the growth states. 

20 So a scaling-up approach from that standpoint. 

21 Then we're going to be looking at other, other 

22 entities as well, other communities to continue 

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227 

1 that process. Again, bringing the agency to 

2 really a 21st century approach. 

3 But on that note, you know, hopefully 

4 it gives you an overview of what we're doing, 

5 where we're heading, what the impacts that we're 

6 doing across the country from that standpoint, 

7 and yield over to, back to Lekeshia and look 

8 forward to any questions you might have 

9 afterwards. 

10 MR. HALL: Okay, all right. 

11 MS. FRASURE: Turn it over to Emerson. 

12 MR. HALL: All right, good. I was 

13 sitting here kind of thinking, and I'll share 

14 this with you. I was in the meeting this morning 

15 when you guys got a chance to kind of give an 

16 overview of your markets and your banks, and I 

17 was really impressed with that. I'm just glad I 

18 had an opportunity to participate and sit in on 

19 that. 

20 I want to share a quick story with 

21 you. My manager shared something with me 

22 yesterday. She said, “Emerson, you're going to 

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228 

1 be presenting to the Chairman.” I'm from San 

2 Francisco. I'm doing a detail now. She says, 

3 “You're going to be presenting to the Chairman, 

4 and so hopefully this goes real well for you. 

5 Otherwise, you may have a problem.”

6 So you guys talked about the low 

7 unemployment right, and how you need to --

8 (Laughter.) 

9 MR. HALL: So if this doesn't go very 

10 well, you may have an experienced banker that's 

11 unemployed. But I just want to share this as 

12 well. I know that prayer really works because 

13 after my manager told me that, I won't say who 

14 she is in here -- she's in here though, I said a 

15 prayer and I'm looking around and the Chairman's 

16 not here and the former Chairman is not here. So 

17 if this doesn't go well and you guys don't hire 

18 me, I think I'm going to get a Lotto ticket 

19 because it's working out pretty well for me. 

20 MEMBER KENNETH KELLY: It's on 

21 podcast. 

22 MR. HALL: That's right. So I'm on. 

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229 

1 So I really do appreciate, we really appreciate 

2 the opportunity to visit with you guys this 

3 afternoon and participate in this meeting and to 

4 present to this Committee. I'm going to talk 

5 about three primary key points today. First is 

6 our relationship with the Small Business 

7 Administration, FDIC's relationship with the 

8 Small Business Administration. 

9 We're going to give a quick overview 

10 of some work that was done with the Small Business 

11 Administration in the six regions that we have, 

12 and then lastly was a question in regards to the 

13 Money Smart for Small Business, and do we have 

14 modules to support that and we actually do. 

15 So Allen mentioned the memorandum of 

16 understanding. He and I didn't coordinate this, 

17 so I was going to talk a little bit about that. 

18 But we have a memorandum of understanding with 

19 the SBA that guides the work that we're involved 

20 in with them. Our Community Affairs team, for 

21 those of you that don't know, is comprised of 

22 about 35 community affairs specialists throughout 

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230 

1 the country. 

2 These guys are well-versed in all 

3 areas of the work that we do, community 

4 development. They have banking experience and 

5 also regulator experiences as well on financial 

6 regulations. The primary purpose of our 

7 community affairs specialists, we assist 

8 financial institutions in developing those 

9 strategies that are responsive to the credit, 

10 service, and investment needs of the communities 

11 in which you guys serve and operate. 

12 Our strategies are created to connect 

13 financial institutions with opportunities to 

14 serve those markets within your bank's footprint 

15 or other banks’ footprints that have been 

16 difficult to reach. It's also worth noting today 

17 that about 25 percent of our community affairs 

18 specialists throughout the country, or about one, 

19 at least one or more in each one of the six 

20 regions, have previous banking experience. 

21 In several instances, and I shared 

22 this with you a little bit earlier, our staff's 

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231 

1 relationship with the SBA is not only broad but 

2 deep, and I personally have 25 years, this is my 

3 resume. 

4 I personally have 25 years of banking, 

5 commercial lending banking experience. So but 

6 20 of those years have been engaged, were engaged 

7 in small business lending, SBA lending, lending 

8 to communities of color and women-owned 

9 businesses, primarily in low- to-moderate income 

10 communities. 

11 But I quickly learned by having, 

12 wanting to specialize in that type lending, I 

13 needed a credit enhancement program and the SBA 

14 was and continues to be that product and a primary 

15 solution for trying to extend credit in those 

16 communities. I have a personal SBA story I'm 

17 just going to take a moment and share with you 

18 guys. 

19 My wife and I applied for and was 

20 approved for two SBA loans several years ago, 

21 probably over 15 years ago now, and we got two 

22 SBA loans, low six figure loans. One was to 

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232 

1 acquire a business and the other was to expand to 

2 a second location. Without the SBA guarantee, 

3 we wouldn't have had an opportunity to most 

4 likely do that, and the SBA provides that not 

5 only for my family but they provide it for 

6 thousands of families throughout the country. 

7 My daughter's actually had a chance to 

8 work in the business, and just like -- it was a 

9 family-owned business. Some of their friends 

10 would come by and ask sometimes well if your 

11 parents own this business, why are you working 

12 here? My daughter would look them in the eye and 

13 say my dad says if I work hard, it's going to 

14 build character. 

15 That's what I told her, it was going 

16 to build her character, and then also if I have 

17 my name on a paycheck, she says if my name is on 

18 a paycheck it's going to build self-esteem, which 

19 the SBA is providing that for hundreds, if not 

20 thousands of families throughout this country. 

21 So that's my personal story. 

22 I, as many of our colleagues 

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233 

1 throughout the country, the community affairs 

2 specialists throughout the country, we recognize 

3 the exceptional programs that the SBA has. It's 

4 good to know that the SBA is celebrating its 

5 birthday today. It's just -- I kind of thought 

6 about what Allen was saying, and if at 67 they're 

7 going to retire then the community affairs 

8 specialists in this country are going to have a 

9 whole lot more work to do, because these guys 

10 have been some great partners for us. 

11 But they have a group of talented 

12 employees. It's extraordinary advantages to the 

13 SBA program that they provide to our nation, and 

14 the SBA is not only a part of our work in 

15 community affairs or at the FDIC, but it's in our 

16 DNA, because a lot of small businesses, a large 

17 number of small businesses would not be able to 

18 obtain financing without the SBA. 

19 I think -- no I'm going the wrong way 

20 there I guess. Okay. So the second point that 

21 I want to make is I want to provide some brief 

22 examples really quickly in regards to some of the 

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1 work that we've done with SBA in regards to the 

2 six regions that we have. We have the Atlanta 

3 region, we have the Chicago region, Dallas 

4 region, Kansas, New York, and San Francisco. 

5 The Atlanta region, just an example, 

6 in the fourth quarter of 2018 convened and 

7 facilitated a small business lunch-and-learn 

8 workshop with the SBA and bankers. The workshop 

9 was targeted to low- to moderate-income 

10 communities, and businesses in those communities 

11 in Atlanta and the presentation of the workshops 

12 were for small business owners. 

13 In the Chicago region, on May 29th, 

14 2019, the Chicago region convened rural Illinois 

15 small business roundtable. It was designed to 

16 foster productive business financing 

17 partnerships between banks and CDFIs and Small 

18 Business Centers, which are one of the business 

19 resource centers for the SBA. 

20 The Dallas region and Memphis area 

21 office during the first quarter of 2018, 

22 Community Affairs and the SBA co-sponsored what 

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1 was considered Mississippi Meet the Microlenders 

2 in the Delta. This was a seminar workshop and 

3 small business lenders, microlenders got a chance 

4 to meet directly with small business owners and 

5 microenterprise entrepreneurs in the Delta. 

6 The Kansas region on December 11th, 

7 2018 Community Affairs, in collaboration with the 

8 SBA, the Federal Reserve Bank of Kansas City, 

9 Omaha branch, in coordination with the business 

10 leaders in Omaha, provided or convened an Omaha 

11 small business lending forum and provided 

12 strategies to increase small business lending in 

13 that market and small business education. 

14 Emphasis was placed on streamlining the process 

15 and the services for small businesses because 

16 that's the challenge a lot of times for small 

17 business. 

18 In the New York region during the 

19 second quarter of 2018, Community Affairs 

20 convened a small business lending in rural 

21 Maryland forum. Representatives from the USDA, 

22 the Small Business Administration and Maryland 

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1 Small Business Financing Authority presented 

2 information on credit enhancement programs and 

3 initiatives for community development managers of 

4 banks. 

5 Lastly, the San Francisco region on 

6 April 17th, 2018 convened a Washington state 

7 interagency banker roundtable. 

8 A lot of the events and activities 

9 we're involved in are interagency events with the 

10 Federal Reserve Bank and the OCC, and then our 

11 good partners at the SBA. It was held actually 

12 at the SBA office, and it focused on business 

13 development service, including training for small 

14 business entrepreneurs. 

15 So I would also like to add that 

16 there's a significant number of small business 

17 events are held actually at the SBA offices, and 

18 it provides either the bankers or entrepreneurs 

19 an opportunity to visit the SBA there, where they 

20 can find more services. We're sometimes asked 

21 by those persons that are supporting small 

22 business, and why is the FDIC doing this type of 

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1 work? 

2 We state that we understand access to 

3 capital is what spurs the economy, growth and 

4 stability. We understand also that a healthy 

5 community sustains a healthy bank. So we 

6 connect, we continue to connect CDFIs and 

7 technical assistance providers and Small Business 

8 Development Centers and bankers. 

9 We also know, because the question is 

10 often asked, are we just disseminating the 

11 information or are we providing something that's 

12 more tangible? We make every effort to try and 

13 provide not only information, but we want to try 

14 and make sure that we work from an intentional 

15 purpose standpoint, and the intentional purpose 

16 is to try and ensure that we have outcomes, 

17 results and impacts. 

18 So we work from a smart approach, 

19 specific measurable, achievable, relevant and 

20 time bound. By doing that, we can affect some 

21 change. We pride ourselves and we work hard to 

22 try and make sure that we have the responsibility 

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1 every day when we get up to try and help transform 

2 communities and to change lives, and that's what 

3 we focus on every day. 

4 So briefly I'll talk about the Money 

5 Smart for Small Business. A question was asked 

6 about that a little bit earlier. But the Money 

7 Smart for Small Business, and I know Luke and 

8 Bobbie had a chance to talk about Money Smart so 

9 I won't spend a lot of time on it. 

10 But it's an instructor-led 

11 curriculum. It's free. All the Money Smart 

12 products are free. It was developed and being 

13 promoted by the FDIC and the SBA. It's in 

14 English and in Spanish and was developed in 2012. 

15 We're continuing to improve it. As we train and 

16 we see needs to update and improve, we do. 

17 It's also a tool for financial 

18 institutions and organizations to collaborate and 

19 deliver this training or workshops to small 

20 business entrepreneurs, or small business owners 

21 or entrepreneurs. We recognize, as a previous 

22 commercial lender I recognize that a lot of the 

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1 times and you guys are primarily from some of the 

2 smaller towns so you may not have this challenge. 

3 But I was a lender in Houston and in 

4 Dallas, and I loaned money in San Antonio and 

5 Austin as well. But I know sometimes small 

6 business owners are intimidated by banks or 

7 bankers. They normally come, I'm not sure 

8 exactly at your institutions, but they would 

9 normally come to me when they had the strongest 

10 need. It's like I need the money tomorrow. 

11 Instead of developing relationships 

12 with financial institutions and bankers early on, 

13 so the bankers can get to know them. So this 

14 gives -- these tools give bankers or community15 based organizations or Small Business Development 

16 Centers an opportunity to work with those 

17 bankers, so they can start to develop 

18 sustainable, meaningful relationships with 

19 financial institutions. 

20 There's 13 modules, and if you're not 

21 familiar with this program, either your bankers 

22 or community-based organizations in your market 

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1 can certainly do this. There’s an instructor's 

2 guide, participant's guide, workbook, PowerPoint 

3 slides. The Train the Trainer, as Luke talked 

4 about earlier, makes it really easy for us to 

5 duplicate ourselves. 

6 We'll go out and we can train 12, 15, 

7 20 people because we can't do it all. 35 people 

8 can't do it all in the country. But if we're 

9 each training 12 to 20 people several times a 

10 year, we can multiply pretty well and have a much 

11 stronger impact. So that's what we do, train the 

12 trainer. 

13 The Money Smart Alliance Bobbie 

14 mentioned earlier, we have 1,200 members across 

15 the country, and they're also engaged in Money 

16 Smart Train the Trainers and assisting small 

17 business owners with opportunities. 

18 This is a list of the modules. 

19 There's 13 of them. I won't go through all of 

20 them but I'll just mention a couple. Is owning 

21 a business a good fit for you? The upper left22 hand corner. I as a banker, I had been a banker 

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1 for ten years or so before my wife and I started 

2 our own business. I went to SCORE, Senior Core 

3 for Retired Executives, I went to the Small 

4 Business Development Centers because I wanted to 

5 see what they would say. 

6 And they punched me up pretty good. 

7 As a banker, I was used to punching other people 

8 up pretty good. But they punched me up pretty 

9 good, and they told me the challenges I was going 

10 to face. But I felt confident, so I went on. So 

11 you know, but I think that's what happens. A lot 

12 of times, and you guys probably experience this, 

13 but as a banker a lot of my friends would come 

14 and say, “Emerson, I'm thinking about starting a 

15 business, you know. I would like your ideas.”

16 But I didn't want to be a dream 

17 crusher because the fact that I'd be crushing 

18 their dreams because I would tell them what the 

19 reality is, it's tough. So I would send them to 

20 the Small Business Development Center or to 

21 SCORE, and they would get the real deal. Usually 

22 they didn't start a business, because I didn't 

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242 

1 want to see them invest their money in something 

2 that was going to be tough. 

3 So owning a business, that module 

4 gives people a good idea. Just because you're 

5 good at a certain task doesn't necessarily mean 

6 that you should be a business owner. Then I'll 

7 move to the last one, Managing Cash Flow. One 

8 of the things that I saw, and I think that I still 

9 see in the market is that a lot of small business 

10 owners are really good at what they do. 

11 But understanding that balance sheet, 

12 understanding their income statement, 

13 understanding the cash flow statements, they're 

14 not very good at it. So this gives those people 

15 an opportunity to raise their level of 

16 understanding. So on our website, we have a lot 

17 of quality, good information that either your 

18 bankers or the Small Business Development Centers 

19 can possibly go to. 

20 We have, as I said, community affairs 

21 specialists across the country. All you guys 

22 have to do is give us a call and we'll reach out 

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243 

1 to you. I'm sure our specialists should be 

2 reaching out to you if they haven't already done 

3 so. I've got your names and pictures right now, 

4 so therefore they will be if they haven't. 

5 So but we have success stories that we 

6 share because it does inspire and encourage other 

7 people to keep on doing what we're doing, because 

8 when people see success, they try and duplicate 

9 success. I think that's all I have, and I think 

10 we'll probably -- we'll take any questions. 

11 MR. GUTIERREZ: You know before any 

12 questions, there was one thing I forgot to 

13 mention when I was talking about technology as it 

14 relates to what we're doing. There's also that 

15 we've rolled out this last year is our Lender 

16 Match, online portal too that helps the business 

17 owner connect, and we've had over 200,000 already 

18 that have been connected and as it relates to 

19 what other products that are available that they 

20 would be improved by. 

21 If it's an SBA product or a microloan 

22 or so forth. So I just wanted to add that. I 

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1 forgot to mention that. 

2 MEMBER DAKRI: Asif Dakri with Wallis 

3 Bank. So we are -- sorry, let me get closer. 

4 We're actually an SBA lender. We're a preferred 

5 lender. We do quite a bit of SBA loans 

6 throughout the Texas area and what-not. 

7 One of the interesting things that I 

8 find is that when we have examiners come in, they 

9 don't necessarily understand the SBA program, and 

10 they have a hard time understanding that 

11 unguaranteed is not unsecured. So you know, the 

12 SBA 7(a) program, for example, has a 25 percent 

13 unguaranteed portion. 

14 The theory a lot of them think is that 

15 that means it's unsecured loan. It's really not. 

16 There's still the collateral behind what we have 

17 and what we're doing. So I don't know if that's 

18 something that internally we can have some maybe 

19 education for the examiners themselves, to better 

20 understand what the products are and why they're 

21 there and what they're used for. It would be 

22 helpful. 

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245 

1 I believe that we do some stuff that's 

2 been asked by examiners that really is 

3 meaningless in the grand scheme of things but we 

4 do it, because they said can you just monitor 

5 this for me? I don't know if you have any 

6 insights on that. 

7 MR. WATKINS: Well thank you. So 

8 there are thousands of banks that the FDIC 

9 supervises, and many of them have -- are very 

10 active in the SBA program. In fact, there's a 

11 number of FDIC-supervised banks that really have 

12 substantive concentrations and focused heavily in 

13 the SBA area, and we have internally programs for 

14 subject matter experts, it could be a subject 

15 matter in oil and gas, subject matter expert in 

16 commercial real estate and a whole host of items. 

17 We have regular discussions with the 

18 SBA, for example, we have semi-annual meetings 

19 with the SBA staff here in Washington talking 

20 about trends and issues, things that they're 

21 seeing, what items that might impinge, if you 

22 will, on the guarantee section. 

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246 

1 Our expectation for examiners is when 

2 they're looking at the books and records of an 

3 institution, that the institution have sufficient 

4 loan policies and procedures to underwrite the 

5 loans, as if it didn't have a guarantee. 

6 The guarantee provides this 

7 extraordinary benefit, such that even if there 

8 were a criticism of the loan, as long as the bank 

9 was following its requirements for the SBA, the 

10 portion of the loan that's guaranteed by the SBA 

11 would not be subject to criticism. 

12 So that's kind of the thrust of our 

13 training, and we do have loan training schools 

14 and programs that talk about the SBA program. 

15 But we can certainly take back some of your 

16 suggestions on that, to make sure we have a better 

17 understanding for our examiners. 

18 MEMBER DAKRI: Yeah. I find that we 

19 do a lot of educating a lot of times as we're 

20 going through the process on some of the loans 

21 and what-not, trying to kind of educate the 

22 examiner on what the product is, how it works, 

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247 

1 what goes on, etcetera, etcetera, etcetera. By 

2 the way Emerson, if your key card doesn't work 

3 tomorrow, we're in San Antonio, Dallas and 

4 Houston so --

5 (Laughter.) 

6 MR. HALL: Okay. Well, I appreciate 

7 that. I'm familiar with Wallis Bank as well. 

8 MEMBER DAKRI: Thank you. 

9 MR. HALL: I'll let you know. I'll 

10 give you a call. 

11 MR. DAVIS: Okay. Anything else? 

12 All right. Thank you very much to the group. 

13 I'm going to ask Jim to stay. 

14 MEMBER KENNETH KELLY: Happy birthday 

15 I guess. 

16 MR. DAVIS: Yeah. 

17 (Off mic comment.) 

18 MR. DAVIS: Okay. Next, we're going 

19 to ask Jim to give an update on the FDIC efforts 

20 on de novos. At our last Committee meeting in 

21 March, he also gave us an update and so I'll now 

22 turn it back over to Jim to discuss what's 

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248 

1 happened in the last few months. 

2 MR. WATKINS: Thank you, Chad and good 

3 afternoon again. Today, I'll provide an update 

4 on recent de novo activity and our continuing 

5 deposit insurance application-related 

6 initiatives. Interest in de novo activity or 

7 forming a new bank continues. Since our March 

8 meeting, the FDIC approved two new banks. FDIC 

9 staff is currently reviewing 13 applications for 

10 deposit insurance. 

11 We are actively engaged with a number 

12 of organizing groups that are exploring potential 

13 applications as well. In some cases, the 

14 organizing groups have submitted, or are 

15 considering submitting a draft application 

16 proposal under the process that the FDIC 

17 announced in December of 2018. 

18 Under this process, organizing groups 

19 may request the FDIC to review the draft 

20 insurance proposal prior to filing an official 

21 application. The FDIC will review the draft 

22 proposal to identify any potential issues, and 

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249 

1 provide preliminary feedback to the organizing 

2 group so that they can fine tune their proposal 

3 before submitting a formal application. 

4 The FDIC supports the formation of new 

5 banks, and staff is available in each of our 

6 regional offices to assist organizing groups 

7 during the application process. Since my last 

8 update in March, we began publishing updated 

9 sections of the applications procedures manual, 

10 which provides instructions in the review and 

11 processing of regulatory filings. 

12 We will publish the remaining sections 

13 of the manual later this year. This resource and 

14 in particular the overview section, serves as an 

15 additional aid for organizing groups. For 

16 instance, the overview section provides expanded 

17 discussion for determining whether an application 

18 is substantially complete. 

19 This expanded discussion is 

20 responsive to industry requests for additional 

21 explanation and clarity on that topic. I'm also 

22 pleased to inform you that we've updated our 

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250 

1 delegations of authority so that regional 

2 directors can approve deposit insurance 

3 applications for traditional community bank 

4 applications, as well as any change in business 

5 plan without consultation from the Washington 

6 Office. 

7 We are also going to be issuing 

8 shortly an interpretive question and answer, a Q 

9 and A, clarifying that a specific physical 

10 address is not required at the time a deposit 

11 insurance application is filed. 

12 Some of the feedback we received 

13 talked about the burn rate or the cost to carry, 

14 if you will, of opening up a new facility and 

15 this question–and-answer response or 

16 interpretive question and answer should help 

17 assure that you don't actually have to submit 

18 that at the time an application is filed. 

19 These changes were frequently 

20 recommended during our outreach events regarding 

21 deposit insurance application process, including 

22 our roundtable events that concluded during the 

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251 

1 first quarter of this year and the request for 

2 information that was published in December of 

3 last year, in which the comment period closed on 

4 March 31st of this year. 

5 We expect the actions will reduce cost 

6 and aid organizing groups in developing complete 

7 deposit insurance proposals. The feedback 

8 obtained through the outreach initiatives 

9 continues to inform our efforts to support and 

10 improve the deposit insurance application 

11 process. 

12 In summary, we are striving to improve 

13 the deposit insurance application process. Our 

14 efforts have drawn on resources across multiple 

15 divisions within the FDIC, and have included 

16 important information and input and feedback from 

17 staff of each of our regional offices. 

18 Opportunities to improve our process 

19 and increase transparency are informed by the 

20 feedback received through recent outreach efforts 

21 and through our ongoing interactions with 

22 interested parties. 

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1 Thank you for your time, and I'll be 

2 happy to respond to any questions, Chad. 

3 MEMBER HANRAHAN: Jim, those are good 

4 numbers to hear. It also recently came to my 

5 attention that the FDIC has updated its website 

6 with de novo applications and process, etcetera. 

7 MR. WATKINS: Yes. 

8 MEMBER HANRAHAN: I found that very 

9 helpful and informative, and seems to me to be 

10 very consistent with the Chairman's emphasis on 

11 transparency and showing what's going on. So 

12 thank you for doing that. 

13 MR. WATKINS: Yes, thank you David. 

14 We have done a lot of work providing information 

15 on our website, just applications in general and 

16 the time lines we've been trying to pursue and 

17 achieve goals on that. So as part of the 

18 transparency initiative, we've done a lot of work 

19 in that regard. 

20 MR. DAVIS: Okay, last call for 

21 questions. Okay. With that, I'd just like to 

22 thank everybody for coming today. That's the end 

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1 of the program. Special thank you again to the 

2 members who this is their last meeting. We very 

3 much appreciate the service that you've given us. 

4 Again, thank you very one for making the trip 

5 here. Director Gruenberg, do you want to say 

6 anything? 

7 DIRECTOR GRUENBERG: No. 

8 MR. DAVIS: Okay. With that, despite 

9 our initial delays, we're 19 minutes early. So 

10 good luck everybody traveling back. Thank you. 

11 (Whereupon, the above-entitled matter 

12 went off the record at 3:12 p.m.) 

13 

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