Segment 1 Of 2     Next Hearing Segment(2)

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U.S. House of Representatives,
Subcommittee on Financial Institutions
and Consumer Credit,
Committee on Financial Services,
Washington, DC.

    The subcommittee met, pursuant to call, at 9:56 a.m., in room 2128, Rayburn House Office Building, Hon. Spencer Bachus, [chairman of the subcommittee], presiding.

    Present: Chairman Bachus; Representatives Weldon, Castle, Kelly, Ryun, Royce, Cantor, Grucci, Hart, Capito, Rogers, Tiberi, Bentsen, Meeks, Kanjorski, Hooley, Lucas, J. Maloney of Connecticut, and Sherman.

    Chairman BACHUS. The subcommittee, after a brief postponement, meets today for a legislative hearing on H.R. 3951, the Financial Services Regulatory Relief Act of 2002, a bill introduced earlier this week by my colleagues on the subcommittee, Ms. Capito of West Virginia, and Mr. Sandlin of Texas.

    We are going to go right to the witnesses. We'll start with the first panel. We are going to dispense with opening statements because of the delay, and hopefully, that will put us right back on time.
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    Our first panel is the Honorable Mark Olson, member of the Board of Governors of the Federal Reserve System. We thank you for your attendance and congratulate you on your appointment.

    Ms. Julie L. Williams, First Senior Deputy Comptroller and Chief Counsel, Office of the Comptroller of the Currency; Mr. William Kroener, General Counsel for the Federal Deposit Insurance Corporation; Ms. Carolyn Buck, Chief Counsel, Office of Thrift Supervision, and Dennis Dollar, Chairman, National Credit Union Administration.

    We welcome our witnesses to the subcommittee. I think there is agreement we are going to go from left to right. We should have probably discussed that with you, but if it is all right with the panel, we will start with Governor Olson and then proceed with Ms. Williams on down the line. Thank you, Governor Olson.


    Mr. OLSON. Thank you very much, Mr. Chairman, and Members of the subcommittee. We're delighted to have the opportunity to testify today on H.R. 3951. The Federal Reserve Board responded last summer to a request by Chairman Oxley to suggest ways to improve the banking laws and to relieve unnecessary burden.

    In the context of that request, we did submit a number of options, several of which have been included in your bill. And I would like to speak briefly to those this morning. We have a complete statement which I will submit for the record, but I will abide by the time constraint in the opening statement.
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    Chairman BACHUS. And I will say this. We are not going to, with this panel, we are not going to enforce the 5-minute rule.

    Mr. OLSON. In the spirit of the moment, I will stick with brevity also.

    Chairman BACHUS. Some of your fellow panel members may enforce a 10 or 12-minute rule.


    Mr. OLSON. OK. Our first suggestion involves de novo interstate branching. Members of the subcommittee may recall that interstate banking legislation was achieved largely, if not totally, by the various States during the 1980s and during the 1990s as they passed laws allowing for interstate bank ownership.

    The question of interstate branching was dealt with with the Riegle-Neal Act of 1994. There are two ways that branching was allowed. One was by a bank purchasing a bank across State lines and then converting it to a branch or branching from there, and the other option was for de novo branching, but that would only be allowed if the State in which the bank wanted to enter wold invite them in, essentially an opt in provision.

    There are two competitive issues involving that provision. The first one is that Federal thrifts are allowed to branch de novo across State lines now. So there is a current imbalance between the competitive environment for Federal thrifts and for commercial banks, and this supported amendment would address that issue.
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    The second issue involves a significant difference between the impact on small banks and large banks. Now remember that there are 17 States that have the opt-in provision and 33 States plus the District of Columbia that have not adopted the opt-in, so there is not the opportunity to enter those States by de novo branching.

    The distinction is that the smaller banks, whose natural markets would be across State lines, are at a slight disadvantage in that environment because the largest banks are able, with some ease, to purchase a bank and then accomplish the branching, but the smallest banks would be a significant burden to do so. We think it would level the playing field if the de novo option were to be eliminated from the statute.

    Having looked at that provision again, though, after we submitted it, there is one issue that we would like to call to the subcommittee's attention, and that concerns industrial loan companies. ILCs, as I think the subcommittee knows, are FDIC insured institutions whose parent ownership falls outside of the restrictions provided by the Gramm-Leach-Bliley Act. As we've looked at this amendment, one unintended consequence might be to allow ILCs to establish a nationwide presence completely outside of the parent being under the Federal restrictions of the Gramm-Leach-Bliley Act. That we don't see as a minor streamlining. We see that as a major policy issue.

    We, Mr. Chairman, have drafted language that if it would be helpful to the subcommittee we could submit as a further follow-up.

    The second issue that we would like to suggest involves cross-marketing restrictions between a bank and a company in which it has ownership in its merchant banking portfolio. When the Gramm-Leach-Bliley Act was passed, to assure that institutions were not avoiding the limitations of Gramm-Leach by putting an entity into its merchant banking portfolio and then operating it as if it were an affiliate, there were cross-marketing restrictions. There was one exception to that, however, involving insurance companies in a financial holding company. There is a narrow limitation for cross-marketing that insurance companies can do with institutions that the insurance company has an equity interest in their merchant banking portfolio.
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    We are suggesting that banks in financial holding companies ought to have the same opportunity.

    A third issue involves the removal of the post-approval wait period. Currently in the statute under mergers and acquisitions, once they have been approved by the regulatory authorities, there is a mandatory 30-day wait period for the attorney general to review the merger or acquisition for antitrust or anticompetitive implications, the 30 days now can be lowered to a 15-day period. We are suggesting that after the approval has been made, and with the explicit approval of the Attorney General, the 30-day period be eliminated entirely.

    The fourth item that we would like to talk about involves certain unnecessary reports regarding insider loan transactions. And before I talk about the three provisions, I would like to assure the subcommittee that the insider loan issue covered by Reg O is an important regulatory concern. And nothing that we are suggesting here would diminish either the bank's responsibility or the regulator's oversight responsibility in that area. However, there are three small reporting requirements that in our judgment don't contribute to safety and soundness, the recordkeeping responsibility of the institution or the oversight role of the Fed. So we would suggest that they be eliminated. Had the reports been regulatory, we would have dropped them. But, they are mandated by statute, and we are suggesting that the statutory requirement be eliminated.

    Two more exceptions. One involves director interlocks on small institutions. In 1978 when the Depository Institution Management Interlock Act was passed, there was a provision that allowed, in a large metropolitan area—an MSA—for a small bank or financial depository institution to be able to have a director on its board but have that same person be a director of another small bank in that same metropolitan area so long as they were not in the same immediate market. That was a good provision in 1978 when the dollar figure was $20 million. We are suggesting that that dollar figure today perhaps should be $100 million, and that's what we're suggesting.
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    The final suggestion that we have involves exceptions to attribution rules. A bank holding company is not allowed to own more than 5 percent of the voting shares of any company, and that includes, under the current statute, shares held in trust for the company or its employees or shareholders. We are aware of instances that involved pension plans or 401K plans where the institutions are allowing their employees the ability to direct their portion of a 401K or profit sharing so that they could purchase shares and they could vote those shares, so the individual would make not only the investment decision but the voting decision.

    In order to monitor the 5 percent requirement, it would be a massive recordkeeping responsibility, and it doesn't in our judgment change the effectiveness of the rule. What we are asking for is on a case-by-case basis, the permission to provide exception.

    Mr. Chairman, that concludes my opening remarks, and I'd be happy to answer questions.

    Chairman BACHUS. Thank you.

    Ms. Williams.


    Ms. WILLIAMS. Chairman Bachus and Members of the subcommittee, I appreciate this opportunity to discuss with you ways in which unnecessary regulatory burden on America's banking system can be reduced, and to express the views of the Office of the Comptroller of the Currency on the Financial Services Regulatory Relief Act of 2002.
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    Let me also begin by thanking Ms. Capito and Mr. Sandlin for sponsoring this bill, which includes sensible and appropriate regulatory burden relief for national banks and other financial institutions, as well as measures that will enhance bank regulators' ability to maintain a safe and sound banking system. We and the other agencies have worked with the subcommittee staff in developing some of the provisions in the bill, and we very much appreciate the opportunity to have done so and to continue to do so through the process. My testimony this morning will highlight a few provisions of the bill that we believe are especially important.

    As the subcommittee knows, effective bank supervision demands that we achieve a balance among several, sometimes competing, but equally important, objectives. One of these objectives is to foster banks' ability to conduct their business profitably and competitively, free from burdensome constraints that are not necessary to further the purposes of the banking laws.

    This bill contains several provisions that promote this objective by streamlining and modernizing aspects of the corporate governance and interstate operations of national banks. The OCC strongly supports these provisions.

    For example, the bill modifies the so-called ''qualifying shares'' requirement currently in the National Bank Act, which has made it difficult for some national banks to obtain favorable tax treatment as ''Subchapter S'' corporations. The ''qualifying shares'' provision requires every national bank director to hold a specified minimum equity interest in his or her national bank. Because of this requirement, however, some national banks end up with more shareholders than the law permits for a corporation wishing to elect ''Sub S'' status. Community banks are most disadvantaged by this result.
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    The bill solves this problem by authorizing the Comptroller to permit the directors of banks seeking ''Subchapter S'' status to hold subordinated debt instead of equity shares. Holding subordinated debt does not cause a director to be counted as a shareholder for purposes of ''Subchapter S.'' At the same time, the subordinated debt requirement achieves the same purpose as the requirement to hold equity shares because a director holding that sub debt can only be repaid in full if all other claims of depositors and non-deposit general creditors of the bank are first paid in full.

    A second sensible modernization in the bill that I'll mention eliminates a provision in current law that requires a national bank to have cumulative voting in the election of its directors. The bill permits a national bank to determine, at its option, reflected in its articles of association, whether or not to permit cumulative voting. This conforms the National Bank Act to modern corporate codes and provides national banks with the same corporate flexibility available to virtually all corporations and State banks.

    A third provision repeals the requirement in current law that a State must affirmatively enact legislation in order to permit national and State banks to conduct interstate expansion through de novo branching. Governor Olson has already articulated some very good reasons for this particular provision in the bill. The effect of current law is to require that, in many cases, banks must structure, if they can, artificial and unnecessarily expensive transactions in order to establish a new branch across a State border. Banks and their customers would benefit by this change, which would permit a bank to choose which form of interstate expansion makes the most sense for its business needs and its customer demands. Federal thrifts have enjoyed this type of flexibility for decades.
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    The bill also contains provisions that address a second, and fundamentally important, objective of bank supervision, and that is to promote and maintain the safety and soundness of the banking system. For example, the bill expressly authorizes the Federal banking agencies to enforce an institution-affiliated party's or controlling shareholder's written commitment to provide capital to an insured depository institution. This provision would address some recent Federal court decisions which have conditioned the agencies' ability to enforce this type of written commitment on a showing that the party who made the commitment was somehow ''unjustly enriched.'' By removing this impediment to our ability to hold parties to their commitments to provide capital, the new provision will enhance safety and soundness of insured depository institutions, and it should help to reduce losses to the Federal Deposit Insurance funds.

    My written statement touches on several additional amendments to current law that we believe would enhance the banking agencies' safety and soundness authority, reduce risk to the deposit insurance funds, and facilitate our enforcement efforts when wrongdoing does occur. We are working with the other banking agencies to develop these recommendations, and we hope that they can be considered in the legislative process as it continues.

    Mr. Chairman, on behalf of the OCC, thank you, and Ms. Capito, for your support of this legislation. I'd be happy to answer any questions you have.

    Chairman BACHUS. Thank you.

    Counsel Kroener.
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    Mr. KROENER. Mr. Chairman and Members of the subcommittee, I appreciate the opportunity to present the views of the Federal Deposit Insurance Corporation on the proposed legislation to provide regulatory burden relief.

    The FDIC shares the subcommittee's continuing commitment to eliminate unnecessary burden and to streamline and modernize laws and regulations as the financial industry evolves. The FDIC itself is engaged in a number of initiatives to address the issue of regulatory burden. Chairman Powell recently formed a regulatory burden task force within the FDIC to study ways to reduce the regulatory burden. The task force will review the FDIC's operating principles, processes and practices, study ways to make the FDIC more sensitive to the burden issue, and make recommendations to the Chairman on burden reduction.

    The FDIC recently initiated a comprehensive review of internal processes and operating procedures related to the supervision of State-chartered non-member banks. We are identifying ways to better allocate resources in the areas that present the greatest risk to our insurance funds: problem banks, larger financial institutions, technological change, high risk subprime lending, internal control procedures, and fraud.

    We have already implemented several improvements such as making the report of examination format more user-friendly, designating Applications Subject Matter Experts as centralized resources for bankers, and contacting banks between examinations to discuss issues so that we can do a more focused and efficient examination.
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    We are currently also reviewing the examination process to achieve maximum efficiencies in the examination of small, well rated banks, and hope to reduce total examination hours in these institutions by up to 20 percent.

    We also are revising our compliance examination approach to place a greater emphasis on an institution's administration of its compliance responsibilities. Examiners will evaluate—in depth—an institution's compliance program. Based on this review, examiners will then determine where there may be a significant risk of regulatory violations and appropriately tailor their transactional testing.

    The FDIC continues to work with the other banking regulators in implementing more efficient regulations and processes such as the new ''Interagency Charter and Federal Deposit Insurance Application'' and the new standardized requests for electronic loan information.

    The FDIC also supports statutory changes to reduce regulatory burden in a number of areas, including those in the bill that, first, clarify that an agency may suspend or prohibit individuals convicted of certain crimes from participation in the affairs of any depository institution. Second, those that modify the requirement for retention of old records of a failed insured depository institution at the time a receiver is appointed, and third, those that permit the FDIC to rely on records preserved electronically, such as optically imaged or computer scanned documents.

    The FDIC also supports a number of provisions which were requested by our fellow regulators and included in the proposal, such as those that streamline merger application requirements and that grant Federal banking agencies the authority to enforce conditions imposed in certain written agreements relating to additional capital contributions.
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    We are working with staff at the OCC to perfect language in Section 604 of the bill expanding the prohibition of persons convicted of certain crimes from participating in the affairs of uninsured financial depository institutions.

    Finally, the FDIC recommends that the subcommittee include four additional regulatory relief items in the bill. These additions relate to:

    First, authority for supervisory agencies to enforce conditions on the approval of deposit insurance;

    Second, clarification that conversions which result in more than one bank would continue to require deposit insurance applications from the resulting institutions, as well as review and approval by the appropriate Federal banking agency;

    Third, amendments to the Bank Merger Act and Bank Holding Company Act that would require consideration of the potentially adverse effects on the insurance funds of any proposed bank merger transaction or holding company formation acquisition; and

    Fourth, language that would make clear that pre-receivership liens for failure to pay property taxes are extinguished when the property is acquired by the Federal receiver.

    I have included relevant language as an appendix to my written statement on these four items.
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    Thank you for the opportunity to present the FDIC's views on these issues. The FDIC supports the subcommittee's continued efforts to reduce unnecessary burden on insured depository institutions without compromising safety and soundness or consumer protection.

    We are pleased to work with the subcommittee in accomplishing this goal. Thank you.

    Chairman BACHUS. Thank you.

    Chief Counsel Buck.


    Ms. BUCK. Mr. Chairman and Members of the subcommittee, thank you for the opportunity to present OTS's views on your initiatives to reduce regulatory burden on our depository institutions.

    During periods of economic challenge, it is particularly important that we make every effort to remove unnecessary regulatory obstacles that hinder profitability, innovation and competition in our financial services industry.

    In my written testimony I discuss a number of important proposals that we believe would significantly reduce existing burdens on the thrift industry, and I ask that the full text of that statement be included in the record.
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    In my oral statement, I'll highlight three areas where reforms would provide significant relief to the thrift industry. These are deposit insurance reform, parity with the banks under the securities laws, and mortgage simplification.

    Perhaps the most straightforward and effective means to provide regulatory relief to our insured depository institutions is to reform the deposit insurance system under which they now operate. It is long past time to merge the bank insurance fund and the savings association insurance fund. There is no disagreement on this. Merger will promote efficiency in administering the funds and result in a more stable insurance system. Therefore, we strongly support fund merger.

    We also believe that the free rider problem should be addressed in fairness to those who have paid into the funds over many years.

    And finally, the FDIC board should have sufficient flexibility in setting the designated reserve ratio and deciding when to increase the assessment rate to assure the continued stability of the insurance fund. Providing certainty about the process for determining the amount of deposit insurance assessments is a very important regulatory burden initiative.

    Another area woefully in need of reform is the mortgage process. OTS applauds HUD Secretary Martinez's initiatives in this area. Last fall, Secretary Martinez spoke about making the home buyer's experience less complicated, the paperwork requirements less demanding, and the mortgage process itself less expensive. This is no simple task, but everyone involved in making the American homeownership dream a reality shares his goals, and we pledge to do our part to help achieve this objective. Simplifying the mortgage process will reduce regulatory burden on thrifts and on all housing lenders and assist consumers. The importance of this cannot be overstated.
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    Turning to the bill before this subcommittee, the most important feature to thrifts and the communities they serve concerns parity with banks under the Federal securities laws. OTS strongly supports the amendments to extend the thrifts the same exemptions as banks from investment advisor and broker-dealer registration requirements. Thrifts fill an important niche in the financial services arena by focusing their activities primarily on residential, community, small business and consumer lending. The Homeowners Loan Act allows thrifts to provide trust and custody services on the same basis as national banks, and investment advisor and third-party brokerage in the same manner as banks.

    Not only are the authorized activities the same, but OTS examines those activities in the same manner as the banking agencies. Some may suggest that this is a charter issue; that this SEC registration disparity is an intended advantage of the bank operating structure. However, as I have noted, thrifts have had the ability for some time to conduct these activities, these investment advisor and broker-dealer activities, under their existing charter authority. This is not a powers issue, then, but a cost issue. The consequence of the disparity is the extra costs the thrifts must incur to exercise the same powers as banks. This is regulatory burden in its purest form.

    We firmly believe that charter choice should be based on which charter is the best fit for an institution's business, not which carries the least regulatory burdens associated with the authorized business activities. The proposed parity amendments to the Federal securities laws remove distinctions that have caused thrifts to engage in regulatory arbitrage by changing charters to reduce costs even though the thrift charter is the best fit for them.

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    Although the details of the current situation are complex, the key points are that banks, but not thrifts, are exempt from investment advisory registration requirements under the Investment Advisors Act of 1940. In addition banks, but not thrifts, enjoy an exemption from broker-dealer registration requirements under the 1934 Act for certain activities specified under the Gramm-Leach-Bliley Act.

    For purposes of broker-dealer requirements, the SEC has exercised its exemptive authority to treat thrifts the same as banks, at least for now. But it has been reluctant to extend the same parity to the investment advisor requirements. Treating thrifts and banks the same under the Federal securities laws makes sense for a number of reasons, but I think it's best stated in the SEC's own words from the preamble to their May 2001 interim final rule that did extend broker-dealer parity to thrifts. They stated, and I quote: ''Insured savings associations are subject to a similar regulatory structure and examination standards as banks. Extending the exemption for banks to savings associations and savings banks is necessary or appropriate in the public interest and is consistent with the protection of investors.''

    Congress has already spoken on the banks' exemption. Perhaps the best way to put this matter to rest for thrifts is for Congress to affirm the SEC's extending the broker-dealer exemption to thrifts, plus have Congress extend the investment advisor exemption. This would also have the beneficial effect of avoiding the need for a series of SEC administrative exemptions, another potential regulatory burden, if additional differences come to light later.

    OTS is committed to reducing burden whenever it has the ability to do so, consistent with safety and soundness and compliance with law. The proposed legislation advances this objective, and we appreciate that many of the reforms we've long desired are included in the bill. I especially thank you, Mr. Chairman, Congresswoman Capito, and all those who have shown leadership on this issue and look forward to working with the subcommittee on this legislation. Thank you.
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    Chairman BACHUS. Chairman Dollar.


    Mr. DOLLAR. I am pleased to present the subcommittee with the following suggestions. I am going to highlight, for the sake of time, the key points of my written testimony that I have presented to the Members of the subcommittee that attempt to address the issues of regulatory relief and productivity improvements for Federal credit unions.

    We feel that these proposals are consistent with the mission of credit unions and the principles foremost of safety and soundness. They address statutory restrictions that now act to frustrate the delivery of financial services because of either technological advances, current public policy priorities or practical market considerations.

    First of all, the Federal Credit Union Act authorizes Federal credit unions to provide check cashing and money transfer services to members. To reach out to the unbanked, Congress should consider authorizing Federal credit unions to provide these services to anyone eligible to become a member. This is particularly important to the overwhelming majority of Federal credit unions whose field of membership includes individuals of limited income or means. These individuals often do not have mainstream financial services available to them and often pay excessive fees for check cashing, wire transfer and other services.

    Allowing Federal credit unions to provide these limited services to anyone in their field of membership would provide a lower fee alternative for these individuals while at the same time encouraging them to trust conventional financial organizations. If credit unions are to be, as we feel that they are and must remain, a part of the solution to the predatory lending problem in this country, their potential members need to know the types and value of services that they can receive from a credit union they are eligible to join. I am pleased to note that a provision as it relates to this is included in the Capito-Sandlin bill, and we appreciate that consideration.
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    Also, Federal credit unions are authorized to make loans to members of other credit unions and to credit union organizations. The Federal Credit Union Act imposes various restrictions on these authorities, including a 12-year maturity limit that is subject to only very limited exceptions. This one-size-fits-all maturity limit should, we feel, be eliminated or at least increased. It is outdated and unnecessarily restricts Federal credit union lending authority. As in the case with other federally-chartered financial institutions, we believe appropriate rulemaking authority should be granted by statute for NCUA to establish competitive maturity limits within the bounds of safety and soundness. And again, we appreciate the inclusion of a provision related to this in the bill.

    The Federal Credit Union Act authorizes Federal credit unions to invest in organizations providing services to credit unions and credit union members. An individual Federal credit union, however, may invest in aggregate no more than 1 percent of its shares and undivided earnings in these organizations which are commonly known as credit union service organizations or CUSOs. CUSOs provide important services such as data processing, check clearing for credit unions, financial retirement planning among others. When these services are provided through a CUSO, financial risks are isolated from the credit union. So we find that the relatively low statutory 1 percent aggregate limit often forces credit unions to either bring services in house, thus potentially increasing risk to the credit union and the insurance fund, or to turn those over to outside providers and lose institutional control. We feel that the statutory 1 percent limit should be increased or eliminated and the NCUA board be allowed to set by regulation a limit that is appropriate for safety and soundness purposes. And we appreciate again the fact that the proposed legislation does include a provision to address this in some manner.

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    The Credit Union Membership Access Act enacted in 1998 expressly authorized multiple common bond credit unions. The Access Act, however, provided that a Federal credit union may add a new group to its field of membership only within very strict proximity guidelines. This in effect often requires a credit union to establish a costly physical presence that could potentially if unchecked present long-term safety and soundness concerns. This brick-and-mortar limitation on Federal credit union services is not we feel sound policy in today's clicks and Windows financial marketplace where most services can be provided electronically and should, we feel, be reviewed by Congress for possible regulatory relief.

    The Federal Credit Union Act also limits the investment authority of Federal credit unions to loans, Government securities and deposits in other financial institutions and certain other very limited investments. This limited investment authority restricts the ability of Federal credit unions to remain competitive in the rapidly changing Federal financial marketplace. In our view, the Act should be considered for amendment to provide such additional conservative investment authority as is approved for other federally regulated financial institutions and in accordance with the regulation of the NCUA board. Again, we appreciate the fact that this provision has been addressed by the legislation.

    Last, the Federal Credit Union Act, as amended by the Credit Union Membership Act in 1998, allows voluntary mergers of healthy Federal credit unions but requires that NCUA consider a spinoff of any group of over 3,000 members in the merging credit union, or, if they convert to a community-based charter, to spinoff any groups they presently serve outside the community. When two healthy multiple common bond Federal credit unions wish to merge and thus combine their financial strength and improve their safety and soundness position, as well as service to their members, or a credit union chooses to convert to a community charter to serve an entire community, we feel that it is good public policy and they should be allowed to do so without unnecessary regulatory impediments.
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    Again, we appreciate the fact that the proposed legislation does attempt to address this concern in some way. Again, I know that there are other issues that are in the legislation that we have mentioned in my written statement, but I wanted to touch on these highlights, Mr. Chairman, and to thank you today again for the opportunity to provide this input on this important bill before your subcommittee.

    We want to continue to work with you and offer our staff as a resource in any way as you continue to move toward what I know is your goal as is ours, which is removing unnecessary regulatory burden while maintaining our first and foremost commitment to safety and soundness and the necessary regulation that is required to protect the American public. Thank you very much, Mr. Chairman. I'd be glad to answer any questions.

    Chairman BACHUS. Thank you.

    I thank the panel. Our primary purpose here is to free up resources of the institutions so they can actually use more of their resources to lend to consumers. So we've looked at any regulation that we think unduly costs them resources that are unnecessary—that are not necessary for safety and soundness, are outdated, or, as Counsel Buck said, where you have one requirement for thrifts and one for banks, equal protection, or equal treatment argument.

    Governor Olson, you mentioned the cross-marketing restrictions. One reason that we've moved on that—I think we had a hearing last year about whether financial holding companies could cross-market products with companies they had made investments in. And there are restrictions now and I think the Federal Reserve in their regulations had recommended then relaxing those restrictions. And there was general consensus at that hearing that that could be done without, you now, that there was not a privacy concern. Some people confused at first blush that there was a privacy concern there. But what we're talking about is cross-marketing products and services, which would not violate their customers' privacy.
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    And there is already a provision that you can do that with insurance companies. So I think what you said today I heartily agree with is an equal treatment. And also the fact that it doesn't diminish a customer's protections. And it certainly I think was meant by Gramm-Leach-Bliley. That is in the bill. In fact, several of the things that you have discussed in your testimony are in the bill.

    And Deputy Williams, you mentioned the fact that we've been working closely before we dropped this bill. This was not something that we just decided on some things. We have been in close discussion with all your agencies looking for things where there was consensus, where there was an agreement between the parties that it could be done. Now sometimes there may not be agreement between two of the regulators to do something for the thrifts or to do something for the banks. But other than those minor differences of opinion, we tried to go with non-controversial things.

    The only thing in the testimony that I would, Chairman Dollar, those close proximity restrictions on credit unions, there was quite a lot of focus on that, quite a lot of discussion on that. And it is still a very controversial thing, and if for no other reason, it wasn't included in this legislation, and that there's so much opposition to that from the banks. I do sympathize as with technology and what you're saying, that it does become a problem. But having it in the bill would be a problem for us.

    We have and will continue to work with all the agencies to refine this bill. I'm sure you will continue maybe to find things as we move forward. Anything in the bill you object to, we want to hear about it. Anything that you think ought to be in the bill that isn't in the bill, we want to hear about it. We will continue to work closely with you, because you are the ultimate experts and authority on what regulations need to be in place for safety and soundness, as opposed to regulations that don't add anything, simply take resources from what could be available to consumers.
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    Mr. Grucci is not here, so Mr. Cantor, we are going in order of—actually, Ms. Capito. Well, actually, I'm sorry, Mr. Lucas. Counsel Carter pointed out to me that I had not looked to my right. Which I always look to my right first. I didn't know I didn't.


    Chairman BACHUS. Mr. Lucas from Kentucky.

    Mr. LUCAS. I find this testimony very interesting, sir, but I have no questions. Thank you.

    Chairman BACHUS. Thank you. Always efficient.


    Chairman BACHUS. Thank you. Ms. Capito? And if you would like to make an opening statement, a comment, I think the Members, as you are the sponsor of this bill, you will certainly not be held to the 5-minute limit.

    Ms. CAPITO. Thank you, Mr. Chairman.

    Chairman BACHUS. And I commend you for the work you've done on this.
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    Ms. CAPITO. Thank you. I appreciate your holding this hearing today, and I appreciate the testimony of our distinguished witnesses. I particularly want to congratulate Mr. Dollar on his last name. What a great name for your business.

    Mr. DOLLAR. I can't say I don't have a dollar to my name.


    Ms. CAPITO. I think it's interesting to point out that we spend a lot of time in this subcommittee room creating new laws, and I think that periodically it serves us well to look at provisions in our present laws to see which ones are dilapidated and old and unused and overlapping and repetitive. And so I am pleased to be a part of this effort today with this bill to relieve certain regulatory burdens certainly on the regulatory agencies, but also on the banking and financial institutions that have to go forward with these.

    I think this type of review will make substantial changes and it will bring us in greater compliance with the Gramm-Leach-Bliley Act and also the recently enacted Patriot Act. I know as the result of some of the Patriot Act regulations that were put in place, we caused more regulation burden our institutions, our financial institutions, and certainly on you all in terms of oversight, and I think it is very timely that we are updating these provisions as we move through the day today.

    I think you pointed out quite appropriately, Mr. Chairman, this is certainly not the final bill, and I fully expect after this hearing we will have many changes, adjustments that we will be making as we move through this process. And I look forward to working with you all to see where those changes might occur.
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    I would like to ask a couple of questions right now if that is appropriate to begin asking questions? Yes. Governor, Olson you addressed the situation of interstate banking. In Section 401, it would preempt State law and allow banks to offer branch banks, branch offices in other States without first having to have an existing presence. I represent the State of West Virginia, which I believe currently allows this type of branching. And you mentioned 33 States do not offer that as an option.

    I was wondering—I'm a former member of a State legislature who was very sensitive to Federal preemption, so I was wondering if there is any opposition from any of these States to this provision.

    Mr. OLSON. Congresswoman, we are not aware of opposition. There might be, but it has not come to our attention at this point.

    Ms. CAPITO. Thank you. The other question for you, sir, is—and you brought it up in your opening statement. I'm glad that you did. Because when we had the press conference yesterday sort of as a preview of this bill with Chairman Oxley, this was the first question out of the box, and it dealt with the insider trading provisions and insider lending. And people have expressed concerns with respect to the reporting requirements. And I think you covered in your opening statement that this would in no way diminish any requirements or regulations for oversight. But if you could just sort of restate what that insider lending provision does and how the protections are still in place.

    Mr. OLSON. That's a very important point. Insider lending is covered under Reg O, and there are very specific reporting requirements and very specific limitations on lending money to their officers and directors and insiders, and also with respect to loans from their upstream correspondents. None of those regulations is altered at all with this amendment.
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    There are three specific reports, however, that we suggest could be eliminated, two of them having to do with loans from outside banks and one having to do with loans that occur between call report periods that report incrementally the new loans that had been made. In our judgment, those three reports don't contribute to our oversight responsibility or to the record maintenance responsibility of the institutions and therefore marginally add burden without contributing to the oversight. But nothing we're saying here diminishes the importance of monitoring insider lending.

    Ms. CAPITO. Thank you. I have a couple of more questions, and this one is just sort of a toss-up, so anybody can take it. In Section 605, it deals with destruction of records. And in this day and age, destroying records is not something that we want to go about frivolously or without a great deal of thought. I realize that a judge under this provision can require that records be kept for longer than 10 years. Does anyone feel that this section allows, in the destruction of records, raise any concerns in anybody's mind on our panel?

    Mr. KROENER. Let me take that question, if I may. It's a provision of great interest to the FDIC. And we are sensitive to the records problem. And indeed, as Chairman Powell indicated in a recent speech, we are looking at accountants' records and whether the FDIC should require preservation in certain circumstances where we have the authority to do so and we haven't done so in the past.

    But that having been said, this provision is simply designed as a cost and burden reduction. When an institution fails, the FDIC will come in as receiver or conservator and will inherit all the records that institution happens to have. In some instances, the records can go back more than 100 years. And we are currently required to preserve those records, and there is a cost involved—there is a storage cost. And so this will actually save us money, save our receiverships money and enable us to pay higher dividends—to more quickly recover for our insured claims and hopefully pay higher dividends to any uninsured creditors in the receivership. And so we think it's a positive, cost saving thing, and we do not see risks in the provision as drafted. We've worked with the subcommittee to get the provision as refined as we can on that.
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    Ms. CAPITO. OK. Thank you. Can I keep going? Although not included in the reg relief bill, we have been asked to consider a provision that would give the Federal Reserve more flexibility to allow State member banks to engage in investment activities authorized by their chartering State and approved by the FDIC as posing no significant risk to the deposit insurance fund. Currently, State member banks are limited to the activities granted to national banks, and yet State non-member banks are allowed to exercise expanded powers within the confines of safety and soundness. What are your views on that? Governor Olson? Yes?

    Ms. WILLIAMS. May I take a crack at that? I think it's important to understand what the provision that would be repealed by what you described does. It's not an arcane provision; it is a safety and soundness-driven provision. And, it was very recently addressed in the Gramm-Leach-Bliley Act after painstaking negotiations.

    The primary effect of the change that you've described would be to undo prudential standards and safeguards that were enacted just over 2 years ago as part of the Gramm-Leach-Bliley Act. The essence of the statutory change that you've been asked to consider would be to eliminate a standard currently in Federal law that applies parallel prudential and safety and soundness standards to financial subsidiaries of national banks and financial subsidiaries of State member banks. It would reopen a set of issues concerning what types of safeguards and prudential standards need to be in place in connection with allowing expanded activities to be conducted in subsidiaries of those types of banks.

    You, of course, can decide that those prudential standards and safeguards are no longer appropriate, but there is no basis to distinguish whether they are appropriate solely for national banks or State member banks. If you think that eliminating those safeguards for State member banks is the way to go, then you should eliminate them for national banks as well. There's no basis for a distinction.
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    Chairman BACHUS. I thank the Member.

    Mr. Kanjorski. And what we had done is we'd given—Ms. Capito is sponsor of the bill. We waived her opening statement and she took 10 minutes.

    Mr. KANJORSKI. That is certainly agreeable.

    Chairman BACHUS. But we welcome your membership.

    Mr. KANJORSKI. Thank you, Mr. Chairman. My questions are really directed to Chairman Dollar. As you know, I have, for some time, raised concerns about the value of the Federal charter. We want to ensure that our Nation's system of dual chartering remains vibrant and effective.

    One provision in this legislation, however, would allow privately insured, State-chartered credit unions to gain access to the Federal Home Loan Bank System. Because this section of the bill raises serious concerns about safety and soundness, I think that we should consider removing it unless we can adequately address these concerns.

    Additionally, at a time when many in the credit union movement have raised concerns about the continued value of the Federal charter, I wonder why we are working in Congress to increase the value of the State charters. To help the subcommittee better understand this issue, would you please outline for us some of the recent trends in charter conversions from Federal charters to State credit union charters or mutual savings bank charters?
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    Mr. DOLLAR. Congressman Kanjorski, there has been some trend in recent years of conversion to the State charter from the Federal charter. Quite frankly, most of it has been driven by field of membership issues as some of the States under State law have been able to provide a more liberal field of membership than is allowed under Federal law.

    We have not attempted to in any way preempt the States, for we like you believe in a dual chartering system that enables a credit union to have a viable choice of a productive business opportunity within either the Federal charter or the State charter. How we have tried to address that has been through implementing the Credit Union Membership Access Act as effectively as possible. We think that we have done so. We have given opportunities for Federal credit unions to be able to grow within the Federal Credit Union Act. There are some areas, as we mentioned a moment ago on the proximity issue, where we would like to see some relief that would enable us to be even more flexible, I think, in that regard. But I think we've done a good job. I think we've done a good job in enabling them to have the powers that are necessary to be able to meet the needs of their members.

    However, each State has the right to pass their own laws as well. We recognize that and we respect that. One of the reasons we are here today, and we appreciate the opportunity by the subcommittee to be a part of regulatory relief legislation, is because we do believe there are perhaps some regulatory impediments that are imposed at the Federal level through Federal statute that are not imposed at the State level that would enable us to have an even more viable Federal charter. That's what we want to see, and we appreciate the opportunity to have a seat at the table here to do that.

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    Mr. KANJORSKI. Thank you. You perhaps were not there, but in June of 2000, I asked former Chairman D'Amours for an update from NCUA regarding the relationship of the Federal and the State charter. I will send you a formal request to get a further update on this issue.

    Mr. DOLLAR. And we will give you the most recent figures on that. It has continued. And one of the concerns that we have, of course, is that as the charter conversions continue that we ever get to a point where we're out of balance between a viable Federal charter and a viable State charter. And we think that one of the ways to respond to that is to try to make the Federal charter as viable as possible for credit unions who want to grow and prosper as federally-chartered credit unions, but still staying within the confines of the Federal Credit Union Act.

    Mr. KANJORSKI. Additionally, many of the provisions in the bill would help Federal credit unions to grow and expand. One provision, for example, would allow credit unions to cash checks for anyone eligible to join a credit union. In Northeastern Pennsylvania, entities like Choice One Federal Credit Union are working to expand access to our Nation's financial system in underserved communities. This provision would certainly help credit unions to offer the unbanked public affordable services. What are your thoughts on this issue? And should we expand the provision in the bill to include wire transfer services, too?

    Mr. DOLLAR. Congressman Kanjorski, in my statement a moment ago I did state that it is the position of the NCUA board that in order to facilitate what we are trying to do in our Access Across America initiative, which is to enable credit unions to adopt underserved areas and extend credit union services into many unbanked communities that it's important that the residents of those communities know the value and the types of services that they can receive by joining a credit union.
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    Among those is the ability to get a check cashed at less than what many times are predatory rates. Credit unions can provide that service, but today they can only provide it to a member. And we have long believed that some of those basic services perhaps could be provided by a credit union not just to their members but to anyone who is eligible to join the credit union, not anyone who would not be eligible, but those who are eligible to join the credit union in order to help them to understand the value of joining the credit union, the type of services that they can receive, and we think it could be a part of providing a much more viable low-cost alternative to some of the check cashing outlets, the payday loan outlets and the like that are prevalent in many of these communities. We think credit unions can be a part of the answer to the predatory lending issue in this country, and we want to facilitate that.

    Yes, in answer to the second part of your question, we believe that it should also be extended to wire transfers. Because particularly as it relates to international remittances, many American citizens with ties to a homeland are having to pay 28 and 30 and 32 percent of the amount of an international remittance to be able to send it back, whereas most credit unions would be willing to do it for a flat low cost rate.

    Chairman BACHUS. Thank you.

    Mr. Kanjorski, you have one more question.

    Mr. KANJORSKI. One more question. Mr. Dollar, would you comment on how we might change the field of membership statutory guidelines to ensure that we do not place Federal credit unions at a competitive disadvantage? Should we, for example, consider amending the legislation to allow State-chartered credit unions that convert to a Federal charter to keep their entire membership base after conversion?
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    Mr. DOLLAR. As I said a moment ago, the reason for many of the conversions to Federal to State charter has been because of field of membership restrictions. We do not think that the answer to that, again, as I stated earlier, is to preempt State law. But we do feel like that we need some greater flexibility should a credit union decide that they wanted to convert from State to Federal for us to be able to accommodate a field of membership that they may have.

    In my earlier remarks, I talked about not having to spin off groups when a credit union converts its charter to a community charter. What we want is a credit union that is already serving a community, making a difference in the lives of that community on a daily basis, or in the lives of the members of employer groups within its field of membership, to be able to choose which credit union charter would best benefit their long-term viability and safety and soundness and make that choice without being driven by whether or not they're going to lose some of those groups or some of those members.

    Safety and soundness is what drives a great deal of our concern, but yet field of membership restrictions sometimes make credit unions make decisions that we would like to see them to have greater options to make otherwise.

    Chairman BACHUS. Thank you.

    Mr. KANJORSKI. Thank you very much, Mr. Dollar. Thank you, Mr. Chairman.

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    Chairman BACHUS. Congressman Cantor.

    Mr. CANTOR. Thank you, Mr. Chairman.

    Ms. Williams, if I could just ask you, you pointed out in your testimony that you strongly support relieving the restrictions in current law of institutions operating as Subchapter S organizations, which I think everyone is in agreement or should be in agreement with. But do you know what the percentage of institutions that operate with that status is?

    Ms. WILLIAMS. I don't know the figure off the top of my head, but I'd be very happy to get back to you with that information.

    Mr. CANTOR. Thank you very much.

    Ms. Buck, if I could direct the next question to you. You said the OTS supports parity for thrifts under the Investment Advisors Act of 1940. You pointed out in your testimony that some individuals have objected to this change because it would give thrifts a competitive advantage over registered investment advisors. You further stated that this change will have a relatively minor impact on the investment advisor industry because banks are already exempt. Could you just explain that a little further?

    Ms. BUCK. Yes. What we've experienced is as our institutions have increasingly been using trust powers, when they find that they are subject to registration themselves under the Investment Advisor Act, and sometimes, depending on which State they're located in, the individuals who do that work within the institution may have to register, that they sometimes are choosing to move to a bank charter where they don't have to engage in those registration requirements. And so if the effect here from the investment advisor community is to believe that somehow preventing thrifts from getting this parity with banks would give them an advantage over investment advisors, we've got probably at least a dozen thrifts that we know of that have converted to banks to be able to escape the SEC registration requirements.
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    When you're talking about parity here, we should be talking about parity as among financial institutions. OTS has the same regulatory structure as banks. We exercise the same trust powers as banks have. We have the same structure for examination. In fact, we just changed our handbook procedures last year to make them more comprehensive and more in line in terms of examination procedures with the banks, and we are about to issue a revised regulation dealing with trust powers, again to make it more consistent with those that apply to the banking industry.

    So we think that the comparison here should be thrifts with banks, and not with the investment advisor community.

    Mr. CANTOR. Thank you very much.

    Mr. Chairman, I just have one additional question for Chairman Dollar. You state that the Administration should be authorized to establish any maturity limits on loans made by Federal credit unions in accordance with conventional marketplace maturities. Could you just describe what the current limits are on the ability for a credit union to make a loan and the lending terms, and then the higher maturity limits that you recommend?

    Mr. DOLLAR. Basically, a credit union, Congressman, cannot make a loan for a longer term than 12 years with the exception of a mortgage loan. There are certain other types of lending, such as recreational vehicles, sometimes certain types of loans as relates to second homes and the like that the marketplace carries beyond the 12 year, but do not classify strictly as a mortgage loan. We don't see this as being an area where there is a tremendous amount of market that credit unions cannot meet, but there is some. And the bill as it is proposed extends that from 12 to 15 years. And frankly, that would very likely cover any situation that would arise. If the subcommittee and the Congress were to elect to go from 12 to 15, it would help the situation tremendously.
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    We always try to recommend away from those one-size-fits-all types of caps, because we could set through regulation a 15 year cap and be able to go beyond that if the market changes in the future. We would prefer that approach. But as the bill provides, to go from 12 to 15 would cover almost any situation that we would foresee at this time.

    Mr. CANTOR. Thank you, Mr. Chairman. Mr. Chairman, I yield back.

    Chairman BACHUS. Thank you.

    Mr. Meeks.

    Mr. MEEKS. Thank you, Mr. Chairman. I just have three quick questions in three different areas. And I guess the first question I'll address to Mr. Olson. Just in considering the elimination of the State opt-in program of a de novo branching, has there been any concern—what have you heard from the States? Have the States made any comments in regards to that? What are their opinions or has there been any comment at all from the States in regards to the elimination of the opt-out?

    Mr. OLSON. Congressman, that question was asked earlier. I believe you had just stepped out for a minute. To the best of our knowledge, we have not had any concerns expressed by the State, at least to this point.

    Mr. MEEKS. Thank you.
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    Chairman BACHUS. And, Mr. Meeks, we'll hear from the New York regulators in the second panel too and you may want to also address those questions to them in addition.

    Mr. MEEKS. Thank you, Mr. Chairman. I hope there's not other questions that I've missed. What about in regards to, and again, Mr. Olson, to the post-approval waiting period for bank acquisitions and mergers? Have there been any adverse effects to the 15-day waiting period? And do you see any adverse effects in eliminating the waiting period?

    Mr. OLSON. Congressman, there have not been. The presumption here is that the regulators have already approved and that the Attorney General has already reviewed the circumstances and the facts and have found that there are no anticompetitive effects of the merger. At that point, right now the wait period can go from 30 days to 15 days. It would seem logical that it could go from 30 days to waiving it entirely. But the underlying presumption is that the regulators have already approved and the Department of Justice, the Attorney General, has looked at it as well.

    Mr. MEEKS. Thank you. My last question, maybe I'll address this to Ms. Williams, that we live in the post-Enron scandal days. And just in looking and talking about the elimination of certain reports and things of that nature, are you concerned or do you see any concern about the elimination of these reports that bank officers may be receiving from other banks? And if possible, are there any conflicts of interest that they may have as a result thereof?

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    Ms. WILLIAMS. Congressman, I'll defer to Governor Olson on that. We do support the provisions that are in this bill on that subject.

    Mr. OLSON. I think it's important to note that none of the requirements are being eliminated regarding the reporting of loans to the bank and the bank's requirements for monitoring any loans that are covered under Reg O. So all of those provisions remain. There are three reports, reports that they are required to file, with respect to those loans that we are saying are not necessary for either our enforcement or our regulatory process or for the bank's own responsibility for those loans. On the margin we're looking to streamline the process, and we think that those reports are not central to the process either the bank's or the Fed's responsibilities.

    But the underlying issue of insider lending is a very important one and one that all of the regulators at the table take very seriously.

    Mr. MEEKS. Thank you. And I would yield back, Mr. Chairman.

    Chairman BACHUS. Yes. And Mr. Meeks, I want to say to you just for the record, at the earlier hearing on FDIC, you had expressed some concerns about the restrictions on New York thrifts in accepting municipal deposits. And I wanted to say for the record that we are working together on that issue to address your concerns. And I know that New York is actually the only State that makes that distinction between banks and thrifts. So we are aware of that. We are aware of your concerns. And I did want to put that in the record at this hearing.

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    Mr. MEEKS. We appreciate it, Mr. Chairman, and we are working together on that. Thank you very much.

    Chairman BACHUS. Mr. Royce. And I want to commend you. You have a provision in this bill or two.

    Mr. ROYCE. Thank you, Mr. Chairman. Yes. And on that same vein, I wanted to ask Mr. Dollar, because as the Chairman said, Mr. Dollar, a portion of this bill deals with a piece of legislation I introduced, which was the Faith Based Lending Protection Act, and specifically deals with member business loans made by credit unions to non-profit religious organizations. And the reason this is important to us is because these are the types of loans that go for the construction of hospices or that go for soup kitchens or shelters or churches. And there is a problem with availability of credit.

    Under the current law, credit unions are prevented from loaning, as you know, more than twelve and a quarter percent of their total assets to business, and credit unions engaged primarily in faith-based lending, they're the ones that are exempted from the cap. But there aren't many engaged in that line of work, and these faith-based institutions obtain their liquidity, then, by selling these loans to other credit unions who are not exempt from the cap. And as a result, the lending needs of small non-profit organizations are frankly being crimped, and I think part of the problem is that these institutions are often ignored by larger banks and thrifts for a rational reason. I mean, they have very slim profitability margins.

    But the result has been over time that as a number of credit unions approach their overall business loan caps, these local enterprises, especially hospices, are seeing their access to capital steadily decline. And we can fix this problem. And in this particular bill for regulatory relief, we have included provisions from H.R. 760, which was the Faith Based Lending Protection Act, exempting loans made by credit unions to non-profit religious organizations from the member business loan cap. And my question to you was going to be what is the position of the National Credit Union Association's stand on H.R. 760 and on incorporating that into this regulatory relief bill?
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    Mr. DOLLAR. Congressman Royce, as I said in my original statement and in answer to one of the questions a moment ago, anytime that a statutorily one-size-fits-all approach is applied, you're going to miss something. And when Congress in 1998 applied that 12.25 percent, one-size-fits-all member business loan cap, it did miss something. And among the very serious areas that was missed was those credit unions who do make loans to faith-based organizations.

    I want to commend you for introducing the legislation that you did last year to try to correct that. The National Credit Union Administration at that time stated its support for that legislation and has analyzed it and finds no safety and soundness concerns whatsoever to be able to either pass your legislation or as is a part of this legislation, to have it included as a part of a regulatory relief initiative. We certainly would support that.

    Mr. ROYCE. Well, let me ask you another question then, and that goes to the performance of these loans for the record in the past, for the Members. How have these loans to religious organizations, these loans that go for either churches or shelters or soup kitchens or hospices, how have they performed over time? And how would you expect them to perform during these rather more difficult economic times? Have you got data going back and can you share that with us?

    Mr. DOLLAR. For the record, very little of credit union lending is member business lending to begin with. It's less than a percent and a half of credit union lending. So it is a very small part of what credit unions do, because it is not traditional commercial lending as the banks do. It is member business lending. However, we do monitor this very closely, because it is an area, of course, that we feel is worthy of our very close supervision.
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    We have found that the delinquency rates on all member business lending in credit unions is lower than the delinquency rates on personal loans. And among faith-based institutions in particular is the best delinquency rate in virtually any area of member business lending. There are, as you stated correctly earlier, credit unions allowed to do faith-based lending today. Those that are chartered primarily for that purpose or exempted from the Act, and those that are below the 12.25 percent cap are able to make some. We are able to track those loans. We are tracking the loans. The payment history and the performance of those loans, are very, very solid.

    Mr. ROYCE. It's in the lowest category of delinquency?

    Mr. DOLLAR. Yes.

    Mr. ROYCE. As you look at your portfolio?

    Mr. DOLLAR. Yes.

    Mr. ROYCE. Thank you very much, Mr. Chairman.

    Chairman BACHUS. Thank you.

    The gentlelady from Oregon.

    Ms. HOOLEY. Thank you, Mr. Chair. I'm sorry I missed your testimony. I was in another Committee meeting. I just have one question. Any one of you can answer it. When we talk about streamlining bank mergers, are you concerned—do you think we'll see a lot more mergers if this passes? Is that what the expectation is, that we'll see additional mergers or more than what's currently happening? Anyone want to take a shot at that?
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    Mr. OLSON. Congresswoman, I think this bill will be neutral on that issue, because I think what we've done here is consistent with the whole idea of reg reduction. We have looked at the reg burden and identified the issues that appear not to contribute to supervisory oversight and their elimination would help achieve an appropriate regulatory environment for the banking industry and the thrifts industry.

    And so it would be my judgment off the top of my head that this bill would be neutral in that regard.

    Ms. HOOLEY. OK. Thank you.

    Ms. Buck, when it talks about Federal thrifts investing in small business investment companies, do you see that as a conflict of interest? Do you see—tell me what you think about that whole area.

    Ms. BUCK. This particular provision was really just moving authority from the Small Business Act over into the Homeowners Loan Act. It really does not change our authority at all. It was really a technical change.

    Ms. HOOLEY. OK. Thank you.

    Mr. Dollar, when you look at credit unions and you have a change here that goes from, it says an individual Federal credit union may invest right now 1 percent of its shares in organizations. This amendment raises the limit to 3 percent. Talk to me about that.
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    Mr. DOLLAR. Credit unions are authorized under the statute to invest up to 1 percent in credit union service organizations. These are organizations that are formed by credit unions, either an individual credit union or a group of credit unions, to offer services to credit unions and credit union members. It is usually an economy of scale type of organization that is formed by, particularly, small credit unions who may need to come together to offer a particular type of service.

    Ms. HOOLEY. Give me a couple of examples.

    Mr. DOLLAR. There are some that have been formed by individual credit unions that do such things as check clearing for smaller credit unions, groups of credit unions who come together who may not do that on their own. Perhaps even to come together to have a financial planning initiative, a retirement planning initiative that a single credit union might have a difficult time providing but by combining together and investing in a credit union service organization, which is a separate entity, separate from the credit union itself, they are able to provide these services.

    The 1 percent limit, particularly for smaller credit unions, somewhat limits their ability to achieve these economies of scale. And so instead of being able to form a credit union service organization and keeping it within the credit union community, if you will, they end up having to outsource that to some other third party, thus losing institutional control.

    We feel like that an increase such as the one proposed in the legislation at least from 1 to 3 percent, if not higher, would at least enable those credit unions to have more opportunities to be able to invest in credit union service organizations where appropriate.
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    Ms. HOOLEY. Does that knock out the small person that maybe has a niche market that you currently use? Does that knock them out of business?

    Mr. DOLLAR. Usually what it does is provide an alternative to what would probably be a larger nationwide organization that is providing that service and enables them to have that local niche.

    Ms. HOOLEY. Thank you. Thank you, Mr. Chair.

    Chairman BACHUS. Thank you.

    The gentlelady from Pennsylvania, Ms. Hart.

    Ms. HART. Thank you, Mr. Chairman. I'm sorry I did miss the testimony. But thanks to the Chairman and a lot of his information, I do have one question and it actually has to do with credit unions' parity sort of with thrifts and banks. I guess, unfortunately, I'm going back to Mr. Dollar as well. You're working hard this morning. What are the reasons to support parity for credit unions with banks and thrifts under the SEC Act and the Investment Act of 1940? This has been a really controversial issue for quite a long time, and I've never really had a chance to get it sort of direct from somebody who might be able to give me an answer that isn't as bent as some of the ones I've gotten.

    Mr. DOLLAR. We'll see if we can give you a straight up answer. Federal credit unions are authorized to engage in certain broker-dealer activities such as third party brokerage arrangements, sweep accounts, and to purchase and sell municipal securities for their own accounts. That is an allowable investment. And to the extent—and it is a very limited extent, admittedly, but to the extent that credit unions engage in these activities or some other authorized activity in the future, we feel that they should be afforded the same treatment as banks and thrifts, and the thrifts are included in this legislation, with respect to the registration under the broker-dealer statute. It is very limited, admittedly, as many of the things that credit unions provide that the other institutions provide on a much broader scale. But even in the small areas where they are provided, we think that the credit unions should have that parity.
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    Ms. HART. And once again, the question always arises is if they have that parity, then obviously under this bill, they're not given more responsibility as far as disclosure?

    Mr. DOLLAR. Absolutely not. There is nothing in this bill that would enable a credit union to engage in any type of broker-dealer authority that it does not already have. It just says that if a credit union were to, for example, want to buy municipal securities for its own investment account, that there would be no question but that they would not have to register as a broker-dealer to be able to do that. A credit union is not a broker-dealer, but they do have certain limited authority in this regard. This does not expand that authority.

    Ms. HART. OK. Is there a concern by any other member of the panel about the situation as it exists today regarding the opportunity for credit unions to participate as well as other institutions? General question. Mr. Olson?

    Mr. OLSON. We don't have an opinion on that this morning.

    Ms. HART. OK. Ms. Williams.

    Ms. WILLIAMS. We don't have a position either.

    Ms. HART. Wow. OK.

    Mr. KROENER. Nor does the FDIC, Congresswoman.
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    Ms. HART. Ms. Buck.

    Ms. BUCK. I haven't discussed it with our new director yet.

    Ms. HART. OK.

    Ms. BUCK. So we don't have one as yet.

    Ms. HART. Thank you. Thanks, Mr. Dollar. Thank you, Mr. Chairman.

    Chairman BACHUS. You ought to go back to law school.


    Chairman BACHUS. You're like those lawyers in Alabama that just have one short question.


    Chairman BACHUS. Mr. Bentsen.

    Mr. BENTSEN. Thank you, Mr. Chairman. I just have one question.
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    Ms. Williams, Section 401 of the bill easing restrictions on interstate branching and mergers, am I right in understanding this would overturn Riegle-Neal and preempt existing State law for de novo interstate mergers?

    Ms. WILLIAMS. It would modify provisions in Riegle-Neal dealing with de novo branching, not mergers.

    Mr. BENTSEN. So if a State had not opted in under Riegle-Neal, and I'm trying to think of a couple of States that that might apply to, then if this were to become enacted, then that would be meaningless and any, you know, Acme Bank national association based in Wisconsin would be able to branch, say, in Texas de novo or whatever?

    Ms. WILLIAMS. This is a change that would apply to both State-chartered and national banks to permit de novo branching.

    Mr. BENTSEN. And how many States have not opted in?

    Ms. WILLIAMS. Governor Olson had that number.

    Mr. OLSON. Congressman, 33 States have not. Seventeen States have and 33 States, plus the District of Columbia, have not opted in.

    Mr. BENTSEN. Is there—and I know you have a second panel coming up. This would strike me as a somewhat substantial item in this bill, given the fact that since Riegle-Neal passed in what, 1993 or 1994, that the States have had some time. I'm thinking. I don't think my State has opted in, if I recall correctly, the State of Texas. And I know there have been a number of cases between the Comptroller of the Currency and the Texas Department of Banking over questions of whether or not some banks have violated that. Do you have any indication, or anybody on the panel, that the States are more complacent to this idea at this point in time? Or do you think this is something that they would have a problem with?
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    Mr. OLSON. We have not heard, but I guess as you said earlier, that's a great question for the next panel. And they probably have more input on that issue. In our judgement, this is in every sense the epilogue on this issue. Because the issue of interstate ownership was long since determined by the State legislatures. The issue, as you correctly pointed out, the issue of interstate branching was dealt with in Riegle-Neal. And what we have now is a certain competitive imbalance caused by the opt-in option with respect to the competition between banks and Federal thrifts and large banks versus small banks.

    And in our judgment, it's a level playing field, particularly with respect to smaller banks whose natural markets are right along the State line.

    The issue that you talked about of a Wisconsin bank branching into Texas is not a major issue for a large organization. And the fact that they could purchase an organization and then branch from there isn't a problem. A smaller bank in an environment where the State line impedes their natural market would have a more significant issue. And that's what we're saying.

    Mr. BENTSEN. So the argument in favor of this would not be that there's a competitive imbalance for a money center bank? They'll get some benefit out of this because they won't have to set up individual charters in each State in order to conduct their branching where that State has not opted in. You're saying this is a measure for smaller, non-money center banks, you know, $10 billion or less?

    Mr. OLSON. Well, I have to change your premise just slightly. A larger bank could purchase a bank in the State in which it wanted to enter, and a $50 billion bank could purchase a $20 million bank or a charter of that size with relative ease, where a community bank that would try to branch into that State and would first have to make a purchase, which is the other option, as opposed to de novo, would find the purchase to be a major obligation. And yet, the competitive issue probably would be more important for the smaller institution.
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    Mr. BENTSEN. So this is for the smaller banks, not for the larger banks, is the intent?

    Mr. OLSON. That's correct.

    Mr. BENTSEN. Let me ask one other question. Would this have the effect of preempting State banking laws in those States that have not opted in for purposes of regulation? If I understand correctly, for a State that has not opted in right now and someone wants to come in with a new bank, they can acquire, they can set up a separate charter, there can be symmetry between the outside bank and the current bank, but the bank inside the non-opt-in State still is under State law as it relates to consumer protection and whatever else. To what extent would repeal of Riegle-Neal's opt-in provision preempt State law in any respect in addition to just the branching itself?

    Ms. WILLIAMS. Congressman, I don't think it would at all to the extent that the State laws were applicable. There are various provisions in Riegle-Neal and in some amendments that were made to Riegle-Neal a couple of years later that deal with the applicability of State laws to interstate branches. This doesn't affect that.

    Mr. BENTSEN. So the parity issues and all that are all the same?

    Ms. WILLIAMS. I think that's correct.

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    Mr. BENTSEN. Thank you. Thank you, Mr. Chairman.

    Chairman BACHUS. I thank the gentleman from Texas for those thoughtful questions. At this time, unless the sponsor of the bill has a follow-up question, we will discharge the first panel. And actually you'll note that you are being discharged early.


    Chairman BACHUS. We certainly appreciate your testimony. We also appreciate your willingness prior to this hearing to work with the subcommittee and to suggest changes even to us before we started preparing these bills for some reform of the regulations. So we appreciate your testimony and your professionalism here this morning.

    Mr. CANTOR. [Acting Chairman.] Thank you.


    Ms. MCCAUL. Good morning Chairman Bachus and Members of the subcommittee. I am Elizabeth McCaul, Superintendent of Banks for the State of New York, and Chairman of the Conference of State Bank Supervisors. Thank you for asking us to be here today to share the views of CSBS on regulatory burden reduction and the Financial Services Regulatory Relief Act of 2002.

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    CSBS is the professional association of State officials who charter, regulate and supervise the Nation's over 6,000 State-chartered commercial and savings banks, and more than 400 State-licensed foreign banking offices nationwide.

    We applaud your commitment and efforts to reduce the burdens imposed by unnecessary or duplicative regulations that do not advance the safety and soundness of our Nation's financial institutions. This subcommittee deserves special recognition for its efforts to remove these Federal regulatory burdens, allowing our banks to compete with other financial entities at home and around the word. This competition encourages efficiency and innovation, benefiting the economy and consumers alike.

    However, the most important contribution toward reducing regulatory burden may be empowering the State banking system. State banks and the State chartering system have created the vast majority of innovations in banking products, services and business structures. For this reason, we are very disappointed that a provision to allow State-chartered member banks to utilize the powers of their charter was withdrawn from the bill just prior to its introduction.

    Through innovation, coordination and the dynamic use of technology, States have made great strides in reducing regulatory burden for the institutions we supervise. My submitted testimony describes these efforts in more detail.

    The Financial Services Regulatory Relief Act of 2002 can be a valuable Federal complement to these efforts. With respect to interstate branching requirements, as you may know, current Federal law has taken an inconsistent view toward how banks may branch across State lines. While Riegle-Neal gave the appearance that States could control how banks could enter and branch within their borders, this has not always been the reality.
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    Perhaps because it was believed that the Federal thrift charter would be eliminated at the time Riegle-Neal was adopted, the law was not applied to federally-chartered thrifts. The result is that a Federal thrift can branch without regard to State law and rules of entry.

    Since the passage of Riegle-Neal, the OCC has promulgated creative interpretations of the National Bank Act that effectively circumvent the application of Riegle-Neal to branch-like operations. The result is that State-chartered institutions, particularly community banks who wish to branch interstate, are at a competitive disadvantage to those institutions that can use Federal options to branch without restrictions.

    While 17 States now allow de novo branching, please recognize in your review of Federal law that the majority of States have not passed de novo branching laws. Whatever the outcome, we urge Congress to eliminate the disadvantage it has created for State banks because of inconsistent application of Federal law.

    CSBS also hopes that the subcommittee will rethink including the State member bank powers amendment. The provision would simply give the Federal Reserve more flexibility to allow State member banks to engage in investment activities where authorized by their chartering State and approved by the FDIC as posing no significant risk to the deposit insurance fund.

    State-chartered non-member banks have always been allowed to exercise expanded powers within the confines of safety and soundness. Therefore, eliminating this prejudicial and unnecessary distinction between State-chartered member banks and non-member banks is appropriate regulatory relief.
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    We also ask the subcommittee and the Congress to address the implementation and implications of regulatory preemption by the OCC and the OTS. CSBS believes this request for review of preemption and applicable law is appropriately a regulatory burden reduction matter as well.

    Our banking system is a complex and evolving web of State and Federal law, particularly for the State-chartered institutions. Greater sunshine on OCC and OTS interpretations of applicable law for the institutions they charter would also help to clarify applicable law for our Nation's more than 6,000 State-chartered banks, representing nearly 70 percent of all insured depositories.

    The quest to streamline the regulatory process while preserving the safety and soundness of our Nation's financial system is critical to our economic well being and to the health of our Nation's financial institutions. We commend this subcommittee for its efforts in this area and thank you, Congresswoman Capito, for sponsoring this legislation.

    Thank you for the opportunity to testify on this very important subject. We look forward to any questions you and any of the Members may have.

    Mr. CANTOR. Thank you, again, Ms. McCaul.

    Now I would like to again recognize Mr. Roger Little. He is Deputy Commissioner, Credit Union Division, Financial Institutions Bureau, State of Michigan, on behalf of the National Association of State Credit Union Supervisors. Again, welcome.
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    Mr. LITTLE. Thank you very much, Mr. Chairman. By way of introduction, NASCUS represents credit union supervisors across the country who collectively regulate more than 4,300 State-chartered credit unions. Like our counterparts in State government across the country, the Michigan Office of Financial and Insurance Services is committed to carrying out its mission through effective, efficient chartering, regulation and supervision of our State-chartered financial institutions.

    NASCUS supports your efforts to reduce the regulatory burden on all depository institutions and appreciates this opportunity to present the State regulators' perspective and views on those aspects of the regulatory relief bill that most directly impact State-chartered credit unions.

    We would also like to address the broader issue of the overall safety and soundness of the State-chartered credit union system. NASCUS strongly supports the provisions contained in the regulatory relief legislation that would authorize State-chartered, privately insured credit unions to be eligible for membership in the Federal Home Loan Bank System.

    All State-chartered credit unions, regardless of their insurer, are regulated and examined by agencies of State governments to ensure that they are operating in a safe manner. To properly manage and price insurance risk, deposit insurers rely significantly on the examination reports of the institution's primary regulator. Most State credit union agencies use the same examination product, policy and procedures as the NCUA, who regulates Federal credit unions and insures all federally insured credit unions.
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    State agency examiners get the same training NCUA examiners do, plus any additional training the State agency may require. NASCUS agencies participate in the development and testing of NCUA's examination program and procedures. In short, there is excellent cooperation between NCUA and the State regulators and substantially similar examination standards for both federally and State-chartered credit unions.

    Regarding privately insured credit unions, it's important to note that the Federal Deposit Insurance Corporation Improvement Act of 1991 specifically addressed the issue of private insurance for credit unions, establishing a series of safety and soundness requirements both for entities that would offer private deposit insurance to credit unions and for credit union that choose to have private deposit insurance.

    It's also important to note that permitting non-federally-insured institutions to join the Home Loan Bank System would not establish a new membership principle for the system. More than 50 insurance companies chartered and regulated by State governments are now members of the Federal Home Loan Bank System. Opening membership to all credit unions as well would not inflict any new or unusual exposure on the Federal Home Loan Bank System.

    We also need to recognize that allowing membership only provides access to the system. Each Federal Home Loan Bank has a very sophisticated credit screening system to assure that any borrower, federally insured or otherwise, is creditworthy. Arguably, access to the Federal Home Loan Bank System provides an additional level of scrutiny for credit unions and introduces additional market discipline into the system.

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    We would appreciate your support for including this proposal in the regulatory relief legislation and urge the subcommittee to approve this provision which will help achieve our Nation's housing and homeownership goals.

    I'd also like to touch briefly on the SEC exemption issue which was discussed earlier and note that NASCUS supports extending parity to all credit unions from the exemption that would give State institutions an exemption from SEC registration requirements, the same exemption that banks were provided by the Gramm-Leach-Bliley Act. NASCUS requests that State-chartered credit unions be accorded parity of treatment in this area and therefore relief from those same requirements for basically the same reasons as articulated by Chairman Dollar earlier.

    NASCUS also wants to address concerns about a perceived lack of parity in the credit union dual chartering system. We are aware of some complaints that State-chartered credit unions have grown faster than their Federal counterparts in some States in recent years. As a result, it has been suggested that the powers of State-chartered credit unions might be rolled back by the U.S. Congress to restore parity of growth in the dual chartering system.

    In recent years, a number of federally-chartered credit unions have switched to State charters, because that charter offers a better fit with the business plan of those institutions. Perhaps there were specific consumer financial services that a particular State law or regulation permitted, or there was a better field of membership provision enabling that credit union to better meet its members' needs. In other cases, there have been conversions from State to Federal charters. That simply demonstrates yet again the benefits of having a strong dual chartering system to provide that freedom of choice.
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    But it's important also to consider some facts to put this issue in perspective. Today there are still fewer State-chartered credit unions than federally-chartered credit unions—4,400 versus 6,200. Statistics on the data for these various institutions are included with our written testimony.

    Also the total assets of State-chartered credit unions are significantly lower than those of Federal credit unions, $231 billion versus $271 billion. Some have even suggested that the rapid recent growth of the State system is the result of regulatory laxity by State regulatory agencies. We vigorously challenge that contention and would like to take this opportunity to refute it.

    We have attached to our testimony a brief comparison of key financial performance characteristics of both federally and State-chartered credit unions. Current data indicates that in every essential safety and soundness category, the financial performance of State-chartered credit unions is every bit as sound as that of federally-chartered institutions.

    The recent expansion of fields of membership opportunities for both Federal and State-chartered credit unions has diversified geographical risks for these institutions, enhancing their safety and soundness. In fact, the State-chartered credit union system which began in the early 1900s, was in the forefront of diversing credit union fields of membership. Encouraging diverse employee groups and making a broader range of community groups eligible for membership helps ensure the economic viability of credit unions.

    There have also been major improvements in both the State and Federal systems of regulation and supervision for depository institutions since the savings and loan crisis of the 1980s and early 1990s. In fact, since 1998, all credit unions have been subject to prompt corrective action requirements that actually exceed those of commercial banks and savings institutions.
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    We would submit that any public policy prescription to roll back by Federal law the statues and regulations of the States to punish State-chartered credit unions for their financial success in this new era of intensified State supervision would be a disastrous public policy approach. Ebbs and flows in Federal and State charter activity are one of the benefits of the dual chartering system. It happens in the commercial banking industry and likewise occurs in the credit union industry. That ebb and flow is a desirable public policy objective, not a cause for Congressional concern.

    Attempting to roll back the powers of State credit unions would be extremely damaging to the dual chartering system, to millions of credit union members across the country, and to the health and viability of the credit union system and the financial system in general. We urge this subcommittee to protect and enhance the viability of the dual chartering system for both credit unions and for banks and to approve the provisions we have discussed in our testimony.

    Thank you very much for the opportunity to present our position on these issues, and I'll be happy to address any questions that you may have.

    Mr. CANTOR. Thank you, Mr. Little.

    I'd like to direct a question to you, Ms. McCaul. You've asked us to reconsider a provision that would give the Federal Reserve more flexibility to allow State member banks to engage in investment activities authorized by their chartering States and approved by the FDIC. Behind that request, your position that there is no significant risk to the deposit insurance fund. Currently, State member banks are limited to activities granted to national banks, and yet State non-member banks are allowed to exercise expanded powers within the confines of safety and soundness. One, why do you support this provision? Two, how do you respond to the OCC's view that this would undo the prudential standards in the Gramm-Leach-Bliley Act?
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    Ms. MCCAUL. First I would point out that this section, this ability of State-chartered banks in general has been a bedrock of the dual banking system. Our country's successful financial system has had at its very core the concept of innovation that has begun at the State level. The States in effect have been the laboratories for change and new possibilities, new products, new services tested at the State level have become nationwide products and services that have benefited our country.

    And so this innovation has been part of our law, part of system since really the inception of the dual banking system. In fact, in 1991, in FDICIA the Congress reiterated that this innovation would remain even at the height of the banking crisis. It preserved the rights of State non-member banks to continue to innovate.

    If I could, I would like to point out that there has been a very strong record of that innovation within safe and sound standards that has been operable with regard to the non-member banks for a very long time. And in the FDIC's submitted testimony, they are pointing out, if you would allow me to read the following: ''Indeed, Section 24 of the FDI Act states that an insured State bank may not engage as principal in any type of activity that is not permissible for a national bank unless the FDIC has determined that the activity poses no significant risk to the funds and the State bank is and continues to be in compliance with applicable capital standards prescribed by the appropriate Federal banking agency.''

    That statute makes no distinction between State member banks and State non-member banks. So the concept of being able to craft innovation within a State-chartered bank is an activity that currently exists for non-member banks and is subject to oversight not only by the State regulator but also by the FDIC. Including this provision would merely allow another regulator to have the same authority with regard to State member banks. And the concept of innovation that has been at the heart of our country's dual banking system would be preserved.
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    Mr. CANTOR. Thank you, Ms. McCaul.

    I would now like to call upon the bill's sponsor, Ms. Capito, for comments and questions.

    Ms. CAPITO. Thank you, Mr. Chair.

    I'd like to ask a question of Ms. McCaul. We talked about this in the last panel, and I'd like just a clarification. You touched on it in your statement, and I appreciate that, the fact that 33 States do not have the de novo statutes in place and I mentioned that I was a former State legislator who is leery of preemption by the Federal laws. We were wondering if there was any opposition that you would foresee in terms of States across the Nation.

    Ms. MCCAUL. The CSBS has adopted a policy that encourages the States to consider adopting de novo branching laws. And at the same time, CSBS also has a policy that Federal law or regulation should not put a State-chartered institution at a disadvantage. And so we have had 17 States that have adopted de novo branching laws, and a number of States have not moved in that direction at this time.

    The result is that the provisions in law that exist have created a competitive disadvantage for the State-chartered where they are not able to branch as easily as thrifts or nationally-chartered banks.

    Ms. CAPITO. OK. Thank you. I have no further questions. I yield back.
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    Mr. CANTOR. Thank you.

    The Chair now recognizes Mr. Ney for comments or questions.

    Mr. NEY. Thank you, Mr. Chairman. I want to thank Representative Capito and also you for the inclusion of the Federal Home Loan Bank Membership Act, which I introduced earlier in this session as Section 301 of the regulatory relief legislation. I think it's going to be good news to firefighters and police, postal workers, teachers, State employees, credit unions have written to me and other Members of the subcommittee asking for the relief so they can provide home financing to their members.

    Also, as you know, Mr. Chairman, State-chartered privately insured credit unions cannot apply to become members of a Federal Home Loan Bank even though nearly 11,000 federally insured credit unions already are permitted to do so. The legislation I have corrects this problem. It would give State-chartered, privately insured credit unions the same permission available to all other credit unions to apply to a Federal Home Loan Bank for membership.

    After they apply, they would of course still have to meet all the Federal Home Loan Bank safety and soundness requirements on top of their existing State regulations as well as the Federal requirements, which are part of FDICIA, the bill supported by the Credit Union National Association, National Association of Credit Union Supervisors as well as a number of State credit union leagues.

    I understand some Members of the subcommittee obviously may have concerns about the regulation of privately insured credit unions, so I'm working with my good friend Congressman Kanjorski, and I want to address those concerns.
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    I do have a couple of questions for Mr. Little. Mr. Little, I know some Members of the subcommittee are perhaps not aware of the private deposit insurance option for credit unions because it is only available in certain States, but that option was specifically sanctioned by the Congress in Federal law. Isn't that correct?

    Mr. LITTLE. That's correct, sir, in the FDICIA Act of 1991.

    Mr. NEY. And also, could you tell us why a credit union would want to apply for membership with a Federal Home Loan Bank and how many federally insured credit unions are already members of a Federal Home Loan Bank?

    Mr. LITTLE. As I understand it, about 650 credit unions nationwide are currently members. The principal advantage of membership is an additional source of longer term credit for those institutions to use for the purpose of financing mortgage loans for their members in much the same way that banks and other businesses use the Federal Home Loan Bank now.

    It's to the benefit of those credit union members to be able to receive that financing. It's to the benefit of the credit union's safety and soundness to be able to have an additional financing vehicle to use for interest rate risk management purposes. And as I stated earlier, in our view, it's beneficial to have yet another set of eyes, if you will, looking at those credit unions as they borrow from the Federal Home Loan Bank.

    Mr. NEY. So another layer of Federal safety and soundness is what you're saying?
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    Mr. LITTLE. Yes, sir.

    Mr. NEY. And I appreciate it. And I'm sorry I didn't make all your testimony, but I'll especially look at the part where you talk about the additional layer.

    Mr. LITTLE. Thank you.

    Mr. NEY. Thank you, Mr. Chairman.

    Mr. CANTOR. Thank you. And if there are no further questions, I have none. I'd just like to thank the panel again and the audience's patience with the subcommittee, and the hearing is now adjourned.

    [Whereupon, at 11:58 a.m. the hearing was adjourned.]

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