>> for fourty years, c-span has been offering unfettered use of , the supreme court, and public policy events, so you can make up your mind. is brought to you by your local cable or satellite provider. c-span, your unfiltered view of government. >> next, the senate holds an oversight hearings with bankers. this is just under two hours. the committee will come to order. to order. today will will. thus we will receive testimony from the comptroller of the

currency, randal quarles, federal reserve vice chairman for supervision jelena , mcwilliams, chairman of the fdic, and rodney hood, chairman of the ncua. we welcome you all, thank you for being here. this hearing provides the committee an opportunity to examine the current state of and recent activities related to prudential regulation and supervision. the fed's most recent report on supervision and regulation reports that the performance of the economy over the last five years has contributed to the robust financial performance of the u.s. , and that over the past five years, the banking system has expanded loans by nearly 30%, an encouraging development.

it has been nearly a year since the enactment of s. 2155, the economic growth, regulatory relief and consumer protection act, and each one of your agencies has taken additional steps to implement key provisions of the bill. i appreciate your agencies' continued diligence to get these and other rulemakings out quickly. however, there are aspects of some recent proposals that merit further attention to the cblr. senator moran and i wrote to most of you recently encouraging you to establish the cblr at 8 percent and ensure that the proposed prompt corrective action framework for the cblr would not unintentionally deter community banks from utilizing law cblr framework. simplifying the volcker rule, including by eliminating the proposed accounting prong and revising the covered funds the definition's overly-broad application to venture capital, other long-term investments and loan creation. harmonizing margin requirements for inter-affiliate swaps with

treatment by the c.f.t.c.. indexing any dollar-based thresholds in the tailoring proposals to grow over time generally in line with growth in the financial system, and continuing to examine whether the regulations that apply to the u.s. operations of foreign banks are tailored to the risk profile of the relevant institutions and consider the existence of home country regulations that apply on a global basis. turning to guidance and supervision, the banking committee held a hearing last month on guidance, supervisory expectations and the rule of law. during that hearing, the committee examined situations where the federal banking agencies have enacted guidance or other policy statements that are being enforced as rules and therefore comply with neither notice-and-comment rulemaking processes nor with the congressional review act. i urge each of the agencies to .ontinue to follow the be done within your

agencies to educate and ensure that supervisors know how guidance should be treated, and that they do not use the discretion of provided to them by congress in inappropriate ways. i was encouraged that vice chairman quarrels last week recognize it is incumbent upon the federal reserve and the regulatory agencies think very carefully through what the agencies mean by supervision, and what they mean by regulation , and how to use each appropriately. i was also encouraged that the fed recently issued a notice to propose rulemaking to revise its controlled rules enter the bank -- under the bank holding act. the controlled framework has developed over time through a hermetic process that has generally not benefited from public comment, and that this proposal allows public comment on both positions to improve your comment and consistency. considere fed to

business relationships, and whether they should apply to expenses of the investee and the investor. finally, i would stress the importance of the agencies remaining neutral, unbiased, and nonpolitical, especially when it comes to reviewing bank mergers and applications, as your agencies have done successfully for many years. i appreciate each of you taking the time to testify today, and i look forward to hearing more about your respective agencies' priorities for the rest of 2019. senator brown. sen. brown: thank you, chairman. we welcome all four of you as regulators. your jobs are important to the country. when you look at all the roles that regulators have torn up over the last year and a half, you have to wonder if they want to see another financial crisis. in 2006, back when president trump was just the president of a fly-by-night university

handing out worthless diplomas, he was asked about the possibility of housing prices collapsing and throwing the economy into chaos. he said -- i sort of hope that happens, because then people like me would go in and buy. think about that for a moment, it really sums up the president's philosophy about this economy. he basically said that he doesn't care what happens to millions of hardworking families as long as it benefits people like him. quote again -- i sort of hope that happens because people like me can then come in and buy. maybe that is why the economy today seems to be working so well for people like donald trump, but not so great for everybody else. things look pretty great for banks, as the chairman said, really good for real estate investors, wonderful for the wealthiest americans. ceo pay is up stock buybacks are

, up real estate prices are up. , and the trump tax plan really helped out, too. but if you care about the dignity of work, if you punch a clock or swipe a badge and your wages are flat. if you're a stay at home parent or you take care of your older relatives, you're struggling to get by. millions of families can't keep up with the cost of living as it is, they are crossing your fingers that experts are looking out to make sure there is not another crisis on the horizon that is going to wipe away all their hard work. vice chair quarles, i appreciate last week you're coming to cleveland, a appreciate your going in engaging with everybody that you saw in a very constructive way, i appreciate our conversation afterwards. zip zip code it , myip code 44105 neighborhood of slavic village, you know how it was devastated by the crisis.

you saw how many families there continue to struggle, you saw the hard-working and how they are optimistic about the future. thank you for doing that. the last thing they need is another crisis. there's no bailout for people like them. when president trump was confronted about his comments on the financial crisis, he replied "it is just business." that's not good enough. it's not fair that people like him get to use bankruptcy for sport, but people struggling with student loan debt can't use bankruptcy to save their lives. it's not fair that workers with stagnant wages and rising prices are left on their own to fend off financial predators, while the new director of the cfpb is going out of her way to make life easier for financial companies. meanwhile, the people in this administration who are supposed to look out for regular people, suggesting that hardworking americans just need to improve their financial literacy. these are the watchdogs who are we all should

leave off, we all should know more. these are the watchdogs who are supposed to be looking out for the american people to ensure they are not steered into a shady loan or unaffordable mortgage that could bankrupt them. and they seem more concerned with making it easier for wall street firms to do as they please. that will never help slavic village. i'm concerned that this administration isn't going to prevent the next financial crisis, and may even cause it. i'm not the only one. as you know former federal , two reserve chairs and two treasury secretaries that saw the last crisis firsthand, delivered a tankage warning this week about just one of this administration's rollbacks on the safety of our financial system. fitch, the credit rating agency, suggested that the changes the regulators are making will make banks riskier, and their failures more catastrophic. bb&t and suntrust are on the verge of creating a bank more

-- about 10 times the size of countrywide, and this administration so far seems happy to oblige. the new york fed reported yesterday that household debt is a trillion dollars higher today than its peak before the crisis. what that number means is that for people across ohio and across america, this isn't just business, it is personal. it's about the hard choices families make when budgeting for rent and groceries and childcare and savings for a down payment. it's about keeping your promise to your child who wants to go to community college. it's about being able to enjoy a retirement you have earned over a lifetime. your job is to protect them. forget, is never to never to forget what happened 10 years ago, even as the virus of collective amnesia seems to have infected the entire republican caucus in the united states senate whether it is loosening the rules for foreign megabanks or ignoring risks like leveraged lending, or encouraging banks

and fintechs to get into payday lending, it does not seem like you are taking that job seriously. i know the president appointed all of you to the job, but you are, his comments notwithstanding, his attacks on some of you or your bosses or your agents, all that notwithstanding, you are independent regulators. your job is to make the economy work for everyone, from slavic village to the nicest neighborhoods around washington. thank you, mr. chairman. chairman crapo: thank you. we will proceed with testimony now. i will remind the witnesses to pay attention to the time as well as our colleagues, the senators. i will start on my left with mr. otting. you may proceed. >> good morning. i would like to apologize for being a few minutes late, i got caught up in the peace officers memorial outside. for a moment i thought about skipping the hearing and attending that.

but it is an honor to be here. chairman crapo, ranking member brown, and members of the committee, i am honored to be here with my regulatory college. since becoming comptroller of the currency in 2017, the occ has focused on ensuring regulation and supervision, supports banks ability to service their customers and promotes economic opportunity while still operating in a safe and sound manner. that include the economic growth regulatory relief and consumer protection act of 2018 as well as advancing several party items within the agents the. the financial performance of the nation's banking system improved in 2018 and early 2019 driven by strong operating performance. capital and liquidity remained near historic highs. return on equity is near and bankslevels,

reported healthy revenue in 2018. net income increased 20% from than $1th assets more billion and for the system as a whole. thx cuts and jobs act associated with nearly half of the increase. while the condition of the federal banking system is strong, the occ monitors risk on a continual basis and analyze the risks twice a year. key risks highlighted in the most recent report include credit, operation, compliance and interest rate risk. they just were involved in the context of changing economic, technological and bank operating development, and we work to ensure that our supervised institutions are aware of and are properly managing these risks. maintaining our nation's economy depends on the ability of

financial institutions particularly community and midsized banks and savings institutions to operate effectively and without unnecessary regulatory burden. the economic growth act provided a common sense framework to reduce regulatory burden for small and midsize banks while safeguarding the nation's system and protecting consumers. we have made significant progress in implementing this act. the act authorizes the occ to issue regulation on its own and to issue others with fellow safety and soundness regulators. separately, we are consulting with the consumer protection bureau. the regulation tests the occ the occ's test to implementons this provision of the law, and we plan to issue this world in the near future.

in december 2018, the agency issued rules to expand eligibility for the financial cycle, which reduces burdens on well-managed culminating banks and allows agents need to focus their resources on more risky and thus enhancing the safety and soundness of all financial institutions. regulators are working together to finalize their remaining provisions of the act, most of which will be completed by year-end. those efforts include finalizing that ease reporting requirement for community banks, rules for mortgages, narrowing the volcker rule to expanding banks engaged in a riskier activities, and implementing a measure for community banks. regulators are also working to work on roles that exclude custodial banks, qualifying deposits such as

those at the central bank. we are also focused on allowing banks to treat qualifying investment-grade municipal securities at level two liquid assets and limit the type of acquisition, development and construction that my may be considered risky. we're also finalizing changes to aspects of company run stress tests consistent with section 401 of the economic act. in addition to this, the occ is focused specifically on a number of other activities like the community reinvestment act, and promoting small dollar ticket lending. my written testimony provides on thenal detail banking system, the risk it faces, and the regulatory efforts to ensure that banks can to me to service their customers for decades to come. i look forward to answering your questions.

chairman crapo: thank you. quarles. >> thank you. thank you for your time and for your invitation to testify today on the federal reserve's regulation of the financial system. my visit today comes 10 years of most the day after the federal reserve released the results of its first supervisory stress test. that exercise was an invention of both urgency and necessity and it will to move the country's largest financial institutions toward safety and stability. many innovations from that period are now regular elements of the federal reserve supervisory and regulatory work. the innovations have helped strengthen firms damaged by the crisis, they have given supervisors and the public a clear view of the financial system and provided a solid foundation for the nation's economic recovery. and now when the economy and financial system are in good health is a time to consolidate

the insights we have gained with experience over time and to better the regulatory framework we have built. will review the steps to improve that framework, outlined the supervision report, and discuss our other engagement on financial stability issues both at home and abroad. a year ago, congress passed the consumer protection act, a cornerstone of this legislation was the directive to the regulatory agencies to tailor oversight institutions to ensure that regulations much the character that the firms regulate with specific direction performs between 100 billion to $250 million in assets. the core was the proposals for domestic institutions. it, goal,osals share to focus our energy and attention on both the institutions that pose the greatest risk to the financial stability and the activities

that are most likely to challenge safety and soundness. in more recent proposal addresses reform banks, like last year's debt proposal. the proposal differs from the domestic proposals to account for the unique structural differences in foreign banks and asks for a number of important issues. i look forward to reviewing the comments we received. we have also been provided targeted regulatory relief especially for community banks and other less complex organizations. the ratio would give community banking organizations more space to satisfy the requirements. to expand their eligibility for both lumbar examination cycles and exemptions from holding company and capital requirements. report accompanying my testimony provides more detail on these and other recent regulatory steps as well as on the overall condition of the banking system. the boardt half year,

has also taken steps to consolidate the role that stress testing dozen or work. follow us plays in our work. -- the role that stress testing plays in our work. we have published new details on our methodology and models, improving public understanding of the program while maintaining the integrity of its wit result. we are gnostic conference in july that will seek improvement on our processes. we committed to addressing issues that most firms have. as detailed in my written testimony, we have taken other steps that support our supervisory and regulatory framework by making it simpler .nd more transparent we also continue to engage with our regulatory conference

overseas, two standard-setting bodies, and the board where i recently began my three-year term as chair. the strength of our financial system today rests on the inside, patience and persistence of a decades work on postcrisis reforms. only by evaluating the reforms we have made and adjusting our approach when appropriate can we preserve and improve the efficacy and efficiency of our regulatory framework. thank you, and a look forward to answering your questions. chairman crapo: ms. mcwilliams. ms. mcwilliams: thank you. good morning, members and staff of the committee, it is always nice to be back in this room. thank you for the opportunity to testify about the f.d.i.c.'s efforts to testify on institutions of all sizes and ensure that our regular institutions are serving their communities. the nation's banks are the center of economic activity in their communities. their ability to provide safe and secure financial products and services forms the backbone

of a strong national economy. fdic'sse reasons, the oversight of banks is critical areath consumer protection it is incumbent on us to exercise oversight in a manner that recognizes an institution's business model and does not impose unnecessary costs or burdens on legitimate activities. to ensure that they are addressing risks in the bank and not imposing unnecessary burdens on banking activities. my written statement also contains an update on the progress we have made. in addition to our supervisory role, the fdic staff is called upon large -- has called upon large banking entities and others to support financial

institutions. we review planning requirements for the largest u.s. bank holding companies and resolution plans filed by larger institutions. with otherlong measures has improved our readiness for this resolution and helped ensure that market participants, not taxpayers, near the risk of loss in the event of a large bank failure. most of my professional life has been focused on the financial services industry. the fdic, i at intuitively understood how important the nation's banks were to the economy. but until i had. conversations with bankers and their customers on my 50 state listening tour, i did not fully appreciate how our banks, particularly community banks, are so intimately involved in the fabric of their communities and their customers' lives. across the country, these banks helped fund grocery stores, barbershops, restaurants, local libraries and small businesses, and rural communities, they

provide infrastructure and social service supplementation. it is the fdic that provides consumers with the confidence to trust those banks with their deposits. i would be remiss if i do not mention the 6000 dedicated fdic employees who go to work every day laser-focused on protecting the stability and integrity or our financial system. i am proud to stand with them to fulfill our mission and regulatory mandate, to preserve and promote public confidence in the u.s. financial system. and you again for the opportunity to testify today. chairman crapo: thank you, ms. mcwilliams. mr. hood. chairman crapo, ranking member brown and members of the committee, thank you for the opportunity to testify today on how we maintain a safe and sound that union system. federally insured credit unions

are essential to america. more than one third of u.s. households are members of credit unions. in 2018, the credit union system well.ued to perform the years and, credit union membership grew to more than 116 million members and assets increased to $1.45 trillion. it is a system well-capitalized with a ratio of 11.3%, well above the 7% statutory requirement. , soinsurance fund is strong strong in fact of your it would issue nearly $900 million in share insurance fund dividends over the last two years. credit unions are using these funds to improve the financial capability of people of modest means, support small businesses and strengthen communities across the country. my priority is to strengthen the vitality of the credit union industry by doing more to bolster underserved communities including those in rural areas,

persons with disabilities and moderate income households. to that end, i am working closely with agencies'senior leadership especially the office of minority women and inclusion, and credit union resources and isansion to ensure that ncua doing everything we can to assist small and designated credit unions including encouraging the formation of the de novo minority depository institutions. for example, helping them navigate the certification process for becoming comminuted development financial institutions. we are also providing grants to low income that in years through our community development revolving loan fund. awarded over $2 million in technical assistance and urgent needs grants to 211 that it unions to help them develop new -- 211 credit unions to help them recover from natural disasters and offer banking services to underserved

populations. last month we entered into a partnership with the small business administration to help credit unions better utilize the aza lending programs -- sb lending programs. as a former rural housing service starter at the u.s. department of agriculture, i try to seek additional opportunities to connect credit unions and their members in rural areas to existing public sector lending programs. next week i have the honor of presenting a new federal credit union charter that will serve a native american community. this low income designated credit union will provide financial services in our nation's bashing one of our nation's most underserved areas. on the regulatory front, we are examining our regulatory framework to ensure that was her not excessive. we are in the process of providing credit unions more flexibility under our payday alternative loan program, allowing them to offer less expensive small dollar loan

options. whenever we have the authority to improve the system, we are doing our level best to do so. while the credit union system is isong, and the ncua faithfully executing its mission, i remain focused on the risks posed by the rapidly changing financial services landscape. one of them, summer security, keeps me up at night. cyber-attacks pose an enormous threat to the entire financial system, including credit unions failure the credit union system is especially vulnerable because the ncua lacks sufficient legal authority to adequately identify the cyber security risk in the system. however, strengthening our cyber defense is our priority and we communicate with regulators on how to better address the challenges. as chairman, i intend to deploy the resources necessary to combat the summer security threat.

i want to close by highlighting an area where congressional act would help credit unions better serve their members especially those with modest means. amending the federal credit union act to permit all types of federally chartered credit unions to add underserved areas to their membership would promote financial inclusion and shared for 30 in underserved and distressed communities. i look forward to working with members of this committee on these and others legislative issues. thank you for the opportunity to testify today. i look forward to your questions. chairman crapo: thank you very much mr. hood. and to each of you, i appreciate the attention he has shown in your written testimony as well as your comments today toward implementing senate bill 2155 as it was intended. i had a lot of questions i was going to ask on that and i will probably submit those to you. i would like to go into a broader issue that continues to get raised.

in my internet three comments, i noted that as a result of senate bill 2155 and the regulatory activities we are seeing you engaged in, we have seen a strong performance of the financial sector in the united states. that it caused the banking system to expand its loans by nearly 30% in the last five years. madettack that is being seems to imply that that is just benefiting the wealthy. -- this loans have been increase in our system to be able to provide these loans is putting shady loans on folks in the united states who are not of such rough but they can access higher quality credit. and the list goes on. answers, it long want to go further, but who are

the beneficiaries of this successful financial industry activity? donors, or dolthy they have access already to credit? who are those, in our society who are benefited by this increase in a strong stable banking system? mr. quarles? a dynamics: i think economy benefits everyone, we see that currently in the strength of the labor market. we have been bringing people back to the labor market, our labor force participation rate has increased, the unemployment rate is as low as it has been in half a century, and all of that reflects the fact that we have a strong economy supported by a dynamic financial sector. chairman crapo: and small businesses, credit union members?

add,cwilliams: let me in particular, it is the farmers were able to get access to small businesses as well as consumers, to both refinance their mortgages and better terms and to put their kids, etc., etc.. thatve been pleased with ability of banks to lend credit. as someone who could barely refinance my loan in 2008, can that customers are better served, banks are able to refinance their home mortgages. .hairman crapo: mr. hood mr. hood: credit union members are definitely benefiting. we have seen a good 40% of our members reclassified as moderate income and are getting loans for autos, for their mortgages, and also seeing an increase in their business lending. they are definitely benefiting thanks to senate bill 2155, so thank you. chairman crapo: and this can be a quick answer by any of you.

are these shady loans? mr. hood: they are well underwritten with strong underwriting criteria. chairman crapo: that is what i thought? mr. quarles: i do think it has been across the economy, however, there are certain ,egments like the small ticket small business and small lending banks were kind of forced out of. we have been working to bring banks back to that space in the last year and a half. it has been served by online vendors. also the things we are doing to open up opportunities in economic areas that are distressed would be helpful. but i think chairman hood's point about how these are well underwritten loans, that is what is in the market today. this is arapo: question for you, mr. quarles, there has been a reference to the letter sent out in the last day or two from a number of former fed members, particularly ben bernanke and janet yellen. wasn't that letter referencing a

rule? mr. quarles: yes, it was on the proposal of stability regulation. chairman crapo: and with regard to -- other than the activities spaced focus less activities based focus, which i think is a risk-based focus rather than in numbers-based focus, does the letter referred to the implementation of senate bill 2155? mr. quarles: no, it is focused entirely on that one measure. chairman crapo: that is what i thought. my question is this. i am down to 10 seconds, so i will stop and move on, and follow my own five-minute rule and moved to senator brown. brown: thanks, chair. i appreciate that. , if a car manufacturer cut corners and sold unsafe cars that harmed

millions of american families, would you recommend that the government respond by recommending car mechanic literacy so they can decide for themselves if the car is safe? yes or no? otting: at a think it is a yes or no answer, i think you would have to understand the -- i don't view it as a yes or no answer. sen. brown: mr. hood, if a drug corners and sold tainted prescriptions, would you suggest we adopt a pharmaceutical literacy program in schools so students can decide drugs are safe themselves? mr. hood: i would need more information on that, but likely, i would need to -- sen. brown: common sense would be the information that would come to mind. question, obviously, it backed the question, why can't

we protect americans from dangerous financial products that we do it every other industry. i can't imagine any citizen stuck in traffic or not who would come here and ask that question, of course, they would say government should have consumer financial protection for autos, of course they think government should have consumer protection for pharmaceuticals and also for financial products. moment, to mr.a quarles. just, i wantyou to to ask you a couple of questions, mr. quarles. i want to read you a couple of your quotes, and answer these as precise as you can't. a couple of your quotes, tell me if you said these quotes in 2016 one ofthe -- 2006 in your earlier jobs before the subprime crisis, or earlier this leveragebout

lending. we had a number of written letters to each of you about the you made aof it, and decision, but if you would answer if you said this in 2006. these are direct quotes, or if you set it recently. first quote -- banks that are was yelling these loans are not keeping them -- banks that are originating these loans are not keeping them other books. this month?hat mr. quarles: i believe i said .hat a week ago sen. brown: i would not expect that to be financially destabilizing if there were to -- i would repricing not expected to be financially destabilizing. did you say that leading to the subprime crisis in 2006 or earlier this month? mr. quarles: i said it earlier this month. sen. brown: regarding the economic downturn, -- i would have to say this is an unlikely scenario.

was that recently or in 2006? mr. quarles: 2006. sen. brown: dismissing news reports regarding risk to the economy, you said earth must begin hit by a meteor. was that earlier this month or back in 2006? mr. quarles: i use the phrase a lot, but i refer to the earth getting hit by an asteroid about a week ago. sen. brown: thank you. and financial experts regulators agree that leveraged lending is a serious concern. i was not impressed first at the cursory mention and testimony today about the importance of leverage lending. was not impressed with the response that we got from secretary mnuchin on a couple of approaches from him. crisishat the subprime took you, mr. quarles, and frankly all the regulators by surprise back in the bush years,

how should i know from your actions and comments about the leveraged lending, how should i know whether the economy is safe , or if you are just bad at making economic predictions? why should the american public feel safe with your actions here? there's not ao lot of time left, and we have done a lot with respect to leveraged lending. let me try concisely to go through some of this. i will be glad to expand later like.qfrs if you would there is the question of risk to financial stability, there is a question of potential change in the pricing of assets, given the volume of them that has amplify ano perhaps economic downturn in the future. there is an important difference, they are two questions. my comments with respect to financial stability, we have done a careful analysis of whether a sudden repricing of the asset class could

have amplifying and destabilizing effects on the financial system, and for a variety of reasons, we don't think that it will. on the other hand, we are concerned and appropriate we so, about what is the right regulatory response time developments in underwriting of leveraged loans that could affect a business downturn in the future. and in the last international credit exam, which the banking agencies jointly look at the largest credit in the country, we looked at leverage lending underwriting practices and identified some, a number where we felt there could be improvement. and we made clear to the banks that those improvements would be appropriate. the financial stability board has been looking on a global basis, one of the first

banks i did that first things i did was look at where exposure to -- one of the first things i did was to look at the structures were most of these globe.re held around the we have looked at it in the united states but we are not sure where it is held around the globe, and since we are in an interrelated financial system, it is important that we understand that. we expect to have a much more granular understanding of where the risk may lie and of the upper pitt response to it. so there has been a lot of activity and careful analysis, and i think it is important with respect to the comments you made, important to dry difference between the point i was making, that i don't think there is a risk to the financial stability versus the question of, are there issues we ought to be thinking about on the business cycle, and the weight leverage lending and is volume and underwriting standards might play to that -- leverage lending volume and underwriting

standards might play to that. sen. brown: it is important to listen to your predecessors oh, ,ord with very stern language two -- to listen to your predecessors warned with very stern language on this. >> thank you very much. thank you for our panel to be here. i was involved when this committee passed legislation to alter. frank. tooccurred on a street -- alter dodd frank. it became clear that the opportunity to make some substitute changes in the regulatory environment for lenders would not occur. there weren't 60 votes on the senate to accomplish that. we spent two years trying to figure out among republicans and democrats on this committee what we could accomplish. the result was senate bill 2155. i was pleased for what i thought

would be the outcome of senate bill 2155, it consequences to lenders, the recipients. unfortunately, when i talked to kansas lenders today and asked what were the consequences of 2155, it is a bit of a shrug of shoulders. hope that something is going to happen. haven't seen much relief. i was also pleased to see the republicans and democrats -- i want this committee to function, and i was pleased to see that we can find among ground and pass legislation on an important topic that affect the country. if the end result of what i have seen to date on 2155 is the final result, then in my view, we have failed. i don't know who we is, congress, the regulators, there is simply not enough consequence to the passage of 2155 out in the real world. chairwoman mcwilliams, i very

,uch appreciate you see listening, learning, traveling the country. it is those bankers and particularly their customers that i am the most concerned about, particularly about agriculture. today when commodity prices are what they are, when weather has been what it has been, the survival of our family farms and agricultural communities in rural america is at stake. i am of the view that in the absence of the relationship bank, a relationship between the banker and the lender, the ability for agriculture's future is minimized significantly. i have used these hearings as an opportunity from time to time to provide examples of that, but the reality is when times are tough in agriculture, the survival of agriculture is dependent upon a relationship between the lender and the borrower. often times, that is generational.

family on financial institutions, farms going back to grandparents, great-grandparents. and in the absence of. financialbility, a lenders ability to take into account things that are important such as character, for history, the ability the communities i represent in rural america is very, very bleak. so i am trying to figure out what it is either congress has not done or the regulators have under 2155 to make the difference that i had hoped would be there. that thethat the cblr chairman mentioned is the best we can do is amazing to me. the call report that we would have a slightly less reporting, a few pages less after all the effort that went into trying to figure out how to do this better, regulations have their

place, but i would indicate that there is little systemic risk to the kind of relationship bank that i wanted to see improvement for. to bankers andt to credit union management. i am not so much about you and your success, i am about what the consequences are if you don't have that success. rural america is at a point in time in which the struggles are significant and great. it has been true throughout the history of our country but these are among the most difficult times there are and access to credit is key. i saw this last year when we had grass fires in kansas in which 80% of the grass was burnt in one county, and therefore, the collateral of a cattleman or woman's operation, there was no collateral left -- no cattle, no grass, yet the financial institutions in that

community said, we know these people they will pay their bills,. if this becomes about crossing every t and dotting every i, about looking for everything, we will have failed our economy and states like kansas, their future will be significantly diminished. , is ittion, can i expect a matter of timing, is there conflict within your agencies, within the regulatory community as to what can be done? is it divisive? it seems to me to our number of issues in which agreement ought to be easily reached, it the results don't appear. what is missing, what more needs to be done by either me or the senator, and what can i expect to happen from regulators? for as long as i have been on the senate banking committee, regulators have said the right thing to me--we have an advisory committee, we are studying the issues, we are working on this, but if you ask him back or there

been any consequence, unfortunately you almost every circumstance the answer is no, or at least not much. what can i do differently, and what can you do differently. chairman crapo: and if you keep your responses brief? >> senator moran, i appreciate your concerns. i was a beggar also and i do interact with alarm bankers across america -- i was a banker and a direct with a lot of bankers across america. grandfather's my farm in iowa and so i am tied closely to the farming community. if you look at the list of 2155 agenciess, the 20 amongst us, i will tell you there is great agreement and interaction. the rule-reading process is something i was exposed to since i have been in washington and it complex. but if we are here on september 30, i think you will see the majority of those are across the finish line, and a few of them will move into the fourth quarter. conflict, we all

meet monthly or havoc on call once a week in the topic as always, what are the outstanding issues on 2155. at the occ, we have more resources dedicated to this cause. i would say, a little patience with us. we will get this across the finish line. there are no issue amongst us that we haven't been able to work out. chairman crapo: if we could let that be the answer for the group and the others supplemented in writing, i would appreciate that. >> [indiscernible] [laughter] >> but it was interesting. [laughter] chairman crapo: senator schatz. thank you, mr. chairman. mr. quarles, when you responded to my letter about the financial risks about climate change, you said the current supervisory work takes into account risks from severe weather shocks, but climate change is accelerating in both frequency and severity and it is getting worse.

if you are relying on historical trends, you are underestimating the risk. so are you relying on historical trends, or using data from the national climate assessment? mr. quarles: we are not relying purely on historical trends. our requirement for institutions is that they have a risk management program. sen. schatz: are you using any of the climate assessment, any of the data the government generates outside of your agency? require them to take all relevant data into account. sen. schatz: but are using the data? mr. quarles: i personally am not, no. sen. schatz: here is the question. the frequency and severity of severe weather events is going up. if you are using historical data , then you and your supervisory capacity -- in your supervisory capacity is underestimating risk.e

are you using the national climate assessment, relying on dod data, the national weather service, how are you getting your data to assess the increased risk around climate change? mr. quarles: we require banks to assess their risks, we require them to look at -- sen. schatz: hold on. understand to extend the risk in a supervisory capacity, you have to know if they are looking at it properly, and there is evidence they are not doing it. i understand the burden is on them, but it is on you to say what is adequate. i will just take that as a no. have you attempted to quantify the financial risk from changes in the climate, in other words, not the episodic severe weather events, but fundamental changes like high temperatures throughout the sea level rising? mr. quarles: we have not. well, i should be careful there, the federal reserve does a lot of research, and we have done research on climate change and

how it affects the financial sector as part of our supervisory processes, we don't do that. sen. schatz: when uss banks loan quality and adequacy doing times of stress, how do you ask banks to qualify the risks -- quantify the risk of climate change? mr. quarles: we require them to did into account of their exposure to severe weather events. sen. schatz: you understand the difference between severe weather and climate? mr. quarles: i do. climate is a long-term change and severe weather are specific events you sen. schatz: what i am saying, what is the relationship between climate change and severe weather? mr. quarles: i am not a climate scientists. sen. schatz: and yet, you have to measure these risks. so do you rely on meteorologists or climate science in evaluating whether or not these financial systems are adequately looking at the risk? mr. quarles: we require banks to take that information into account. what we evaluate visit their

risk management system, not their particular conclusion. sen. schatz: but as the risk profile goes up, it seems that the banks and other institutions that supervise the banks need to somehow load that in to their supervisory process. i am listening very carefully, but i am not satisfied that you have actually done anything to change your process. there are 36 central banks and regulators around the road that are puzzling through this difficult problem. united states is not participating in the process. you commit to participate in that process? mr. quarles: we are looking very closely at it. i am actively encouraging that we examine it. sen. schatz: will you commit to hiring or consulting with climate economists who can translate the physical risk of climate change and economic and financial risks? mr. quarles: we do that works currently. we have people on the staff would do that sort of research, as i said earlier.

sen. schatz: should i take that as a no? you are satisfied that you are doing this adequately? i guess that is what i am trying to get at. i am trying to drill down the specific question. but the basic question, are you satisfied you are doing enough to measure climate risk or do you think you should be doing more, learning more, working with other central banks and with economists to constantly update the way that you evaluate risk? mr. quarles: that i fully agree with you on we should definitely be engaged and learning more about the risks of the financial sector and that includes to change. insurance companies for example, issue.y focused on that sen. schatz: will you commit to engaging with federal scientific agencies about their assessment of the physical risks of climate change? mr. quarles: i don't know in what context i would do that, but we are constantly seeking to inform ourselves about potential risks. sen. schatz: you don't know in what context you would consult

with federal agencies about the physical risks of climate change? you aren't sure in what context that would be in? mr. quarles: yes. i am not entirely sure what you're asking me to do. sen. schatz: i am asking you to make sure that the extent of the whole of the federal government understands, predicts, measures the risks related to climate change, that you make sure you have all the data set, accessed on the expertise, and that it informs your process. that? commit to mr. quarles: we look at a broad range of information with respect to risks for the financial sector. sen. schatz: so i am hearing that you don't commit to getting a national climate assessment, it quadrennial defense review, to working with the national weather service and announcer:, the u.s.d.a. -- weather service and n.a.s.a., the u.s.d.a.? mr. quarles: we look at all that information, senator. sen. schatz: thank you. chairman crapo: senator toomey.

sen. toomey: thank you, mr. chairman. thank to all the witnesses for joining us today. quarles, first of thati appreciate the work went into the recent financial stability report, and just as an it a weekhink i read or so ago so i may have gone this wrong, but i seem to remember that one of the conclusions by the fed economist in that report was that individual american families, consumer balance sheets are actually in quite good shape, that the savings rate is up, total loan amount relative to down,incomes are consumers are in better shape than they have been in for years on a broad, general basis including consumers of modest means. am i remembering that correctly or do i have the wrong? mr. quarles: you are. household borrowing is a low levels. senator toomey: so in addition

to the data we see in the headlines about literally record thisnemployment rates tremendous of growth and workforce participation the fact that there are more job openings than people looking for work the fact that wages are growing faster than they have in the long time in addition to all that and related to all the women we see that families and individuals balance sheet are in better shape than they have been in many years. i would say that is generally good news for an awful lot of americans, right? mr. quarles: i agree. senator toomey: let's talk about leveraged loans. there is no question that this has been a big increase, but is it true that a large majority of leveraged loans, whether they are through clos or otherwise, they are not actually on the balance sheet of banks, is that true? mr. quarles: that is correct, only about 12% of the loans

originated remain in the balance sheet of banks. senator toomey: and when you are thinking about systemic risk of our financial system and you think about a big hypothetical done price draft in an acid class like this, do you -- an assetds to be class like this, do you think it tends to be beneficial to stability of the assets are held by end investors who are not leverage themselves, or would you rather they be on the balance sheet of financial intermediaries like banks who find themselves with deposits? q fish know, it is better for: it is them to be held by end users or .ehicles have liabilities senator toomey: so the short version is the fact that these are held off the balance sheet

of banks and by investors other than banks is a significant reduction in the risk that we would otherwise have in the financial system? yes.uarles: the one addition i would like to that is that if, is that it is key that the holders of exposure to those stable holding vehicles, principally clos are themselves reliable institutions. domestically we have a good handle on that, i believe, but globally, we could do with more information. there is a significant amount of this exposure sold abroad. so what we are doing is try to get a handle on the international exposure. senator toomey: to other things and what to touch on, one for vice chairman perls. foreign banks have a very substantial, very constructive role in the banking system. they employ over 200,000 americans and make a good percentage of all commercial and

industrial loans. in pennsylvania would have a number of foreign owned banks that operate hundreds of branches and employ thousands of pennsylvanians and provide competition so my constituents have better choices in banking services. one of my concerns is that two otherwise very similar banks, similar in size, in the role that they play, one owned by a domestic holding company and one owned through an ihc, by virtue of its foreign ownership, might be different -- might be having different regulatory regimes. briefly -- could you comment on your thoughts on how we create a level playing field for this regulatory environment? >> you are absolutely right. the participation of foreign banks in our financial system has always been about 25% of it for all of our lives, it is very

important. it is important that they compete on a level playing field, that we give them a level playing field. we are obliged by law to consider national treatment, to give them a level playing field as we construct our regulatory positions. the proposals we have for foreign banks track very closely the domestic tailoring proposals. there are a couple of differences, and probably the largest is whether we look only or at consolidated u.s. operations in determining the size of the operation. we proposed that we look at the operationsidated es that we will consider comments as to whether we should do just that. theink that is certainly right starting place and probably the right place, but will consider comments otherwise. senator toomey: thank you, mr. chairman. chairman crapo: senator smith.

senator smith: thank you, mr. crapo and ranking member brown and the committee. i would like to talk about the community reinvestment act periodic senator toomey is talking about growth in wages and wealth in the united states, but i want to hone in on one thing, isn't it true that wealth for african-american families for example, that they have accumulated, several is a fraction of what we see nationally amongst the broad population? mr. quarles: yes, absolutely. separate smith so if we can that, we canss to improve their communities, and we know that the path to with that is homeownership and the toortunities for businesses grow. and this is true income common in these of color.

last week i was in minneapolis and talking to an african-american a small business owner who told me that if all african-american owned businesses but he knows, not a single one of them was it would've get a business loan without help from some nonprofit to augment their credit. the community reinvestment act is supposed to help us to ensure that banks are serving all-americans. , mr. ottingask you and mr. quarles, and ms. mcwilliams, as we think about s, will youe cra rule commit to not supporting changes to the cra rules that would reduce oversight over discriminatory lending practices and make it more difficult for people, for borrowers to access credit? importantobably the person to take the question on

the cra. the rewrite, partnered with with the fdic and the fed, we have ordered to do this. we have been on a 15 month journey to elicit feedback, the occ alone has gotten over a thousand people who have come in and talked to us about the cra. we also got 1500 comments in the anpr. the four areas were focused on in the cra rewrite is what statutes, historical limited small business revenue to $1 million so a lot of businesses are restricted by that. also, the small business could be utilized on a broader scale. what qualifies, second is where does it qualify? part of the issue is that when a bank chooses its assessment area, those cra activities only count in a small area. we are looking for ways to broaden this. on one side of the street for a particular bank it may qualify and for another side, it

doesn't, and they are still in the same community. the third thing is how do we measure cra? it is ambiguous among the three agencies and throughout geographics and, we are try to come up with a way to better cra.stand the if we were going to examine you for your capital and credit and not tell you what the criteria is after the exam, you would think we were nuts and that is what gets done with the cra today. we also don't have a mechanism to cut the cra activity being done in america today but i think we can do that with this rewrite. we will come and talk to you about where the growth of the cra has been across the nation. sen. smith: i look forward to continuing this with you. can you commit to not supporting changes to the cra rules that would reduce oversight in discriminatory practices? mr. otting: i absolutely can commit. en. smith: on monday, treasury secretary geithner and

former fed chairs bernanke and yellem, wrote a letter concerning stability of the oversight council to remove important designation from several large non-bank financial institutions. fsoc'sised concerns over approach to target risk activities rather than too big to fail institutions. one of the things they argued was that the revised approach being suggested could take six years or more to move through. i want to ask, would you agree that is the case, and how would that work, given that there is so much that can change in six years. quadrupled in size between 2002 and 2005. >> we have just received the letter, and we are looking at it. that theonclusion

designation process would take six years was highly dependent on a number of very contingent assumptions. sen. smith: based on their experience. mr. quarles: well, they didn't really have experience with an activities based approach, they were making assumptions. i don't think those assumptions are likely to obtain, at a think it would take that long, but we are still examining their analysis. sen. smith: i know i am out of tow time, but i request that thv introduced to the record. and i have further questions on the letter from dust for the rest of you following up. chairman crapo: without exception, thank you. senator mike sally. sen. mcsally: i represent arizona. in recent years, there have been challenges with legitimate businesses, family-owned businesses that have had their

accounts closed because of the anti-money-laundering and bank secrecy act and how it has been implemented. we had several roundtables and discussions with many of your agencies about this and it has really hurt our community. we have to stop the cartels and illegal cross-border money laundering, for sure, but we need to make sure the small businesses are protected to are doing legitimate commerce. at the request of senator mccain and senator flake, thegao did a study that was released last did a study that was released last year, and each of your organizations responded to that by saying that he would collaborate more with each other rules onure that the anti-money-laundering would be more tailored, to make sure that it is impacting illegitimate activities without hurting and closing legitimate businesses.

in each of you give me an update of what you have done since the report and what more there is to do, because this is really impacting my state. >> i can appreciate, being in california for some time and having similar issues. one thing i would advise is that this particular group meets once a month, our staffs meet once a items wed we have have focused on to bring clarity. the big lever to that, later this year we plan to introduce an examination manual. we are looking more to move toward a risk-based approach to where the process. i would assure you that it has our attention, not only from the standpoint of the way we execute it looks today, but what the future could look like and how technology will play a role. sen. mcsally: when you say later this year, can you give me a timeline? these businesses are waiting anxiously for some relief. mr. otting: it is an enormous

underwriting and there are dedicated resources but i cannot give you a particular date of i would be happy to keep your office uprise. but i do tell you that it has our attention. sen. mcsally: we are seeing that a lot of the larger banks, thederisking activity, they have not been willing to engage in these accounts, but it is the smaller banks coming in to help this community, and they actually have less resources for compliance. could provide some clarity to even those trends, or what else can be done. >> so i think the comptroller said quite correctly that we are all engaged in this together. his description of what we're doing is. joint activity. a significant part of this will be folks who aren't at the table, since then, and others who are responsible for the we are responsible for supervising and examining

against those regulations. we are working with them as well to try to reduce the burden associated with this, and increase its efficacy, because i think the modern day, the data analysis, we ought to be more effective. ms. mcwilliams: if i could add to that, in the past, the disconnect has been that regulations would be promulgated . that would be on the receiving end of those regulations. and for backers in texas and california, i heard about some of the issues, and we have brought in for the first time that organization to the drafting table as you look at the examination manual. these comments on regulations affecting community especially in the border regions. we hear them complain about how difficult it is to do what they need to do without cutting lawful access, and at the same

time, our hands are tied because regulations.d the so living in the organization to the table and engaging with them proactively, we believe we can come to a better outcome soon. i understand the urgency of this issue. >> i would add that credit unions are continuing to be more sa, weive with aml andb are also part of the working group that was mentioned. we haven't had any of our credit union members experience the closing of accounts that you limited of us. >> i should add, i should have brought this up, one thing we did earlier this year was that individual small bank had to resourceswn amlbsa and we agreed to have the bank's share those resources. the smaller banks will tell you that it was a huge relief because of the expense. sen. mcsally: thank you. chairman crapo: senator cortez masto. >> thank you for this hearing. communityback to the

reinvestment act, this is something i have been concerned about. mr. otting, i know this is something you are dealing with right now. i have been trying to ensure that we have reductions in place and they stay in place to ensure our financial institutions are providing credit in low income and moderate income communities. role of the occ to ensure that occurs, correct? >> yes it is. sen. cortez masto: we know that there is a wide gap between home ownership and african-american homeownership. african americans is slightly above 41%. you are in the process of reforming the cra. would you agree that any changes you make should not make that gap worse? >> i agree. sen. cortez masto: and to make those changes, you are receiving public comment to help as you

maneuver through this, to ensure the gap does not get worse, and you're taking this public comment into consideration, correct. correct. sen. cortez masto: and some of the public comment you may not agree with what you will take into consideration. >> i agree with most of it. sen. cortez masto: but you try to do the right thing and ensure that you are focusing on protecting against redlining, correct. >> correct. sen. cortez masto: this is the first time i have ever seen a regulatory body do this, i didn't understand why you are trying to silence public comment. you sent a letter to a california reinvestment coalition trying to quiet them. you did an op-ed talking about how some of the public comment you thought was not constructive and you were scolding them. to you not quite sure what purpose that serves and why? ms. mcwilliams:? mr. hood: we thought the facts should be accurately reflected in that particular organization regarding the spelling of false information. sen. cortez masto: item and

understand what the false information is? mr. otting: i would be happy to share that with you. sen. cortez masto: if they have concerns and their committee -- they are a community organization -- let me finish this, i only have five minutes. i appreciate you coming to talk to me about it. let me approach it this way. to ensure that these financial institutions are complying with the cra, don't you need to get input from the community and public comment to ensure they complying? mr. otting: that is why we met with 1000 separate organizations, got 1500 comics. when we compete the -- 1500 comments. sen. cortez masto: even when you not doing the public comment, don't you did community comment was the cra is -- let me ask you this. mr. otting: there are people around the united states that does outreach on a daily basis. sen. cortez masto: is a nature that the bank wants federal regulatory approval for a deal like a merger and when that goes through and in a community regulators consider the banks compliance with the cra, at that

moment in time, when that happens, and merges or car, you're going out into the community and getting community input, isn't that true? mr. otting: there is a "period where people are able to offer comments. sen. cortez masto: and it provides a basis for comminuted groups to comment and say whether or not they think those groups have complied within their community, correct? mr. otting: correct. sen. cortez masto: i am confused , why is the occ is talking examiners to investigate some of the claims separately rather than addressing them within the merger approval process? mr. otting: i think there is confusion on this topic, and it might be the same group who we wrote the letter about,. what we have done is taken. the issues we have provided to the examiners and that is done parallel with the licensing processes to allow them to analyze the validity of any claims. sen. cortez masto: what does it matter whether it is an

individual, or community groups, why are you trying to limit the comminuted groups's ability to provide that information? mr. otting: that is an inaccurate statement that we are doing any limiting. sen. cortez masto: there is a statement that has been made an activity to you, and it says -- i went through a very difficult period with some community groups that does not support our community when you were with onewest trying to merge with cit, you say they did not community, entities comminuted groups came in at the bottom of the ninth inning and tried to change the direction of our merger. so i have a very strong viewpoint. you have also stated that part of your marginalization plan is to prevent, needy groups from pole vaulting in and holding bank is hostage. that is why you are trying to prevent these groups from being able to provide cra input. is that true? mr. otting: those comments are accurate. sen. cortez masto: the comments are accurate? mr. otting: they reflect what i said. the reason was because we had overwhelmingly support in our

andunity for the merger, groups came from outside the community that had no input, no data, weren't familiar with our organization and tried to stop the merger. they have an open voice, i will never tried to quiver their voice, i just wanted to be an accurate process. sen. cortez masto: so you are telling me that the comments you made, that you just talked about, individuals from outside the community the california reinvestment coalition, they were not within that community? mr. otting: they were in northern california-based organization and we were a southern california-based bank. sen. cortez masto: my time is up, i will submit the rest of my questions for the record. thank you. chairman crapo: sen. tillis:. sen. tillis: thank you, mr. chairman. of the help that notice california blue tie you are wearing, can't be by accident. [laughter] thank you for being here. on the bank start merger discussion, it is important to me, and that is the bb&t and suntrust merger.

mr. quarles, we were talking about trying to compress the regulatory approval timeframe 117 days.ar were those calendar days or legislative days? [laughter] and what is the current status? we have done two hearings that i am interested in what more could be done and what the time looks like for anyone else who was to chime in, starting with you? mr. quarles: thank you. we just completed the second of 3, public hearings on may and we extended the comment period for public comments and we have received about 800 comments. we are in the process of both evaluating those and looking at the proposed merger in terms of both the statutory factors, and of the time frames in which we are required to consider them.

that.l proceed with the analysis, i can't say exactly how long it will take, we are proceeding with my time frames in mind and the statutory time frames in mind. sen. tillis: i think folks on the other side of the hill seem to be making comments that they would want to delay the merger. i just hope that we move expeditiously, and i trust you all to go through the proper process. mr. quarles: i would add that there is a very clear framework that has been imposed on us by congress. congress has had what we are to consider in connection with the merger, and the time frames we are to consider it in, and we will follow that congressional instruction. sen. tillis: thank you. we had a hearing on guidance, something that i think chair mcwilliams, you have done a good job looking at guidance in your lane and removing the

ones that simply didn't make sense or should have gone through the administrative act.dures we will start with you, since this is a think your first hearing since your confirmation. go down the line, and give me a quick update. >> in my want month -- in my one month on the job, we have been trying to ensure we are looking at guidance and not interpreting the rules. ms. mcwilliams: we have been able to retire close to 60% of our financial institution letters simply because they were outdated or duplicative. the agency did not archive old guidances, but now we do. also generally looking at role in in its proper our rulemaking process, it is not supposed to restate the law or make new interpretations to the law. sen. tillis: so you disagree with some supervisors who think that guidance can override statute? ms. mcwilliams: i tend not to comment on the fellow supervisors, but i will tell you that at the f.d.i.c., we have

taken this job very seriously because we need to stay within our lanes in terms of our legal interpretation. sen. tillis: i also wanted to bring up -- i will cover this through questions in the record, but mr. quarles. mr. quarles: so on guidance, we have issued comprehensive guidance on guidance, so we have in writing for all of our supervisory staff clear expectations but the guidance is not supposed to be use as a basis for enforcement actions, that it is guidance, and not a rule. i am not going -- i am going around to each reserve banks having town halls with all supervisors,, discussing the practices,ervisory ensuring that all supervisor practices are with our regulatory decisions in washington. think there is a really important question, drawing this line the chairman crapo refer to, comments i made on it earlier -- i think it is

incumbent upon the fed and all of us to think carefully in the way that has not been done in decades about where we are drawing the line between what can be accomplished through supervision, and what types of things have to be accomplished through regulation. and the due process requirements that apply to regulation under the initiative procedures act, we have not done a very good job of that over the course of the last decade, either at the side or the banking regulators, generally, apologies, but i think that some of the issues you and others on the committee have been raising have really thrown this question into relief and we are making it a high priority at the fed to think about that in an intellectual way in addition to dealing with some of the specific guidance questions. sen. tillis: if you could just let mr. otting respond to this question? mr. otting: i would echo randy's comments. we have issued guidance on

guidance, we have lots of training to reinforce the guidance and what it truly is, and i do see limited guidance being issued in the future. sen. tillis: thank you all. we will be sending questions for the record to all of you. -- chairman crapo: sen. menendez: riya sen. menendez: thank you. simple yes orh a no if you can answer it, if any congressional subpoena need subpoenaed you for information on deutsche bank or capital one, would you comply? >> i would have to talk with our lawyers, we have honestly worked well with the committee in the past, i realize this is a yes or no, but if it is legal, of course, we would comply. concur. sen. menendez: to financial institutions have to consult with you before complying with congressional subpoenas. >> i believe does we do have limitations on the ability of

financial institutions to share confidential supervisory information with anyone, i don't know if they are legally required, butter would expect that they would financially want to talk to us before sharing what they might think is confidential. sen. menendez: what about if it is not confidential supervisory information? mr. quarles: i don't think we would regret them to talk to us before sharing information that was not csi. mr. otting: same answer. aside from steps to predict confidential supervisory information, does not complying with congressional subpoenas create legal risk for banks? mr. quarles: it has been 20 years since i practiced as a lawyer i would think they ought to think about that question, yes. .r. otting: i agree the reason i ask is because last month the house financial services and intelligence committee subpoenaed both of these entities for records relating to president trump's businesses as part of their congressional duty

to conduct oversight and investigate potential money laundering and foreign influence in the u.s. political processes, and now, the court is being used to try to stop the banks to comply with that subpoena. i want to make it clear that having served in both houses, there should be no doubt about this -- banks and regulators have no excuse not to comply with a congressional subpoena. projecting subpoena power is critical so that congress can exercise its constitutional responsibility of oversight so that we can learn the truth and ultimately make policy choices to safeguard our economy and our country. ,nd i hope that that is the way if you are called upon, that you will act appropriately. in a hearing last year before the house financial services committee, you refuse to give a straight or no answer, when asked if he believed this cremation exists in america today. so now that you have -- believe

that discrimination exists in america today. now that you have read the public comments on your cra proposal including those by naacp, do you not believe discrimination exists in america? mr. otting: sen. menendez: mother was not my response. my response was that i did not -- sen. menendez: when that was not my response. sen. menendez: so i ask the question, does discrimination exist in america? mr. otting: the response i gave was that my in-laws are all first generation hispanic people in this community. black of mine from the community tell me it exists and they have asked interested, so yes, i do believe it exists in america. sen. menendez: thank you, am glad we got that far. chairman queenston and vice chair quarrels, because the community reinvestment act is at its core a reinvestment law --

in civil rights law, would you commit to getting support from the civil rights committee before issuing the rewrite of the cra? mr. quarles: i will take that first, we are certainly, the process we are undergoing is to ensure we have input from the civil rights committee and they have been very supportive of looking at making this regulation more effective. we have received a lot of support from community organizations, including civil rights organizations and really about the ways in which this regulation can be improved. ms. mcwilliams: i can attest that as i travel to different states, i try to meet with consumer groups especially in places where they are very active to solicit your feedback on any of the community needs as well as what needs to be done for the cra purposes. i met with a number of cdfis and cdcs to ensure their input is hard. sen. menendez: could you envision testing a rule where

the civil rights committee in unity was against the role called -- was against the rule? mr. quarles: if there was a unity of the affected communities in opposition to the rule, i think that would be surprising for us to approve the rule. sen. menendez: but if it happened, could you envision adopting such a rule? ms. mcwilliams: i have worked on some of their rulemaking in the past and it is almost never in a unity that one part of the ,ndustry or consumer community it is a hypothetical, but i would imagine that if there is strong opposition, we would make amends. sen. menendez: and hope you come up with a rule that ultimately has the support of the civil rights community, and i look forward to engaging without. thank you, mr. chairman. chairman crapo: senator warren. sen. warren: thank you, mr. chairman. in the past two years, we have

learned about one cubicle scheme after another in wells fargo. the bank scam customers by opening millions of fake accounts, it has unlawfully repossessed cars including cars that belonged to deployed servicemembers, a cheated thousands of their employees out of their hours and kicked hundreds of employees out of their homes in unlawful foreclosures. regulators, including your agencies, have food wells fargo over and over again to force it to stop scamming its customers. as i understand it, the occ alone right now has at least three open enforcement actions against the banks, controller g, on april 3, you told me that the occ was "disappointed with the wells fargo bank proposal under our consent orders." has the occ position changed in the last five weeks? not.tting: it has

sen. warren. so you are not alone in being disappointed by progress.o's chairman powell and others have made it clear that wells fargo has not cleaned up its act. but one big thing has changed, ceo tim sloan was finally clicke kicked out. so wells needs a new ceo. in a law that was passed in the wake of the savings-and-loan crisis in the 1980's, congress gave the occ the authority to examine the " competence, character" of any .eader of a bank in other words, the occ can effectively veto ceo candidates who don't pass muster. i recently ottinh sent you a letter about why theg, waved review in recent elements with wells fargo and

you responded yesterday that the agency was committed to conducting a review of the candidates for wells fargo ceo. exactly thebe review that congress gave you the authority to conduct? i just want to be clear. mr. otting: first of all, wells is currently not a troubled bank. sen. warren: i just want to know if you will conduct a review with the authority given to you. mr. otting: we will. sen. warren. because when you wave your examination -- when the examination, when you did it in the 2016 fake accounts settlement, the result was that tim sloan, a bank insider, complicit in the fake account scam, became ceo without a peep from the occ.

he also told me in your letter that you have decided you will treat the results of your review as confidential supervisory information, which means the review will be done in secret, behind closed doors, and never discussed publicly. comptroller otting, under the occ regulations, you have the discretion to disclose this supervisor information when it is "necessary and appropriate." will you commit to publicly disclosing the occ's evaluation of the "competence, experience, character or integrity" of the next wells ceo? mr. otting: i will not. sen. warren: why not? mr. otting: because it will be confidential. sen. warren. it is confidential if you make a confidential. mr. otting: at this point in time, i don't have plans to release that information publicly. sen. warren. why are you keeping it secret? mr. otting: as you indicated, it is my prerogative.

sen. warren. our job is oversight here, so i would like to know where you want to exercise your prerogative to keep secret the oversight that the occ has ducked repeatedly? mr. otting: no one has been more tougher on wells fargo the myself. sen. warren. that is a low bar? mr. otting: i wouldn't disagree, and a find that insulting that he would make that comment. sen. warren. good. people across this country were scammed and squeezed by wells fargo, their houses were taken away, their cars were stolen executives bank's were more concerned about making mountains of money than about following the law, and the occ never uttered a peep about their executives who were leading this. the occ blewett once by letting teams loan take over, this time, you need to show your work -- the occ blew it once by letting

tim sloan take over. this time you need to do better. mr. otting: i appreciate your request. chairman crapo: senator jones. sen. jones: thank you, thank you all for being sure today. withld like to follow up something senator moran said. i will be charitable and call it a question. like my friend on the other side of the aisle, i am also concerned about the future of rural america and agriculture. times as he said, is tough, the future is bleak, and the struggles of rural america are great and that is because agriculture has been victimized by nature and fluctuating markets can do what i would also add a couple of things, number one, it is not just natural disasters, it is congressional disasters, when we can't find congressional supplemental aid to help these people, and we can't put the congress, and administration cannot put their politics aside to get the aid to these farmers who need it

desperately. the other thing is the markets that are leaving because of the chinese tariffs. that is a huge problem. we can have wonderful relationships with bankers that will not do any good if we don't have crops or commodities, or markets to sell those commodities, and those relationships that strained mightily if the banker is sitting at a witness table at 83 41 bankruptcy hearing as a chief creditor for farmers. so there is a lot of reasons. i agree with senator moran about the relationship banking, i am a big proponent of that. now that i got through with my question on that as another moran did, i would like to ask a couple of easier once. -- the currentit expected credit loss model that is being considered, senator tillis: i and 15 colleagues in the letter expressing concern about that, i know you are

looking at that issue, and i am concerned about how credit will be available in downturns of the economy, and what i see often in congress and regulation is that it is the unintended consequences that are not adequately looked at. i would like to ask chairman andrles mcwilliams, if you can talk about that and make sure that is on your reader , and the fact that you are reaching out to institutions to get their concerns. mr. quarles: yes, senator. cecil is very much in our radar. we have received a broad range effectmates of what the of it would be, both its day one effect, increasing reserves, and what it's potential posted record effects would be. in industry's largest mall, from the accountants, academics,

staff, the assessments in each of those areas have been widely varied. what we have done, given that we don't actually control either the content of accounting standards or the timing of its implementation because that is be, we proposedos a phase-in process that will eventually hold the effective special effect of this will be phased in over time is of the way we will treat our capital , until we see exactly what the effects are from these widely varying estimates that have been made of them. and if we see some of these adverse consequences that have been proposed, we have the tools to be able to address them by adjusting other aspects of the regulatory system, to ensure it is not a burden on the banks. sen. jones: thank you. mcwilliams.

ms. mcwilliams: that is the number one question i hear from community banks as a trouble around the country. i am coming to alabama in august and i suspect that will be the first question they asked me. the issue is expected, the standard has changed. les said,hairman quar that organization is in charge of the roles and we have met with them to talk about concerns with the implementation and we are working with banks to make sure they understand how to comply. so long as banks have to follow the cap standards. sen. jones: thank you. i want to follow you with you, ms. mcwilliams, on an issue that is important to me, and that is getting a lot of bipartisan support. we have a problem in this country right now based on something that happened in the 1950's. so many people are getting excluded from being able to work in banks because of misdemeanor

convictions, criminal convictions that really have no -- tonce to the day today's world. i heard from one bank that they had to fire a customer service representative simply because they found she had a shoplifting .isdemeanor from 1972 i think there is just something fundamentally wrong about institutions being forced to let much less, keeping people out of that market at a time when we need to be inviting good people to join in. is this something you are looking at? something that any of you are looking at, particularly, mr. hood, i see that you are ready to answer, to see if we can get people into this and get rid of this arcane law? jones.rish yes, senator that is something that we are examining. one of the first votes i was in were cast was for someone who did have one of these convictions many years ago but she has now delivered to operate safely and started for the past two years and she now has the

authority and opportunity to work in a federally insured credit union. so the process does work. she served and paid her debts to society and we are happy to have her join or workforce. sen. jones: i may follow-up in writing. what i am looking at is what we can do to streamline the process. i know that you can get waivers, but that is a cumbersome process. that process alone has the chilling effect on the people applying. so i will follow up with you both on that since i am way over time. chairman crapo: there are a couple who have asked for a second round. i would like to finish by 11:30 in foot can. senator brown? ok, we have one request. so -- >> thank you again for your prey patients, all of you. it is not always an advantage to be able to talk to these hearings. so americans increasingly are

concerned for unarmed, or worse, about what is happening in industry after industry. you ask the flying public about airline consolidation and airline when ohio in cincinnati were victimized by airline mergers, it hurts public, thehe communities, and it is good for the executives typically. in big tech, we know the increasing problems there about data and privacy, senator crapo and i want to work on those issues together. we know what happens with mega , with problems in lake erie and others, problems in mega farms, how that pushes small farmers out.

i think the trump tariffs are part of it, how many small farms have gone out of business in the years.uple of are you in favor of the consolidation of the banking industry that will inevitably the list with a few large banks and fewer community banks? mr. otting: it is a long-term trend, i think what we are really try to do on the start up side of that is be very open to having de novos and .inority institutions sen. braun: mr. quarles? competition i think in the banking industry is good .s competition is everywhere we look at consolidation and try to ensure we are maintaining a competitive system. sen. braun: with all the brings.es that bigness

ms. mcwilliams: competition has been happening for decades, and we're looking at ways to enable smaller banks to compete so that the effect of consolidation on the industry in the market place and communities they serve is not felt as hard as it could be otherwise. sen. brown: mr. hood. mr. hood: i will be working with our leaders to see how we can reduce the regulatory burden on our smaller credit unions. we want to make sure they are able to grow, thrive, and serve their members. i am pleased to announce that i will be working on di nova credit unions, i am presenting a credit union charter to a native tribe of native americans next weekend. de novos do exist, and i look forward to seeing more of them. sen. brown: mr. vice chair, when we were debating 2150 five, chairman powell and others of the fed a short me that the law would change treatment of domestic banks but not how the foreign banks,

especially non-globally systemic banks. you announced your proposal and said "this proposal should look familiar because it shares the same basic framework of the domestic proposald." you know that foreign control banks will not treated equally. is it your view that foreign banks will see reduced regulation of their u.s. operations including u.s. operations of some globally systemic banks? mr. quarles: there will be changes in the regulations but there will be significant increases as well. the liquidity of crime is as a result of our proposal are almost 4% higher by our estimates as a result of this proposal. sen. brown: but aren't foreign banks that have hundreds of billions in global assets, you land on applying enhanced standards based on assets in the so as if that foreign bank

was comparable to huntington and columbus, with assets of more or less 100 billion? mr. quarles: we are looking at the risk of the u.s. operations to the economy, the u.s. economy , that is our obligation as regulators, but we donate ignore the fact that those -- usually ignore the fact that those operations are part of a global institution. we regularly engage with foreign regulators in their home country aspectsere are certain of the proposal that take into account the branch operations which are part of the global the united states, the way that would not be done for a domestic institution. sen. brown: bid 2155 require you to make those changes for foreign banks? mr. quarles: no. sen. brown: so you just wanted to do a favor for the foreigner bigger banks? last question, mr. otting, you

have said that anybody who feels that we are beginning the cra is misinformed or economically advantaged by the current structure. was a quote. does that mean you're saying that, ladies who have been victims of redlining and other discrimination are not smart enough to understand the benefit of requiring banks to lend? issues.ng: two separate people talking about guiding and reducing what banks have to do, all of us sitting here feel that banks need to do more, and that we need to give them the criteria to do that. that was what that quote was in regards to. sen. brown: ok, i will leave it at that. thank you to all four of you. chairman crapo: that concludes the questions. i will use my time for a second round to make an observation on a different issue. that is the joint efforts of senator brown that referenced

what he and i are engaged in, and data privacy and trying to resolve some of the issues of big data in the country right now. the banking community held a hearing to understand the european union's general data protection regulation and how individuals can be given control of their data, that is used in ways that have an immense impact lives.r financial earlier this month, the wall street journal reported that facebook is recruiting dozens of financial firms and merchants to launch a cryptocurrency-based immense system which comes after facebook last year asked u.s. banks to share detailed financial information about their customers. last week, senator brown and i wrote a letter to facebook asking questions about their new cryptocurrency-based system including questions related to privacy and consumer protections under this new payment system. consumer information collection and sharing, and use, as well as protection, and how

facebook ensures it is not using that information in violation of the fair credit reporting act. given facebook's reach to billions of active users, access to vast amounts of consumer information, engagement in financial services, like activities, and work with numerous financial service firms, it seems appropriate that the regulations would be appropriate, and that our federal financial regulators would understand the nature, needed to understand the nature of facebook's financial services activities and engage to ensure that it follows all applicable laws and regulations. so i just bring that issue to the attention of each of you as regulators. by the way, this does not apply just to facebook, the explosion of data collection, sharing, management and use going on right now that impacts specifically consumers and users of credit, and people engaging

in our financial sector is becoming ever larger. i appreciate the fact that senator brown is working with me together on this issue. it is a joint efforts to address how we need to deal with this issue. so i encourage you is or regulators to pay attention to this as well. we have the fair credit reporting act and other statutes that i think importantly necessarily raise questions about how we approach the appropriate oversight of what i will call big data and individual privacy. , our questioning and commenting is concluded. four senators who wish to submit questions for the record, those questions are due to the 22.ittee on may we ask that you respond as quickly as you can. i thank you all for your time

and your efforts to these issues, and the skewing his -- this hearing is adjourned. [chatter] >> here's a look at our live coverage thursday. the house is back at 10:00 for general speeches with legislative business at noon.

on the agenda is a bill to lower prescription drug cost and improve access to health care plans. on c-span2, the senate is voting on judicial and executive nominations including jeffrey rosen to be the next deputy attorney general. later in the day, massachusetts senator elizabeth warren holds a town hall in fairfax, virginia. on c-span3, house judiciary chair and vice chair lead a public reading of the mueller report with other house democrats. that starts with a news conference at 11:30 a.m. eastern followed by the full reading at noon which is expected to last throughout the day and evening. >> the complete guide to congress is now available. it has lots of details about the house and senate for the current session of congress. contacted via information about every senator and

representative. plus information about congressional committees, state governors, and the cabinet. the 2019 congressional directory is a handy spiral-bound guide. order your copy from the c-span online store for $18.95. senate judiciary chair lindsey graham has introduced regarding the u.s. southern border. provisions include requiring asylum requests to take place in the country of origin and expanding the time a migrant family can be detained together. he gave more details on the legislation at a news conference alongside u.s. customs and border protection's chief operating officer.