Hearing Entitled: Make Community Banking Great Again

Committee on Banking and Currency

2025-02-05

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Source: Congress.gov

Summary

The House Financial Services Committee convened a hearing titled "Making Community Banking Great Again" to address the significant challenges and opportunities facing community banks . The discussions emphasized the vital role of these institutions in fostering local economic growth and explored various legislative and regulatory proposals aimed at supporting their continued viability .

Themes

Regulatory Burden and Decline of Community Banks

Many members and witnesses highlighted a significant decline in the number of community banks over the past few decades, attributing this trend primarily to an increasing regulatory burden . Since 1999, the number of FDIC-insured banks has nearly halved, with very few new charters being issued . Witnesses argued that these institutions often face the same regulatory requirements as larger, more complex banks, despite their differing business models and risk profiles . This disproportionate regulatory load, including high initial capital requirements for new banks and extensive compliance costs for existing ones, diverts resources from customer service towards legal and compliance activities . Specific regulations, such as the Dodd-Frank Act and the CFPB's Section 1071 rule for small business data collection, were frequently cited as major contributors to this problem, leading to increased costs, reduced lending, and privacy concerns . The outdated $10,000 reporting threshold for Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) laws was also criticized for imposing substantial, unindexed compliance costs on banks . However, some argued that regulations like 1071 provide crucial transparency, were mandated by law, and were already designed with exemptions and phased implementation for smaller institutions .

Importance of Community Banks and Proposed Reforms

There was broad bipartisan agreement that community banks are essential to the nation's financial system, serving as the "economic bedrock" of their communities, especially in rural and underserved areas . These institutions are vital for providing small business loans, agricultural lending, and personalized financial services that large banks often do not offer . To address the challenges, several reforms were proposed, including tailoring regulations to reflect the diverse risk profiles of community banks rather than applying a universal approach . Specific proposals included easing initial capital requirements for new banks, promoting legislation to encourage de novo bank formation, and streamlining the examination and merger approval processes . Emphasis was also placed on enabling community banks to innovate and engage in FinTech partnerships through clear regulatory guidance, and reforming the CAMELS rating system to enhance transparency and objectivity . Discussions also touched on the importance of extending tax provisions like Subchapter S election for community banks to support their profitability .

Concerns over External Economic and Political Factors

Some members expressed significant concern that external economic and political factors could negatively impact community banks and their customers . They highlighted the potential harm from proposed tariffs, the defunding of federal agencies, and issues surrounding Elon Musk's control over federal payment systems, arguing that such policies could increase costs for consumers, destabilize the economy, and make it harder for borrowers to repay loans . The crucial role of the FDIC and the need for robust deposit insurance were also debated, particularly in the context of recent bank failures and proposals to alter the FDIC's structure . Concerns were raised about the politicization of regulatory bodies like the CFPB, with some citing instances of perceived overreach and inconsistent application of rules .

Tone of the Meeting

The meeting reflected a deeply partisan divide on the specific causes of challenges facing community banks and the appropriate solutions, despite a shared appreciation for their importance [ 00:32:00 ]

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. Republican members consistently emphasized the need for deregulation and reduced government oversight, viewing these as essential for banks to thrive and prevent economic stagnation . Democratic members, conversely, frequently expressed skepticism about deregulation, warning against a return to conditions that led to past financial crises and stressing the importance of consumer protection and regulatory accountability . The discussion was often passionate, with strong critiques from Democrats regarding the actions and proposals of the Trump administration and potential issues related to Elon Musk's influence over payment systems . While there was a common goal to support community banks, significant disagreement persisted on how best to achieve it [ 01:12:47 ]

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Participants

Transcript

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The committee will come to order.   Without objection, the chair is authorized to declare a recess of the committee at any time.  This hearing is entitled Making Community Banking Great Again.  Without objection, all members will have five legislative days within which to submit extraneous materials to the chair for inclusion in the record.  I now recognize myself for a four-minute opening statement.   Welcome to the House Financial Services Committee's first hearing for the 119th Congress.  I'm delighted to serve as chair, and I look forward to working with my subcommittee chairs, Ranking Member Waters, and all the members of the committee to bring common sense back to financial and economic policy that will both foster prosperity and growth for all of our citizens.   That's the change that President Trump ran on, and that's what we're going to do in this committee.  It's been nearly 100 years since the House Financial Services Committee was chaired by somebody that had financial experience before their time in Congress.  Many of you know that I was a community banker before being elected to Congress, and I want to bring being a banker and business vision to the committee, and one of the key pillars of that vision is indeed to try to make community banking great again.   It's no coincidence that this is the theme for my first hearing of the chairmanship.  Most countries have just a handful of large national banks, but the United States has a large and diverse banking system with thousands of banks from small and regional institutions to global money center banks that all coexist and work together with each other to meet the capital access needs and depository needs of our Americans.   It's one of our great competitive advantages.  Alexander Hamilton, our first Treasury Secretary, himself said, banks are the nurseries of the national wealth.   When faced with unprecedented uncertainty during the time of the pandemic, it was our community banks that made an outsized share of the paycheck protection loans to small businesses, keeping millions of Americans employed.  Community banks know their communities best, and research shows that when they close their doors, Americans suffer.
Right now, our community banks are disappearing across the country.   Back in 1999, when I first founded my Arkansas-based company, Delta Trust and Banking Corp, the United States had over 8,500 FDIC-insured banks, including 190 new charters that year.  Fast forward to today, the United States has 4,000 banks, while only 82 de novo charters have been issued since 2010. 2010.   Small community banks and credit unions have suffered immensely under the regulatory requirements, forcing them to devote more and more resources to lawyers and check-the-box compliance programs instead of serving their customers.  Back in 1995, Arkansas had 251 banks.  Today, it's 77.  However, our local community banks and credit unions did not contribute to the financial crisis.   They've continued to serve the critical engines for local economies, despite being subjected to much of the same regulatory burden and regime as the largest, most complex institutions.  To form a new bank today, Americans must submit a multi-year, high-cost endeavor with several different federal agencies just before they can be considered to open their doors.   Initial capital requirements can be as high as $30 million in practice, making it nearly impossible to get started as an entrepreneur banker today.  One founder in Texas told me that regulators were asking him to propose $50 million in paid-in capital before he could open his doors.   Over the last year, I've met with bankers from across America, including in Arkansas, Texas, Ohio, Florida, Oklahoma, Louisiana, and elsewhere.  And these visits have reinforced my view that we're not doing enough to ensure that banks of all sizes remain competitive, both in their business model and in their ability to attract growth capital.   That's why last November I released my principles that we're starting to talk about today, making community banking great again.
30 plus reform ideas to enhance the ability for financial institutions to serve their customers, attract investment, and adopt and deploy technology and grow their communities.  I look forward to working with all my colleagues to in fact bring that to fruition.   I'd like to first have the ranking member and I visit about a point of personal privilege.  I want to acknowledge two staffers for their service on our committee.  First from the majority, Kim Betts and Larry Seyfried have done so much work   to make this committee strong and outstanding over the past few years.  Both are moving on.  Friday will be their last day with the committee.  Kim's been a key staffer here for the past six years.  She's been general counsel, policy director, deputy staff director, and staff director.  And Chairman Cole and Subcommittee Chairman Joyce have enticed her over to the House Appropriations Committee.  So she won't be going far, and I consider her a world-class double agent.   in appropriation, absolutely watching out for those of us on the authorizing committee.   Larry's been served as Director of Member Services and Coalitions during the 118th Congress, Deputy Director of Coalitions in this Congress.  His work to make sure our members and their offices get what they need to be successful has been integral to the success of our committee in the last Congress and this one.  So we've benefited mightily from Kim and Larry's leadership and hard work, and I want to thank you for your service to our committee very much.   And now I'd like to recognize my friend, the ranking member of the committee, the gentlewoman from California, for a point of personal privilege.
Thank you very much, Mr. Chairman.

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