Raising Consolidated Assets Threshold Under Small Bank Holding Company Policy Statement
Floor Speech
Mr. Speaker, we are now considering a bill that not only could put our community banks at risk, but strikes at the heart of why compromise in Congress can be so challenging.
H.R. 3791 would direct the Federal Reserve to raise the asset threshold under the small bank holding company policy statement, allowing small banks and private equity firms to take on additional debt for mergers and acquisitions. The threshold would be increased to $5 billion in consolidated assets from $1 billion. Let me stress that this would be 5 times as much as the current threshold and 10 times as much as the initial level that was in place before a bipartisan compromise was enacted last Congress.
The small bank holding company policy statement is important because it allows small institutions, like community banks and minority-owned depositories, to access additional debt so they can continue serving their communities. However, it is important that this threshold is carefully calibrated so it cannot be abused by speculative investors.
If the threshold is raised too high, it will have the opposite of the intended impact. It will lead to mergers and acquisitions, riskier banking activities, and a reduction in banking services and credit availability to rural, low-income, minority, and underserved communities.
Indeed, Democrats and Republicans on the Financial Services Committee worked together just a little over a year ago to provide relief to almost 5,000 community banks by doubling the asset threshold under the policy statement to the current level of $1 billion from $500 million in assets. We did so after working closely with regulators and determining that $1 billion was the most appropriate threshold to help community banks grow without making them targets for mergers and acquisitions. At $1 billion, the policy statement covers 89 percent of banks in the country, providing relief to the vast majority of community banks and minority-owned depository institutions.
I am trying very hard to understand why my colleagues are reneging on that compromise and undermining the careful, considerate policy that we enacted. The administration has threatened to veto this measure because of the potential danger to our smaller banks and to the communities they serve. They have called this bill an unnecessary and risky change because we know what will happen if the Federal Reserve has to make this change.
For one, raising the threshold would have a serious impact on the consolidation of community banks. The majority purports to be concerned with consolidation in the banking industry and the disappearance of community banks.
This bill will all but ensure that larger banks and investors come in and purchase smaller banks and then cut branches in the communities that need them the most. We have already seen this happen with banks across the country, both large and small, that have been forced to shut down hundreds of branches because investors and shareholders demand higher and higher returns.
I supported the change we made last year to $1 billion because it would help ensure that small community banks are able to continue serving their communities. That is the point of the small bank holding company policy statement. We must help our communities retain access to local banks that know the specific needs of their consumers and small businesses.
This bill would do the opposite. Even those that did survive wouldn't be able to provide the same personalized service because of their size. I am particularly concerned about how this would impact our underserved communities.
Another problem with this legislation is that it would allow banks with as much as $5 billion in assets to operate under lower standards and less oversight by regulators. Many community banks failed during the 2008 financial crisis because they became overleveraged. Certainly, if a bank makes bad decisions in the amount of risk they take on, then it is appropriate to let it fail, but the failure of any bank, and especially a bank with up to $5 billion in assets, has a tremendous impact on the community it serves and on the Deposit Insurance Fund.
At the end of the day, more bank failures will increase premiums for all the banks protected by the Deposit Insurance Fund. We cannot allow reckless behavior that benefits investors and bank shareholders at the expense of small banks and the communities they serve.
Mr. Speaker, H.R. 3791 is not a small change. It is a risky move that threatens both bipartisanship and these already polarizing times, as well as the safety and soundness of our community banks and the customers they serve.
I urge my colleagues to join me in voting ``no'' on this bill. Mr. Speaker and Members, allow me to reiterate the point. We worked very hard in reaching across the aisle, in making compromise, in making commitments to each other, and in agreeing that we would raise the asset limit from $500 million to $1 billion. We had that agreement, and before the ink was dry on the deal, here we have a bill that says: So, we really didn't mean it. We want to raise it to $5 billion. Ha, ha, ha.
People wonder why we don't compromise more, why we can't get together more, why we can't understand what is in the best interests of all of our constituents, to put aside our differences, and work on behalf of those people we say we care about. The other side claims it cares about community banks. Then why would it renege on this agreement? If it cares about community banks, why would it put them in the position of being bought up by private equity firms and special money interests, which only want to find a way to make more money and more profit by closing down branches and firing people? That is what they do. When these private equity firms come in, they borrow a lot of money in order to make these kinds of purchases. Then guess what? They have to take the money back. So guess who are the victims of this kind of agreement? They are the small banks and the constituents.
While my chairman--a gentleman whom I like very much and get along with very well--opens with statements that have nothing to do with this bill and while he talks about the plight of those in our communities who are suffering, let me tell you why they are suffering not only in his community but in communities across this country. It is because in 2008, we had a subprime meltdown and a crisis that was created by these kinds of reckless public policy attempts. We discovered that, because of all of the exotic products and all of the recklessness of some of the big banks and others, we put our people at risk, and we put our constituents at risk. Guess what? They lost their homes. Many of them are homeless and are on the streets now. Many of them cannot afford the rents that have risen because of the crisis that we have come out of.
If you really want to help small banks and community banks and if you really want to help your constituents, you will not be for a bill like this one. This only puts them at risk. I ask my colleagues to vote ``no'' on this bill.
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Ms. MAXINE WATERS of California. I yield myself such time as I may consume.
Mr. Speaker and Members, my friends on the opposite side of the aisle, who have brought this bill to the floor, claim they care about community banks, even when we know this bill will just result in more consolidation among small financial institutions.
Just yesterday the Republicans repealed the mechanism by which we would wind down systemically important firms. This puts us back to the days of September 2008, when our largest financial institutions could not only threaten the entire economy, but also the stability of our community banks.
Remember that when Wall Street banks cratered our mortgage system, they devastated the entire economy in ways that damaged not just workers and borrowers, but also small financial institutions.
Republicans, likewise, later today will repeal the independent funding for the Financial Stability Oversight Council, our regulator expressly charged with examining the largest, most interconnected, most complex, Wall Street firms.
Again, the Republicans want the biggest players to escape scrutiny, thereby threatening our smaller community institutions.
Republicans also have failed to put forward credible housing finance reform. Recall that in 2013 the chairman brought up his PATH Act, which would have all but excluded small banks and credit unions from the secondary market, especially handing the keys to our mortgage markets over to the largest Wall Street banks.
By eliminating Fannie Mae and Freddie Mac, community financial institutions across the country would have had mortgage lending come to a halt.
Finally, remember that Republicans are willing to hold our government hostage over favors that help the largest banks and only expose our community financial institutions to more risk.
We need not go too far back to remember the 2014 fight over the government spending bill, where Republicans were willing to risk a government shutdown in order to repeal Dodd-Frank's swaps pushout rule, which would have required our largest banks to separate their riskier derivatives activity from the accounts holding depositors' money.
Let us be clear. My chairman has said over and over again, and never fails to remind us, that he hates Dodd-Frank. He wants to get rid of Dodd-Frank reforms. He said he would do anything to get rid of Dodd- Frank and the reforms that were put in place by the Congress of the United States and signed by the President.
He forgets what happened in 2008. He forgets the meltdown. He forgets the risk. He forgets about the almost depression that we found ourselves in.
He does not want to strengthen the hand of regulators. He does not believe that our regulators should have on their agenda consumer protection.
That is why, in all of this struggle, whether it is talking about the small banks or--you should hear him on the Consumer Financial Protection Bureau. He hates that Bureau, and he wants to dismantle that Bureau because they do not want regulations, really, for the biggest banks in this country.
Oftentimes, what they are doing is they are benefiting the big banks, but they are making it look as if they are benefiting the smaller banks. So we have to push back very hard on these attempts.
Moving from $1 billion to $5 billion is an absolute unraveling of our agreement. It is wrong to work so hard with the opposite side of the aisle and come to an agreement, only to have them renege on it.
But, in the final analysis, it is because they would rather put their influence and their time in on what amounts to helping the big banks and not the small banks and forget about what this does to our communities.
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Ms. MAXINE WATERS of California. Mr. Speaker, I reserve the balance of my time.
Mr. Speaker, I would like to set the record straight. I have in my hand a statement from United States Senator Sherrod Brown. It is a statement on House Bill to Alter Federal Reserve Small Bank Holding Policy Statement. U.S. Senator Sherrod Brown, ranking member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, issued the following statement today on legislation--that is this legislation, H.R. 3791--that would increase the asset threshold for the Federal Reserve small bank holding company policy statement: ``I understand that proponents of H.R. 3791 have mentioned a similar provision that I included in a larger bill in 2013 as somehow relevant to the current debate before the House of Representatives. It might be relevant if the House was also engaged in a real effort to address too big to fail, and it might be relevant if time had stood still. But since 2014, Congress and regulators have provided significant regulatory relief to community banks and raised the threshold of the small bank holding company policy statement to $1 billion. Raising the threshold to $1 billion was where Congress, regulators, and stakeholders could find broad bipartisan consensus on this issue, and I support that. I do not believe we should take further action to raise the threshold, and it is wrong to suggest otherwise.''
So, ladies and gentlemen on the opposite side of the aisle, don't use Sherrod Brown's name one more time because this statement puts that to rest. He is not in support of raising this threshold to $5 billion.
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Ms. MAXINE WATERS of California. Mr. Speaker, I reserve the balance of my time.
On Tuesday in the Committee on Rules, I reminded Members that I came to the Committee on Financial Services--it was known as the Banking Committee back then--in the wake of the savings and loan crisis. One of the biggest lessons I took away from that time was that we must be precise when we mandate changes to bank safety and soundness rules, even when our intent is to help community financial institutions.
Congress' intent may have been to help savings and loans serve their communities, but by not being measured and considered in its actions, Congress transformed the savings and loan industry into one that serves speculative investments and irresponsible CEOs.
That recklessness led to a banking crisis that brought down more than a thousand institutions, cost taxpayers more than $120 billion, and robbed many communities of access to affordable banking products.
As I have said, it is important that the small bank holding company policy statement threshold is carefully calibrated so it cannot be abused by speculative investors. If the threshold is raised too high, it will have the opposite of the intended impact. It will lead to mergers and acquisitions, riskier banking activities, and a reduction in banking services and credit availability to rural, low-income, minority, and underserved communities.
That is why 2 years ago I worked diligently with my Republican counterparts to pass a bill that raised the threshold to $1 billion in assets, providing additional funding resources to 89 percent of the banks in the United States. That was smart, bipartisan legislating, a decision that we came to after consulting the regulators, researching the industry, and carefully considering the ramifications of the proposal.
In addition to that bill on the small bank holding company policy statement, I and my fellow Democrats in both the House and the Senate also introduced comprehensive legislation that would reduce compliance costs at community banks. We introduced this legislation, which included carefully targeted reforms that would allow small banks to thrive rather than encouraging consolidation, as this bill would do.
Our support for small institutions is also why my fellow Democrats and I have been supportive of the Consumer Financial Protection Bureau, which has used SMART data analysis to thoughtfully calibrate their rules for the needs of small banks.
We often forget that in the run-up to the crisis, many small banks were pushed out of the lending business by unregulated, nonbank lenders. The CFPB has now created an even playing field, and small banks and credit unions are a bigger share of the mortgage market now than they have been in years.
Carefully considered reforms provide relief to community banks without creating unintended consequences in a complex financial system with many players. Unfortunately, the legislation before us today would, as my friends across the aisle say over and over again, hurt the people it is trying to help.
After we worked in good faith with Republicans to come up with a smart, targeted reform, we are now attempting to use this issue as a political wedge. It is exactly that kind of thinking that set the groundwork for the savings and loan crisis and left thousands of communities without access to banking services.
I would urge my colleagues to oppose this bill.
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Ms. MAXINE WATERS of California. I would just like to point out that here is a Democrat on this side of the aisle who is offering to the Republican side to support the idea that you would raise the asset level for these small banks if only you would support minority banks, if only you would have a plan for CRA, if only you would do the right thing, if you care about the constituents, and they are rejecting it.
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