Waters Floor Statement in Opposition to Bill that May Threaten Community Banks

WASHINGTON, D.C. - Today, Congresswoman Maxine Waters (D-CA), Ranking Member of the Committee on Financial Services, gave the following floor statement in opposition to H.R. 4771, a bill that may promote bank mergers and acquisitions and decrease the number of community banks.

As Prepared for Delivery

Mr. Speaker, I rise in opposition to H.R. 4771, the Small Bank Holding Company Relief Act of 2018. This bill is another Republican-led measure to roll back appropriately tailored policies to regulate the financial services sector that ignores the hard-learned lessons of the catastrophic 2008 financial crisis. We’ve seen this same flawed approach in H.R. 10, which I call the Wrong Choice Act, last year. And, we are seeing it again in the Senate as it considers advancing Senator Crapo’s Wall Street giveaway, which includes a provision identical to the bill that we are considering today along with several other harmful provisions.

The Federal Reserve Small Bank Holding Company Policy Statement was first issued in 1980 to enable the transfer of ownership of small community banks by allowing small, non-complex bank holding companies to operate with higher levels of debt than would normally be permitted. The original Policy Statement established a threshold of bank holding companies with less than $150 million in assets but this level was increased to $500 million in 2006.

The Policy Statement allows certain small bank holding companies and savings and loan holding companies to hold more debt at the holding company level than would otherwise be allowed by capital requirements, if the debt is used to finance up to 75 percent of an acquisition of another bank. Put another way, the Policy Statement is important because it allows small institutions like community banks and minority-owned insured depository institutions to access additional debt so that they can continue serving their communities without compromising bank safety and soundness. Thus, it is important that the threshold level be carefully calibrated, so it cannot be abused by speculative investors. If the threshold is raised too high, it will encourage more mergers and acquisitions, riskier banking activities, and reduce a banking services and credit availability to rural, low-income, minority, and underserved communities.

In 2014, Democrats worked with Republicans to examine this threshold and reached a reasonable compromise to raise the threshold to $1 billion. This change was implemented only after closely consulting with regulators to determine the appropriate threshold level to help community banks grow without making them targets for mergers and acquisitions. The $1 billion threshold is sensible and reasonable in light of the Federal Deposit Insurance Corporation’s exhaustive study several years ago on the definition of “community bank.” While the FDIC factors in other considerations, their definition of a community bank includes a dollar threshold of banks with less than $1 billion in assets. According to 2016 data from the Federal Reserve, 87 percent of all bank holding companies are covered by the current $1 billion threshold. This means that a large majority of the industry currently benefits from the adjusted 2014 threshold increase in the Policy Statement, including all truly small community banks.

Furthermore, it is worth highlighting that the bipartisan compromise reached in 2014 included other important safeguards, such as excluding any bank holding companies and savings and loan holding companies with less than $1 billion that are engaged in significant nonbanking activities. It also gives the Federal Reserve the ability to exclude any bank holding companies and savings and loan holding companies from the Policy Statement, regardless of size, if it concludes that the exclusion is warranted for supervisory purposes.

But my colleagues on the other side of the aisle have not hesitated to try to push the threshold higher. Last Congress, just a little more than a year after a bipartisan compromise to increase the threshold, Republicans pushed through the House another bill, H.R. 3791, that would have significantly increased the threshold again from $1 billion to $5 billion. That bill faced a veto threat from the Obama Administration, as it should have, and it went nowhere in the Senate.

Then last year, Chairman Hensarling included a provision in H.R. 10, the Wrong Choice Act, to drastically raise the $1 billion threshold to $10 billion. And because the Senate now appears set to move a bill that raises the threshold but to nowhere near that level, we now find ourselves back on the floor of the House today, considering a new bill to triple the threshold from $1 billion to $3 billion.

While it is a slightly less drastic increase than the one in the bill Republicans pushed through the House last Congress, tripling the Policy Statement threshold to $3 billion so soon since the last threshold increase is still unwise. There simply has not been sufficient time to see what effect doubling the Policy Statement threshold from $500 million to $1 billion really means for community banks. Congress should at least examine the data and understand the effects of the last change before making another one.

We should not ignore the concerns raised by experts that this approach will allow small banks to take on more debt than they otherwise need, and may actually promote mergers and acquisitions so that we have fewer community banks, not more. While Republicans push bills like H.R. 4771 in the name of helping community banks, this is yet another proposal that will likely result in fewer, not more community banks. Even the Treasury Department under this President, President Trump, only recommended raising the threshold to $2 billion. So they are $1 billion beyond even what the President supports. That was in a report issued last year.

As I mentioned, H.R. 4771 is one of the many harmful provisions in Senator Crapo’s financial deregulatory bill that is advancing in the Senate. Senator Crapo’s bill also includes many other harmful rollbacks that would fundamentally weaken our regulatory framework. For example, the Senate bill would roll back certain stress testing requirements for megabanks, like Wells Fargo, and would exempt or weaken enhanced standards for many other of the largest banks in the country. The Senate bill also would gut enhanced prudential rules for foreign banks, like Deutsche Bank and Credit Suisse. The Senate bill would also eliminate a requirement that many banks collect and publicly report critical Home Mortgage Disclosure Act (HMDA) data. HMDA data is used for many important policy purposes, including to identify mortgage lending discrimination against African Americans, Latino-Americans and other minority groups. I could go on and on, but the list is longer than the time we have been allotted.

The bottom line is that I strongly urge my colleagues to reject H.R. 4771 and the other efforts by Congressional Republicans and the Trump Administration to deregulate Wall Street and the banking industry, and roll back the clock to a time not long ago when we had weak oversight and few safeguards that protect consumers, investors and taxpayers.

I reserve the balance of my time.

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