Houchin Grills Jerome Powell On 'Cumulative Effect' Of Basel III On Small, Community Banking Systems

4 months ago

During a House Financial Services Committee hearing prior to the Congressional recess, Rep. Erin Houchin (R-IA) spoke about the Basel III framework.

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00:00Next, a gentlewoman from the great state of Indiana, Congresswoman Houchin, is now recognized

00:06for five minutes.

00:07Thank you, Mr. Chairman.

00:08Thank you to the Ranking Member, and thank you, Chairman Powell, for coming to speak

00:12with us today.

00:13It's been a long day, so thank you for being here this entire time.

00:18One of the greatest strengths of our financial services industry is the diversity of our

00:22banking system.

00:23I know firsthand how important it is for us to maintain options and choice for Americans,

00:28whether it's somebody looking to open a savings account or take out a loan to start a small

00:33business.

00:34Increasingly, however, we have seen consolidation in the banking industry and increased difficulty

00:39for smaller financial institutions to survive.

00:43One of the reasons for this is an excessive regulatory burden that many of the smaller

00:48banks face.

00:49While this can come in the form of new proposals and adjustments to liquidity requirements

00:53or to things like Basel III endgame, it can also be due to outdated technological capabilities

00:59at the agencies and inefficiencies in and within the examination process.

01:05Chairman Powell, could you just talk about what steps the Fed is taking to upgrade technology

01:09and procurement procedures and update training practices to ensure that the banks that you

01:14regulate don't face unnecessary burdens?

01:18To your point, the number of banks in the country has been coming down for 40 years.

01:25There's consolidation going on for a whole range of reasons.

01:30We're not trying to foster that.

01:31We're not trying to push that.

01:33We're aware that high fixed costs from regulation may be one of the reasons for that.

01:38We do try to keep that in mind, particularly for the smaller institutions.

01:43On your question around IT and specific things, I might take an opportunity to come back to

01:50you with somebody who's closer to the specific supervisory practices.

01:55That would be great.

01:56That would be great.

01:57And just for reference, I was proud earlier this year to introduce a bill fostering the

02:01use of technology to uphold regulatory effectiveness in Supervision Act or the Futures Act.

02:08It's an important bill that would require our federal bank regulators to conduct an

02:11assessment to ensure that the technology and training systems they are using will improve

02:16and reduce the burden on our, especially on our smaller financial institutions.

02:21At the same time, the bill will strengthen the safety and soundness of our financial

02:24system by keeping our regulators up to date on the latest FinTech innovations.

02:30So I was glad to see that Act, the Futures Act move through the markup earlier this year.

02:34I certainly hope to see it come to a floor vote soon.

02:36Chairman Powell, in your comments yesterday in the Senate, you said Basel III will need

02:40a, quote, meaningful revamp.

02:43Before we proceed toward finalization of that rule, I was glad to hear you say that.

02:48Considering 97 percent of public comments on Basel III were negative, with 86 percent

02:53of that negative feedback coming from outside the banking sector, many of my colleagues

02:58here today have highlighted their own concerns with Basel III.

03:02Given the pressure that Americans are already facing with inflation and increased interest

03:06rates and housing market stalls, I would urge that you take a good, long look at the

03:11cumulative effect of this rule in context with the broader economy, our small and mid-sized

03:16banks, not just the larger financial institutions.

03:20Will a meaningful revamp include consideration of the hardships that overregulations cause

03:26for smaller financial institutions like those that are essential to rural communities like

03:31mine in southern Indiana?

03:34I think it will, yes.

03:36And are you concerned about the consolidation that we are seeing in the banking sector?

03:40I know you said it's been going on for 40 years.

03:44Does consolidation in the banking sector concern you, and are you concerned that the broader

03:48effect of cumulative rules is potentially leading to a further consolidation in the

03:55banking sector?

03:56Again, we don't want to be part of the reason for that consolidation.

04:00It seems to be happening, though, organically.

04:02We allowed interstate banking, for example.

04:05Also, I think for a long time the learning was there weren't a lot of economies of scale

04:10in banking.

04:11I think with all the technology costs, that old learning is now not really true.

04:18And so I do think, in fact, I think a lot of the sort of smaller regionals do feel that

04:24they need to grow to be able to compete with the larger regionals, and also the very largest

04:29banks are also present, as you well know, in many, many communities where they weren't

04:3430 years ago.

04:36So I think people are seeing a need for scale from a business standpoint, and I, you know,

04:40we don't want to push consolidation.

04:42I think we also don't want to stand in the way of it if that's what's necessary for banks

04:46to compete.

04:47I appreciate that.

04:48Thank you, Chairman Powell, again for your testimony.

04:50Our financial system is really the envy of the world.

04:54We need to make sure that small and growing institutions have the tools they need to innovate

04:58without any undue burden.

04:59I appreciate your emphasis on that in the meaningful revamp.

05:03Thank you, Mr. Chairman, and I yield back.

Houchin Grills Jerome Powell On 'Cumulative Effect' Of Basel III On Small, Community Banking Systems

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