June 15, 2017

Senate Banking Committee: Fostering Economic Growth – Midsized, Regional and Large Institution Perspective



Key Topics & Takeaways

  • Regulatory Thresholds: During the hearing, numerous Senators asked witnesses about the $10 and $50 billion regulatory thresholds for banks, and the impact that crossing these thresholds has had on banks and their ability to serve customers. Republicans (and most witnesses) generally expressed support for tailoring supervision to factors beyond total assets, including a bank’s complexity and operations. Of note, Ranking Member Sherrod Brown expressed optimism that the Senate could reach a bipartisan agreement on a modified regulatory regime for regional and smaller banks.
  • Comprehensive Capital Analysis and Review (CCAR): During the hearing, several witnesses spoke in favor of tailoring CCAR regulations to different banks, noting that compliance with CCAR is costly and that the stress tests themselves are opaque. Witnesses also said that the compliance costs for small and regional banks are not justified by the resulting financial stability benefits.



  • Harris Simmons, Chief Executive Officer and Chairman, Zions Bancorporation, on behalf of the Regional Bank Coalition
  • Greg Baer, President, The Clearing House Association
  • Robert Hill, Chief Executive Officer, South State Corporation, on behalf of the Midsize Bank Coalition of America
  • Saule Omarova, Professor, Cornell University Law School


Opening Statements

In his opening statement, Chairman Mike Crapo (R-Idaho) introduced the hearing by discussing how mid-sized financial institutions are often subjected to rules designed for large, systemically important banks. Crapo described this regulatory regime as “insufficiently tailored” for many firms, and pointed to the Comprehensive Capital Analysis and Review (CCAR) stress test as an example of a costly regulation that is applied to institutions regardless of the risk a given institution poses to the economy in the event of failure. Crapo named the Volcker Rule as an additional example of regulatory overreach. Crapo praised the Treasury Department’s recent report on financial regulations for identifying ways to improve the bank regulatory regime, and reiterated his hope that the 115th Congress will pass a bipartisan bank reform legislation.


In his opening statement, Ranking Member Sherrod Brown (D-Mass.) discussed the impact on homeowners of the 2008 financial crisis, and put the blame for the crisis squarely on “Wall Street banks.” Brown then pivoted to express optimism for agreement on a “modified [regulatory] regime” for regional banks, and praised regulator-led steps to tailor the burden of stress testing, living will, and liquidity requirements for small and mid-sized banks. Brown expressed a desire to make the oversight regime better for these banks if systemic soundness and consumer protection were not weakened.



Harris Simmons, Chief Executive Officer and Chairman, Zions Bancorporation, on behalf of the Regional Bank Coalition

In his testimony, Simmons introduced Zions Bancorp and explained its business model, which relies heavily on commercial lending. Simmons said that Zions is the smallest of all the banks that surpass the $50 billion systemically-important financial institution (SIFI) threshold. Simmons said that the regulatory regime for banks over the $50 threshold, particularly CCAR regulations, has been costly to comply with. Simmons also discussed the problems raised by lack of coordination from regulators, who sometimes conflicting objectives.


Greg Baer, President, The Clearing House Association

In his testimony, Baer began by arguing that if the Senate Banking Committee is “serious about encouraging economic growth” it cannot exclude large and regional banks from any regulatory reform legislation. Baer conceded that community bank relief is warranted but pointed to the size and importance of loans from large banks to businesses and households as reasons for providing broad regulatory relief. Baer also discussed findings assembled by The Clearing House that showed the importance of large institutions to the broader economy and the negative impact of post-crisis regulations on businesses and homeowners. Baer specifically criticized CCAR for imposing higher capital requirements on residential mortgage-backed securities than internal bank models indicate is necessary, as well as bank regulations that have had negative consequences in capital markets and limits on leveraged lending.


Robert Hill, Chief Executive Officer, South State Corporation, on behalf of the Midsize Bank Coalition of America

In his testimony, Hill introduced the Mid-Size Bank Coalition of America (MBCA). Hill said that members of the MBCA generally have between $10-$50 billion in assets and are often the largest local bank serving their communities. Hill then discussed South State Bank’s experience crossing the $10 billion threshold, which resulted in markedly higher regulatory costs despite the bank’s business model – deposit retention and household/small business lending – remaining unchanged. Hill criticized the regulatory framework for relying on asset size to determine regulatory regime instead of relying on risk and business models.


Saule Omarova, Professor, Cornell University Law School

In her testimony, Omarova said the “banking industry is waging a massive campaign to roll back the Dodd-Frank Act” and the entire regime of post-crisis systemic risk regulations. Omarova expressed disbelief that Dodd-Frank regulations are hurting small business and household access to capital, and said that large banks are aligning themselves with small and mid-size banks to get “sympathy” from the public. Omarova said that any regulatory rollback will primarily benefit larger banks, which she claimed was so that they could continue to speculate in secondary markets. She closed by criticizing specific bank reform proposals, such as creating a more transparent CCAR process and for having the Financial Stability Oversight Council (FSOC) apply the SIFI designation on a less frequent basis.


Question and Answer

Regulatory Thresholds

Senator Tim Scott (R-S.C.) asked Hill for an overview of how the regulatory burden on South State has changed now that the firm has surpassed the $10 billion asset threshold. Hill said that his bank closed many branches to pay for new compliance staff, and that compliance now takes more board and management attention. Hill said the impact of the new regulations was particularly severe on communities with limited banking options, as large financial institutions do not have retail locations in many towns. Senator John Kennedy (R-La.) asked about the growth of South State’s compliance department, and Hill said the bank’s compliance staff grew “tenfold” as a result of the $10 billion threshold.


Senator Thom Tillis (R-N.C.) expressed support for tailoring the regulatory burden on financial institutions to the systemic risk an institution’s failure would pose to the broader financial system, instead of being tied to assets. Baer agreed, saying that regulators should look at how institutions are funded as well as their resolution regime. Senator Tom Cotton (R-Ark.) said the $50 billion threshold felt “arbitrary” and asked witnesses for their view on how regulatory thresholds should be set. Hill defended a risk-based approach, as systemic risks only come from the largest institutions, and argued against applying the same regulatory regime to the largest institutions as well as banks near the $50 billion threshold. Hill also said that business models should influence regulatory regime, as banks with large trading operations take on more risk than traditional depository institutions. Cotton closed by calling for size to be one part of the regulatory regime, but for regulators to also weigh other criteria when assessing systemic risk.


Senator Elizabeth Warren (D-Mass.) began by confirming with Simmons that Zions Bancorp would face a lower regulatory burden if the $50 billion threshold was raised. Warren then noted that Simmons testified before the House Financial Services Committee in 2006, and in that testimony criticized federal regulatory guidance that would have penalized banks with a high concentration of commercial real estate loans. Warren excoriated this previous testimony, particularly his observation at the time the banking industry was “particularly healthy.” Warren noted both that Zions Bancorp received $1.5 billion from the Troubled Asset Relief Program (TARP) and that banks exposed to commercial real estate failed at a much higher rate during the crisis than banks without real estate exposure. Warren closed by defending the $50 billion threshold level.


Crapo noted that in recent years, several federal regulators, including Federal Reserve Chair Janet Yellen and former Federal Reserve Governor Tarullo have commented in favor of changing the $50 billion threshold level. Crapo asked witnesses for the economic impact of such a change, and Simmons said that the threshold has disproportionately hurt banks near the threshold level, and that the eliminating the overlay of regulations would make it easier to do businesses.



Tillis asked witnesses for ideas on how to reduce the compliance burden and improve the efficiency of bank stress testing. Baer argued that bank CCAR submissions should be tied to complexity, and that banks should be given broader leeway to use internal models, which are more detailed than regulatory models. Hill argued that smaller depository institutions should not be subject to complex stress tests, as their simpler balance sheets combined with Basel’s capital rules provide are more reliable defenses than CCAR’s “theoretical analysis.”


The Volcker Rule

Brown asked Omarova if the repeal of the Volcker Rule (in addition to repeal of certain capital regulations) would lead to more business lending. Omarova said it would not, and that any rollback would encourage banks to take risky bets to chase investment returns.


Consumer Protection

Senator Joe Donnelly (D-Ind.) asked witnesses about legislation he had introduced that would raise the asset level for banks subject to CFPB examination from $10 billion to $50 billion, and if that legislation would help them serve their customers. Hill argued that it would, and that the regulation of consumer protection rules should be left with a bank’s primary regulator, the Federal Deposit Insurance Corporation (FDIC).


Senator Catherine Cortez Masto (D-Nev.) used her time to argue for pairing consumer protections with any bank regulatory relief package.


For more information on this hearing, please click here.