House Republicans heard calls from banks to eliminate the "management" component from the CAMELS bank stability rating system during a blustery Tuesday hearing on bank regulation and oversight.
On Tuesday, Republican lawmakers repeatedly called for "tailored" regulations, a widely held goal of ensuring that regulatory burdens increase with a bank's size and complexity.
During a House Financial Services subcommittee hearing titled, "Regulatory Overreach: The Price Tag on American Prosperity," Republican lawmakers sought to address the thorny issue of one-size-fits-all bank regulations, claiming that community banks are burdened by regulations that lump them in with too-big-to-fail financial institutions.
Rep. Andy Barr, R-Ky., the chairman of the Subcommittee on Financial Institutions and Monetary Policy, treaded familiar ground by bashing the Biden administration, the Dodd-Frank Act and climate change policies.
Barr said financial regulators should use "objective, risk-based metrics in their examination process," and he specifically called out the "abuse of the management component" in CAMELS ratings, the supervisory system that assesses the health of banks based on six key factors: capital adequacy, asset quality, management, earnings, liquidity and sensitivity to market risk.
"We've heard from community bankers across the country about the inconsistency and lack of clarity in the supervision and examination framework being driven by partisan bureaucrats in Washington," Barr said at the two-and-a-half-hour hearing. "Rather than our prudential regulators working alongside supervised institutions to ensure compliance, we've seen a shift to promoting agendas such as climate related finance."
Under the Trump administration,
Sarah Flowers, senior vice president and senior associate general counsel at the Bank Policy Institute, suggested that the "management" component should be completely eliminated. Already the Trump administration has acceded to the demands of big banks by having the
"Removing or replacing the management component would help limit the assignment of unsatisfactory CAMELS ratings to institutions in poor financial condition, and better reflect that a bank should be considered well managed if its management team is appropriately managing the risks that matter most," Flowers said. "Because the exam process remains confident of public scrutiny, the ratings frameworks themselves provide no meaningful standard to govern their use or misuse."
House Financial Services Committee Chair French Hill, R-Ark., asked one of the witnesses if the FDIC's appeals process lacked independence and contained inadequate oversight. He said that in some cases state bank commissioners are advocating to overrule FDIC examiners.
"The appeals process is clearly broken," said Meg Tahyar, head of the financial institutions group and a partner at the law firm Davis Polk & Wardwell, in response to Hill's question.
While "many examiners do a great job," Tahyar said, the internal appeals process is flawed because it involves senior personnel overseeing disputes rather than a neutral oversight body. "Appeals should be rare but fair," she added.
Republicans have proposed the Fair Audits and Inspections for Regulators Exams Act, known as the
Meanwhile, Democrats on the subcommittee criticized President Trump's tariffs, economic policies, and attempts to dismantle the Consumer Financial Protection Bureau through
Both sides appeared to talk past each about completely different issues. Republicans primarily asked about community banks being overburdened by regulations, questioning three of the four witnesses at the hearing including Tayhar, Flowers and Michael Radcliffe, CEO at $1.5 billion-asset Community Financial Services Bank in Benton, Ky.
Democrats mostly directed their questions to Graham Steele, an academic fellow at Stanford Law School's Rock Center for Corporate Governance, and a former assistant secretary for financial institutions at the Treasury Department under the Biden administration.
Steele provided a counterweight to Trump's policies.
"The Trump administration's plan is clearly to cut — whether by legislation, regulatory action or staff attrition — agencies that oversee the financial system," Steele said, adding that several of the bills Republicans are promoting were "short-sighted and self-defeating."
"These bills, which are ostensibly about executive branch accountability, fail to address the most pressing issue of the day, which is that this administration is running roughshod over traditional notions of financial agency independence and respect for the separation of powers," Steele said.
He and Democratic lawmakers cited the
Rep. Bill Foster, D-Ill., the ranking member of the subcommittee, asked Steele how the CFPB would function with a 70% funding cut.
"You cut the CFPB by that much, and it's going to be basically non-functional," Steele said. "It's not going to be able to handle consumer complaints in the way that it does. It's not going to do exams, supervision, or enforcement. You'll have the shell of the CFPB."
In addition, Rep. Maxine Waters, the ranking member of the House Financial Services Committee, said she was troubled by what she described as President Trump's "corrupt cryptocurrency activities while he is supposedly running our country."
She cited
