'Do You Have A Concern?': Lankford Asks Treasury Nom About Lowering Small Banks' Leverage Ratios

5 months ago

During a Senate Finance Committee hearing in July, Sen. James Lankford (R-OK) asked Jonathan McKernan, President Trump's nominee to be Undersecretary of the Treasury, about lowering leverage ratios for community banks.

Transcript

00:00Inford is next. Thank you. Gentlemen, thank you both. This is a tough process to be able to walk

00:06through and so I appreciate you stepping in to be able to to be able to do this. Mr. McKernan,

00:12I want to be able to start with you. I have a lot of community banks that are in my state.

00:17It's incredibly important for the small businesses in our state to have access to capital,

00:21but the capital requirements are different for community banks than they are for big banks

00:26as far as their leverage ratio. There's a standard between 8% and 10% leverage ratio for community

00:33banks. They sit at 9% right now. During COVID, it was 8%. They all did fine during that time,

00:38during that stress time on it. It would open up access to a lot of capital for that leverage

00:43ratio to go to 8%, which is allowed and it still doesn't equal what the big banks leverage ratio

00:49is. They've got even more generous leverage ratio. So what I'm trying to figure out is to get greater

00:54ability for community banks to be able to thrive, make loans to small businesses in their communities.

00:59What's your concern on something like that or do you have a concern?

01:02No, Senator, no concern. I think you've raised an important issue here. Obviously,

01:07the banking agencies will have to make the decision on whether to revisit the community bank leverage

01:12ratio. But from a Treasury perspective, if I'm confirmed, I would certainly be advocating for

01:16a fresh look at this issue. As you say, we've really got to have a financial regulatory system

01:22that preserves a central role for community banks in the financial system of the future. And this

01:26may be one change we can make to facilitate that. That'd be helpful. So community banks are always

01:30afraid of growing. And it drives me crazy that we've literally got a cap on certain businesses,

01:37banking, to say, if you grow too much, then we're going to find ways to be able to punish you with

01:42more examinations and try to be able to literally slow it down. So a lot of our community banks,

01:47when they start growing it, they begin to approach 10 billion. They know they're about to get a bank

01:51examiner living full time in their bank because of the rules. Again, these are discretionary rules.

01:56That 10 billion number was set a long time ago for being a big bank examiner. So if they want to

02:02keep an examiner full time out of their bank on it and have a whole department that has to open up

02:06based on that, they need to be smaller on it. I just think that's a problem on it. Again, I'm not

02:11going to ask you to commit to that, but I think it's something we need to be able to look at.

02:15One of the things I do want to be able to talk about is in the last two decades, thankfully,

02:18we've not had a lot of bank failures. We continue to have strong banks around the country. But just

02:24a few years ago, under the Biden administration, when Silicon Valley failed, they had a full coverage

02:31for that, everything. But at a small bank in Oklahoma that failed, and they said, tough luck.

02:38And it became clear that if you're well connected to the administration, they're going to make sure

02:43all your folks are covered, including Chinese investors that were in Silicon Valley. But if

02:49you're a bank in Oklahoma, it's a different standard. What that creates is instability across

02:53the country, where businesses don't want to invest in community banks because they don't know whether

02:58they're going to be made whole like it is on regional banks or a big bank. So you start pushing

03:03capital out. You know this well. We've got to figure out a way to be able to find some system

03:08under FDIC to give stability to communities and community banks and small grocery stores and

03:15churches and those folks that put their dollars there to be able to know that uninsured or

03:20non-interest bearing accounts are still going to have some kind of coverage there. So we don't have

03:26a flea capital there. How do we solve that? Senator, this is an issue, I think it's fair to say,

03:32near and dear to the secretary's heart. You're absolutely right. There is, I think, a market

03:39perception, contrary to law, that uninsured deposits at large banks are safer than they are at your local

03:45community bank. That can tend to create a system that actually entrenches the largest banks and

03:53disadvantages the community banks. One idea the secretary has floated, I think he's very eager to

03:58see continued discussion on, is actually lifting the cap on deposit insurance for business payment

04:05accounts. That would actually obviously require legislation, but I think that would go a long way

04:10to leveling the playing field with respect to the deposit franchise and ensuring, again, that we have

04:15a central role for community banks in the financial system of the future. That's great. Thank you.

04:19Dr. Adams, I just want to be able to bring up a couple of quick things with you. One is previous

04:24administration for ORR, the Office of Refugee Resettlement. When unaccompanied minors came

04:29across the border, they were often placed in homes that the sponsors were not vetted for criminal

04:34background check, nor were they actually asked, even, if they were legally present in the country.

04:39We now have tens of thousands of kids we can't find, and we don't know the background of the sponsor

04:45they were handed over to. Trump administration is actively looking for those kids now that were just

04:50given to people that were not properly vetted, nor were they legally present in the country, and they've

04:54absconded. Policy-wise, what would you want to be able to see on that for a child coming across the

05:00border if they're put in a sponsor? Do they need to be legally present in the country and need to be

05:04fully vetted? Simply put, the previous administration prioritized speed over safety. We will

05:09prioritize safety over speed and ensure that the best interests of these children are front and center

05:15in every decision that's made. Thank you for that.

'Do You Have A Concern?': Lankford Asks Treasury Nom About Lowering Small Banks' Leverage Ratios

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