RELEASE: REP. HILL OUTLINES PRINCIPLES TO MAKE BANKING GREAT AGAIN

WASHINGTON, D.C. - Rep. French Hill (AR-02) today released a set of principles outlining his support for a growing, successful community banking industry. He is requesting comments on these principles by December 31, 2024, which will guide the development of his forthcoming legislative framework going into the 119th Congress. This will build on Rep. Hill's work to protect community banks through legislation like his Small LENDER Act, and to rein in an activist Consumer Financial Protection Bureau (CFPB) by placing the agency under congressional appropriations and replacing the Director with a bipartisan commission.

"The House Financial Services Committee has not had a former banker hold the gavel in over a century. As a former Founder, Chair and CEO of a community bank, I have a plan to make community banking great again in this country. I welcome feedback on these principles and look forward to advancing President Trump's economic growth agenda and bringing fresh ideas to support banks of all sizes, which serve communities nationwide and are a source of strength for our economy."

Rep. Hill laid out the following principles:

Regulatory Fairness, Transparency, and Right-Sizing

• The Federal prudential regulators should not be able to order institutions to terminate a customer's account without a material reason for doing so in order to reverse the weaponization of the government as demonstrated by Operation Choke Point. This political targeting has continued under the Biden-Harris Administration to go after industries like firearms and digital assets; Congress should fully investigate the conduct of agency personnel to find if their actions and policies were consistent with applicable laws, regulations, and policy, while the Trump Administration should officially halt and reverse this policy.

• Climate stress testing should be optional for financial institutions and prohibited from being used in connection with the setting of prudential capital requirements. Instead of creating separate and unique climate-specific regulatory mandates, climate should be considered within existing frameworks such as credit and operational risk assessments, which prevents the need for overlapping and prescriptive regulatory measures.

• The concept of tailoring should be re-established in prudential regulation and supervision by requiring federal prudential regulators to (1) tailor their actions based on the capital structure, risk profile, complexity, financial activities, business model, and size of the institution; and (2) conduct a comprehensive review of their compliance with the statutory mandate for regulatory tailoring under S. 2155, and to remedy any noncompliance.

• The Federal prudential regulators should be open to innovation in a way that is consistent with safety and soundness and provide clear supervisory expectations to financial institutions about their third-party relationships including with financial technology companies. This requires the agencies to be equipped with the necessary technical skills and expertise in order to understand and work with their supervised entities.

• The Federal prudential regulators should conduct a review periodically on the cumulative impact of their regulations.

• U.S. engagement with intergovernmental regulatory bodies like the Basel Committee and the Financial Stability Board should be reformed to reconsider who represents the United States at those meetings and require notice and comment on any future proposals being considered by the U.S. financial regulators.

• There should be more fairness, accountability, and transparency in the bank examination process, including a new process for institutions to appeal supervisory determinations, similar to the approach taken by the Fair Audits and Inspections for Regulators' (FAIR) Exams Act, which was introduced as H.R. 8071 in the 118^th Congress.

• The timing of supervisory examinations should be coordinated between federal and state regulators, including the Consumer Financial Protection Bureau (CFPB), to streamline the exam cycle for individual institutions and reduce the compliance burden on smaller institutions.

• The $10 billion threshold for financial institutions subject to the CFPB supervisory authority under the Dodd-Frank Act should be raised and indexed to inflation.

• The consolidated asset threshold, below which well-managed and well-capitalized banks qualify for an 18-month examination cycle instead of a 12-month cycle, should be raised.

• The community bank representative on the Federal Reserve Board of Governors should play a more active role in the supervision and regulation of community banks, and work with interagency coordinating bodies like the Federal Financial Institutions Examination Council (FFIEC).

• The federal prudential regulators should amend the Capital Adequacy, Asset Quality, Management, Earnings, Liquidity, and Sensitivity to Market Risk (CAMELS) rating system, including the relative weight of each category and the establishment of objective measures to determine the evaluation of each CAMELS component and how they make up the composite rating.

• The Federal Deposit Insurance Corporation (FDIC) should modernize Call Report data for banks based on deposit type, size, mean, median, and duration, and the inclusion of disaggregated fraud losses.

• The Federal prudential regulators and other appropriate agencies should jointly submit a plan to Congress to address the surge in mail theft-related check fraud and debit card fraud at the point of sale, which poses a threat to public safety and often targets America's elderly and most vulnerable citizens.
  

Promoting a Healthy Banking Industry for Institutions of All Sizes

• Any application for a bank merger or acquisition should be deemed approved unless expressly denied by the federal banking regulator within 120 days of filing. Regulators cannot be allowed to unfairly and indefinitely hold up mergers.

• The Federal Reserve Board should defer to the regional Federal Reserve bank on the decision to approve or deny a bank merger between small and/or mid-sized institutions, if both institutions received (1) a '1' or '2' in their most recent composite CAMELS rating under the Uniform Financial Institutions Rating System, and; (2) a 'Satisfactory' or better in their most recent Community Reinvestment Act (CRA) examination.

• There should be more flexibility in approving bank mergers and acquisitions by a variety of potential capital or financed partners in counties without a physical bank or credit union branch.

• The prudential regulators should jointly examine and report to Congress on ways to improve the growth, capital adequacy, and profitability of U.S. banks. Further, the regulators should identify government policies or regulations that limit these measures, and address the lack of de novo bank charters, particularly in underserved areas.

• Nonbank capital sources should be allowed to partner with qualified banks or bank executive management teams to be pre-approved for a "shelf charter" with the FDIC as candidates for mergers and acquisitions transactions, such as the purchase of a failing bank or a required divestment.

• The FDIC should be allowed to waive the Least Cost Resolution (LCR) in the event of a bank failure if the agency finds that the accepted transaction would increase competition and facilitate economic growth in the U.S., provided that (1) the buyer agrees to a purchase agreement commitment whereby they pay a Net Present Value catch-up contribution to the Federal Deposit Insurance Fund and (2) the FDIC submits a report to Congress for each transaction with an analysis of the economic difference between the accepted transaction and the so-called 'lowest cost' over a 10-year period.

• It should be harder for the FDIC to waive the national deposit cap rule for the acquisition of a failing or failed bank, which prohibits a bank from acquiring another if the combined entity would hold more than 10 percent of deposits nationwide. The FDIC should be required to provide Congress with a detailed justification in writing for each waiver and demonstrate that other outcomes were considered and encouraged.

• The methodology to evaluate bank mergers and competition for proposed transactions should be revisited, including by proposing (1) alternatives and reforms to the Herfindahl-Hirschman Index (HHI) used by the Department of Justice, such as objective standards for competitive factors based on HHI thresholds; and (2) ways to expand the consideration of deposit market share and other financial services in this evaluation.

Improving Access to Funding and Capital

• The FDIC should uphold its 2020 brokered deposits rule and withdraw its poorly crafted 2024 proposal on brokered deposits, so financial institutions can access diverse funding sources and consumers can have more choice and control over their financial decisions.

• The consolidated asset threshold under the Small Bank Holding Company Policy Statement should be raised to allow more community banks to grow using certain debt financing.

• In order to assist in the growth capital and transfer of ownership for closely held institutions, the maximum number of shareholders allowed to qualify for a Subchapter S bank should be increased and who can count as one individual shareholder should be revisited.

What industry leaders are saying:

Former FDIC Chair Bill Isaac said, "I have known and respected French Hill for many years. He knows well that our nation's continued success depends on healthy financial markets and a vibrant and strong banking sector. I support his call for common sense reforms and support of community banks. Community banks are the financial center for so many small businesses and communities throughout nation and they need relief from unnecessary mandates and regulatory strangleholds. Let's reshape our banking industry with commonsense reforms and focus on economic growth for all."

Florida Bankers Association CEO and former CFPB Director Kathy Kraninger said, "Our nation needs banks of all sizes operating in a dynamic, competitive, and fair marketplace to ensure consumers, small businesses, and communities thrive. Thanks to Congressman French Hill for bringing his expertise and vision to important banking issues."

Texas Bankers Association President and CEO Chris Furlow said, "If the American economy is to rebound, the community banks that underpin local economies must be healthy and strong. French Hill's commonsense proposals will help reverse the politicization and stifling overregulation of community banks to enable them to do what they do best - serve America's families and small businesses."

Arkansas Bankers Association CEO Lorrie Trogden said, "As a longtime former community banker, French Hill understands the needs of banks across our state and country. French and I have collaborated for years on ways to improve banking in Arkansas. He has always been a strong supporter of our banks and listens to the top issues we are facing here at home. The Arkansas Bankers Association applauds French's banking principles, which outline a clear path for community banks and ways to keep them strong and successful across America."

Arvest Bank Chairman and CEO Kevin Sabin said, "We believe reducing regulatory burdens can help consumers by lowering costs, increasing access to financial services and fostering innovation. With Rep. Hill's background as a community banker, we appreciate the fresh ideas and expertise he offers to help reduce inefficiencies that can ultimately harm consumers."

First Security Bank Chairman Reynie Rutledge said, "I have known and worked with Congressman Hill for many years both as banker in Arkansas and as a congressman. He has always been knowledgeable of the issues affecting community banking and been help in finding solutions to our problems. During COVID, Congressman Hill was the go-to between the bankers and the SBA in designing a system to help small businesses and when processes needed tweaking, he got it done. The issues laid out in these principles should all be considered in the upcoming Congress."

Eagle Bank Executive Chairman Cathy Owen said, "I am honored to support Congressman's Hill's deep understanding of financial services and commitment to championing polices that will continue to strengthen community banking. His first-hand knowledge and experience is evident in these principles to strengthen community banks, which are vital to our small businesses, families, and local communities."

Kennedy Sutherland LLP Founding Partner Pat Kennedy said, "Congressman French Hill has and will continue to provide the most effective leadership in Washington for community banks. He possesses an unparalleled knowledge of the business of banking, financial technologies of the future and appropriate regulation. As a bank founder, owner, and operator with extensive experience in legislation and regulation, he has a uniquely focused understanding and dedication to the industry. His most recent legislative initiative being announced today, evidences the depth of that understanding. He understands the importance of subchapter S tax treatment for community banks and the need to make it more workable, flexible, and permanent through Section 199A."

StoneCastle Partners CEO Josh Siegel said, "Rep. French Hill's Banking Principles chart a fair, transparent path for community banks. Since 1934, these banks have operated as investment-grade institutions, yet they remain overregulated as 'high risk.' By ensuring regulatory actions are justified, responsive, and free from political influence, these principles promote a growth-focused framework tailored to each bank's unique profile. Supporting innovation and rethinking climate mandates will empower community banks-essential to over 50% of small businesses and 47% of the workforce-to lend more effectively to local communities at competitive rates."

Texas Mortgage Bankers Association CEO Scott Norman said, "Congressman French Hill has been a great collaborator, communicator, and thought leader since he arrived in Congress. We look forward to following the work he is doing to strengthen community banks, as they are pivotal to all Texans."

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