Banker Returns to D.C. to Take on CFPB, Regulatory Red Tape

WASHINGTON — Longtime banker Rep. French Hill, R-Ark., may be new to political office, but he already knows his way around Washington.  

He served as a staffer for the Senate Banking Committee in the 1980s and later as a Treasury Department official and White House adviser for the first President Bush, in addition to his several decades in the financial services industry.  

Most recently, he helped guide Arkansas bank Delta Trust & Banking Corp. through the financial crisis and the implementation of Dodd-Frank, before heading back to Congress this year, this time as a member of the House.

Hill sees the two sides of his career, politics and finance, as connected.

His career has "always had at its core finance, it's always had at its core the private sector, and then I've always just been pretty passionate about public policy," the freshman congressman told American Banker in a recent interview. Hill, a member of the House Financial Services Committee, said he's now focused on removing duplicative and unnecessary regulation for the financial industry, calling the Consumer Financial Protection Bureau "a redundant regulatory initiative."

The Arkansas Republican, who first interned for a brokerage firm in high school, is even willing to take on the agency's biggest champion, Sen. Elizabeth Warren, D-Mass.

Following is an edited transcript of the interview:

You were chief executive of Delta Trust & Banking Corp. [which was sold to Simmons First National Corp. last year] through the financial crisis — what lessons did you take away from that and how has that informed your views about the response to the crisis?

We dealt with falling real estate and falling farm prices earlier in the decade. We sort of went through the overbuilding, valuation challenges in the mid-2000s, slightly before what I would say was the more national period of crisis and trauma.

Lessons taken away from that: every banker knows that capital is king, and that documentation of one's credits is king.

The other thing that I've always reflected on when I think about the young people in our business who joined our firm in 1999 is that in that span of a very few short years they saw two historic lows in interest rates … and they saw three significant stock market selloffs.

What do you think that's taught young people in the business?

Experience is a great teacher, preparation is so important and that we live in a world that projects past trends into the future.

Caution, preparation, communication, prudence in planning, and always know what your potential outcomes might be. They might not all be the ultimate rosy scenario. And I think those are fantastic lessons for people to learn early in their career and produce a lifetime of benefits.

You continued at Delta when Dodd-Frank was put into effect. What did you witness and what do you continue to hear about from bankers?

Many bankers feel distracted and overwhelmed by the size, scope and complexity of the proposed rule changes in Dodd-Frank. That's because those changes affect banks of all sizes, regardless of whether or not the CFPB can only audit banks over $10 billion — the CFPB rulemakings in and around the consumer market affect all banks.

Second, a lot of them believe this feels like work that is above and beyond that which is necessary for safety and prudence and good banking practices and that it has a feel of piling on and that much of it is not directly related to their perception of things that created the collapse.

The government does not do a good job of measuring the cumulative impact of the regulatory burden across the economic system — where you put it all together and you add it all up and you look at the constraints and impacts on consumers.

Any personal anecdotes about what Dodd-Frank meant for your team at Delta?

Our team certainly had immediate qualification problems with [the CFPB's qualified mortgage rule]. We were not able to get people approved for credits that would have been approved, and I think that is a very frequent problem. I get that today from community bankers that come visit me.

And there's a bureaucratic issue to it. And this is a really micro issue … [the Nationwide Mortgage Licensing System] registration for bankers. I think there was a thought that people who were not engaged in mortgage banking at a mortgage bank or at a commercial bank, who were entrepreneurs, might go through some sort of licensing or approval to be a mortgage broker.

But the way that rule actually got written is that anyone who might take a 1-4 family home as collateral in any kind of credit underwriting has been required to get an NMLS number and put it on their business card and in the signature of their email. And take a test. And if they change banks they have to make sure they turn in that information to the HR department so they can show they changed banks.

It sounds like a small thing, but it's demoralizing to line managers who are commercial lenders, who are doing business across many kinds of asset classes. They're dragged off customer service into a meeting to complete that task. And there are many lists like that associated with all aspects of regulation.  

What are your top priorities for Congress and specifically the House Financial Services Committee?

Well, number one, I'd like to think my over three decades in the capital markets and commercial banking would be a benefit to my fellow members for discussions of legislation and regulatory burden-type issues, and that I have an active participation reviewing legislation and regulatory action.

But for me, I want to focus on anything that will get the economy growing and get more jobs. So I have a bias toward removing things that I think are duplicative or don't have a safety and soundness objective.

It's not about deregulating, it's about right-regulating — making sure we've got the right balance in this.

I believe that the CFPB is a redundant regulatory initiative. Nowhere in my over three decades did I ever see [banking regulators or other government officials] abdicate their consumer protection responsibility under federal or state law. And I believe those things were being aggressively and adequately done across our financial system, particularly across our broker-dealer and depository institutions.

I believe the bureau is too big and more intrusive than it should be. I think it's going to end up raising regulatory costs and constraining credit and possibly financial services to the people who need them most.

Now that the CFPB's here — it's up and running — are you supportive of proposed changes to create a five-person board or make it subject to congressional appropriations? Does that go far enough?

Anything that narrows the focus and makes it more accountable to people and Congress and makes it more transparent — these are all worthy objectives.

There's a lot of arbitrariness in Dodd-Frank — including some aspects of the CFPB — that I believe Democrats and Republicans should work together on.

And while there are efforts and conversations, I don't believe people are serious about studying and attaining reform. This has been going on for five years. It's clear from listening to consumers and market intermediaries that there's a lot that needs reform to make any of these provisions better functioning.

Rep. Patrick McHenry, R-N.C., a senior member of the banking panel, recently spoke of the "Elizabeth Warren phenomenon" — in terms of the Democratic opposition to making changes to Dodd-Frank. What do you make of her work and what do you think about efforts to work toward bipartisan consensus?

Well, I think the efforts are meager and I think they could be more robust and lead to more positive economic change if we could have support on both sides of Capitol Hill and in both parties for more robust change and dialogue.

I know that Sen. Warren has said that small banks are doing better than ever … and I don't know how she comes to that conclusion. Number one, the bank index relative to the S&P index is at a 75-year low — that's for institutions of all sizes. And two, if you just look over the past ten years, going from the positive economic environment of the mid-2000s to today, profitability is 25% less, and there are 25% fewer institutions, well over 100% worse non-performing asset ratios, three times the number of troubled banks, three times the number of banks that have gone out of business.

And then you've got the Harvard study that shows we don't have any new bank formations, even since the economy is going again — and that the community banking industry is worse-off post-Dodd-Frank than pre-Dodd-Frank. You've got one out of five counties that don't even have a physical location of a bank anymore.

So to argue that the community banking market is better — I don't get where she's coming from. It's not a reality I'm familiar with.

You've worked at a number of businesses and financial institutions of various sizes. How worried are you about "too big to fail"? Are there things that need to be done to constrain the largest institutions in addition to providing relief for the smallest banks?

I know [Sen. Warren] has called to break up the big banks, and there I would say our absolute top of the institution size is constrained now by two major macro forces that will, in fact, produce size changes.

One is the deposit cap on the largest banks — they're limited to 10% of deposits. And second is by increasing dramatically Tier I leverage ratios and capital. One can [meet] that by either raising substantial amounts of capital and the other is by shrinking in size.

What we want in this country and in this economy are financial institutions of all sizes, from very small to very large, that reflect the scope of our industry.

Given your White House experience, how much can and should banking become part of the national conversation in the upcoming elections. What are you going to be looking to hear from candidates and how much should these issues be front and center?

What should always be front and center for the American people when they look at the elections is the economy and economic growth. Nothing is more important to our national security, our environmental security or every mom and dad trying to raise a family out there than having a growing economy that produces adequate resources to not operate in deficit spending, pay down debt [and] make sure that we can hit some of our budget priorities.

That should be debated by our presidential candidates — we need to get this economy going again. And that's got to be number one.