Perlmutter, Financial Services Subcommittee Examines Future of Banking

Washington, D.C. - Today U.S. Rep. Ed Perlmutter (CO-07) led the Consumer Protection and Financial Institutions Subcommittee in a hearing entitled, “The Future of Banking: How Consolidation, Nonbank Competition, and Technology are Reshaping the Banking System”. Over the past several decades, the U.S. financial system has changed significantly. Through mergers, acquisitions, and organic growth, banks have become larger in size and fewer in number while serving a greater number of people, thereby limiting competition. The hearing examined these evolving trends and their impact on consumers, small businesses, communities of color, bank employees, and other industry participants, and evaluated policy options to ensure there are robust safeguards in the public’s interest that improve competitiveness, promote innovation, and provide broad access to affordable financial products and services. 

Perlmutter opened the subcommittee hearing with the following remarks:

“Following the Financial Crisis, Former Federal Reserve Chair Paul Volcker was once asked about financial innovation and regulatory reform. He said, “The most important financial innovation that I have seen in the past 20 years is the automatic teller machine. It really helps people, prevents visits to the bank, and it is a real convenience. How many other innovations can you tell me of that have been as important to the individual as the automatic teller machine—which is more of a mechanical innovation than a financial one?” 

“I don’t bring this up to say financial innovation is bad, and bank technology needs to stop at ATMs, but there is a point to what Mr. Volcker said. From the consumer perspective, the ATM is a wildly useful product—and it’s not such a complicated idea. However, many so-called “innovative” and complex financial products like credit default swaps or balloon mortgage payments got us into a lot of trouble back in 2008.

“But in the dozen years since the financial crisis, there have been many real innovations in banking with clear benefits to consumers. You can access your accounts and transfer funds with your smart phone. Credit unions and banks have developed advanced fraud detection to address the rise in cyber security threats. New tools and analytics help consumers set and track saving and spending goals. We are also seeing more financial institutions use artificial intelligence, machine learning, and algorithmic-based decisions. These technologies offer a great deal of promise, but also raise new consumer protection issues.

“Another trend over the past decades has been consolidation in the banking sector. In 1984, there were nearly 18,000 different banks across the country. Today there are less than 5,000, and the number of new bank charters has fallen to record lows. The number of credit unions has also fallen from about 15,000 in 2004 to about 5,000 today. With fewer banks and credit unions, there is less consumer choice when it comes to depository institutions. But this is not to say traditional financial institutions are completely without new competition. Financial technology companies, often referred to as fintech, have captured a larger share of consumer, mortgage, and small business lending markets. These firms are often not subject to the same regulations banks and credit unions are but often compete in the same markets. 

“In April, this subcommittee held a hearing on trends in financial institution charters. We looked back in history at the powers of the National Bank Act, the original purpose of industrial loan companies, and examining how banking laws are being used—and in some cases stretched—to fit an evolving financial services sector. As illustrated by that hearing, there are significant challenges for Congress and regulators to keep up with modern day trends. 

“Given the challenges of keeping up with the present, I’m excited for today’s hearing, entitled, “The Future of Banking: How Consolidation, Nonbank Competition, and Technology are Reshaping the Banking System.” Today’s hearing is about ensuring 10 or 20 years down the road, we have a banking system that is innovative, consumer-driven, and competitive. And making sure it works for every American.”

Among the hearing witnesses was Jim Reuter, CEO of FirstBank, headquartered in Colorado, and on behalf of American Bankers Association, who remarked at the ongoing effort to improve financial inclusion, including improving the unbanked rate, an issue the CPFI Subcommittee examined during their last hearing. Reuter summarized his remarks by saying, “We believe that the future calls for banks of all sizes to remain at the center of consumers’ and businesses’ financial lives and to continue to provide the lifeblood of the U.S. economy. Despite challenges, we believe the future of banking is bright, provided the policy environment continues to support growth and closes gaps that promote regulatory arbitrage and put the financial system and consumers at risk.”

Several pieces of legislation were considered as part of the hearing, including Perlmutter’s Credit Union Governance Modernization Act, which would ensure credit unions can streamline their process for expelling bad actors and keep their employees, members and communities safe. H.R. 4395, the Payment Choice Act was considered which would require any person selling goods or services to accept cash as a form of payment. Colorado passed a similar law in May 2021. Among the other bills considered was H.R. 4590, the Promoting New and Diverse Depository Institutions Act – supported by Perlmutter – and recently passed the House Financial Services Committee.

Today’s hearing served as a follow up to a subcommittee hearing held in April which examined the trends in financial institutions and the challenges facing Congress and regulators to keep up with these changes.


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