Q&A: Senator Mike Crapo, chair of the Senate Banking Committee

Community bank advocates—Communtiy bankers meet with Senator Mike Crapo at the 2017 ICBA Capital Summit.

Senator Mike Crapo (R-Idaho) is chairman of the U.S. Senate Committee on Banking, Housing and Urban Affairs, leading the management of legislation
on everything from the financial markets to mass transit. We asked him about his priorities for this Congress, including community banks’ growing regulatory burden.

By Cam Fine

What are your priorities for the Senate Banking Committee this Congress?

We have a real opportunity to enact meaningful legislative changes that can help to fuel economic growth—a key priority for Congress this year. In the short term, most of these changes will occur because of presidential and other executive agency actions to reduce the complexity and burden of federal regulations, along with passing Congressional Review Act items and nominating and confirming individuals who will promote economic growth. Long term, changes will come from moving legislation through the House and Senate, and the president signing bills into law.

We need to thoroughly review our regulatory framework and the role of financial companies in the economy. The president took a step toward this by issuing a memorandum on regulations and core principles for regulating the financial system, and the Treasury Department has been consulting with the member agencies of FSOC [the Financial Stability Oversight Council] to review and report on actions that have been, and will be, taken to support the core principles. That report should be out soon, and I look forward to reviewing it. Ranking member Sherrod Brown [D-Ohio] and I also initiated a process for collecting proposals from all interested stakeholders on ideas to promote economic growth, including legislation. Together, Treasury’s report, the proposals we received at the committee and the EGRPRA [Economic Growth and Regulatory Paperwork Reduction Act] report that the regulators recently completed should provide a strong grounding to build from for commonsense reforms to our regulatory system.

Housing finance reform is also a high priority, and the administration has indicated it is prioritizing the issue as well. The committee will also be focused on reauthorizing the National Flood Insurance Program [more on this later] and Russia sanctions, among other issues.

How do you envision meaningful community bank regulatory relief legislation reaching the president’s desk?

The community banking industry has become increasingly concentrated since the 1980s, and that concentration has accelerated since the passage of Dodd-Frank. Losing these community financial institutions has had a negative impact on small-business lending and mortgage lending. According to the St. Louis Federal Reserve, a mere decade ago small banks made more business loans compared with larger banks. That is no longer the case. We must carefully examine what led to such a large number of small banks closing and the residual effect on local communities.

Lending used to be a community-based enterprise, relying on local knowledge and expertise to extend credit based on creditworthiness of banks’ depositors. This is especially true in states with a large rural population like Idaho, where banking is relationship-based, and certain industries, like agriculture, require specialized lending. Many of the Banking Committee’s members are from states with rural areas, and their constituents face the same issues.

There appears to be broad consensus among the administration, regulators and members of the Banking Committee that current laws and regulations have unintentionally harmed small financial institutions. We should take advantage of the opportunity to lift unnecessary regulatory burden from our financial institutions, or many more small banks will disappear, and rural communities may lose the only banking presence they have ever known. The regulators, stakeholders and Congress must not squander an opportunity to make a lasting impact on our regulatory landscape.

You have taken an active role in GSE (government-sponsored enterprise) reform legislation in the past, and your committee will be tasked with passing a reform bill this Congress. What are your goals for housing finance reform, and where do you see community banks fitting into any new system?

Housing finance reform is a high priority for the committee. This is not surprising, as it has been nearly a decade since Fannie Mae and Freddie Mac were put into conservatorship, and they continue to dominate the mortgage market today. While Fannie and Freddie are currently making profits, if the housing market experiences a downturn, taxpayers could again be on the hook for billions of dollars. And the housing market will experience another downturn. The only question is when. The status quo is not a viable option.

For community banks and other small lenders, access to the secondary mortgage market is critical. I recognize the importance of ensuring that small lenders have direct access to the secondary market without having to rely on large banks for aggregation services. Another critically important component of any reformed housing finance system is to ensure that taxpayers are protected, and we must take steps to ensure that robust private capital is taking credit risk.

Comprehensive legislation will require participation and action from various groups: Treasury Secretary Steven Mnuchin, Housing and Urban Development Secretary Ben Carson, the White House, the Banking Committee and House Financial Services Committee, among others. However, we finally have a real opportunity to fix the flawed system in a bipartisan manner and set up a more sustainable, efficient, permanent housing finance system that will provide future economic opportunities for millions of families and individuals throughout America.

The National Flood Insurance Program (NFIP) expires at the end of September and must be reauthorized by Congress. What is the current state of reauthorization, and do you believe Congress can pass a bill before the program expires?

Our nation has seen some of the most devastating natural disasters in its history in the last two decades. These catastrophes displace families, harm businesses and disrupt lives. The frequency and scale of recent catastrophes have pushed the NFIP to amass $24.6 billion in debt with the United States Treasury Department. The program’s structural issues must continually be addressed so that it can better withstand strenuous conditions. Throughout its history, Congress has acted to significantly reform the program to make it more efficient and effective.

From 2008 to 2012, the program went through 17 temporary extensions and four lapses due to legislative disputes. We cannot repeat that process. Since 2012, legislative action has improved communication of actual flood risk and spurred communities toward better floodplain management, while also balancing affordability to promote widespread flood insurance adoption.

The committee has held several hearings to examine the current program and how we can strike the proper balance between private market participation and maintaining affordability and availability. We are working together on a bipartisan basis to hear the thoughts and concerns of various stakeholders and members of the committee, and I am confident that we will identify the proper legislative changes that can help the NFIP achieve its goals.

What can community bankers do to help you and your congressional colleagues do their jobs?

Earlier this year, the Trump administration issued an executive order on core principles for regulating the financial system. As part of the executive order, the secretary of the Treasury has been consulting with the heads of the member agencies of FSOC and is expected to report back to the president on what actions have been taken, and are currently being taken, to support the core principles. The secretary also engaged industry during this process, and I understand ICBA took advantage of the opportunity to weigh in with Treasury, even meeting with President Trump to discuss examples of regulatory burdens on lending, liquidity and economic growth.

By helping the administration to identify areas where regulatory burdens are hampering product offerings and loan growth, ICBA is helping to lay the groundwork for legislative action from Congress. Similarly, ICBA was very engaged with the Banking Committee as we accepted our own proposals for economic growth, and we will be using these proposals to build a case for commonsense reforms to our regulatory framework that will encourage economic growth.

We have a lot of work to do to get our economy back on track. Ultimately, our shared goal should be to provide statutory and regulatory reform that can spur economic growth for the country and our communities, and I expect a bipartisan effort to that end. Regulation should reflect risk, and the regulators should perform meaningful cost-benefit analysis so that we can understand how rules and regulations will affect the economy as a whole, interact with one other and impact our global competitiveness. I encourage community bankers across the country to continue your advocacy efforts to educate policymakers and thought leaders about the challenges you face in the industry and proposed solutions

Resume: Mike Crapo

Mike Crapo, the senior United States senator for Idaho, was first elected to the Senate in 1998 and is currently serving his fourth term as US senator. He became a member of the Senate Banking, Housing, and Urban Affairs Committee at the beginning of his service in 1999. 

In addition to serving as the chairman of the Banking Committee, Senator Crapo serves on the Finance Committee, Budget Committee, Judiciary Committee and the Committee on Indian Affairs. He is also chief deputy Republican whip for the 115th Congress. 

A native of Idaho Falls, Idaho, Senator Crapo graduated cum laude from Harvard Law School after receiving his undergraduate degree from Brigham Young University. He and his wife, Susan Crapo, have five children and nine grandchildren.

Cam Fine is president and CEO of ICBA.