Views From the Chair: French Hill’s Plans for Leading Financial Services Panel

U.S. Rep. French Hill has issued a list of 25 priorities to “Make Community Banking Great Again.” (Photo provided)

When U.S. Rep. French Hill was elected chairman of the House Financial Services Committee in December, he became the first former banker to lead the influential committee in more than 100 years — a fact that could reshape the regulatory landscape for finance nationwide.

Hill told Arkansas Business that his experience as a banker helps drive his policy decisions and gives him a better insight into how federal policy affects the financial services industry. He was the chairman and CEO of Little Rock’s Delta Trust & Banking Corp. for years before Simmons First National Corp. acquired the bank during Hill’s first congressional campaign in 2014.

“When you are a bank CEO, you live under all those federal policy rules and those laws, and you see how they impact real people’s lives and the access to capital that people are seeking,” Hill said in a telephone interview from Washington, D.C. “That practical, hands-on experience has been really helpful over the last decade in either critiquing policy to try to change it, or in formulating a new direction to certain topics.”

As chairman, Hill will oversee a committee with jurisdiction over the economy, the banking system, housing, insurance and securities and exchanges, among other sectors.

In November, Hill released a three-page document titled “Make Community Banking Great Again,” detailing 25 points he would prioritize in his chairmanship.

His reform agenda focuses on three main areas: regulatory fairness, promoting industry health and improving capital access. And though Hill hopes to accomplish as much as he can during his chairmanship, he does have a few priorities. The first of which is “reforming and bringing transparency” to how the Consumer Financial Protection Bureau (CFPB) — the federal agency that oversees consumer financial products and services — operates.

His plans include coordinating supervisory examinations between federal and state regulators to streamline the exam cycle and reduce the compliance burden on smaller institutions. He also wants the $10 billion threshold for financial institutions subject to CFPB supervision to be raised “to a substantially higher number” and indexed to inflation.

Hill believes that current CFPB operations don’t produce “nearly the benefits that its original supporters intended,” and that these changes could benefit an “awful lot” of local and community banks.

On the regulatory front, Hill wants to prohibit regulators from ordering banks to terminate accounts without material reason — a response to what he sees as politically motivated targeting of industries like firearms and digital assets.

His set of principles also outlines several reforms for bank mergers and acquisitions, as well as capital and funding access. He advocates “tailoring” regulations based on banks’ capital structure, risk profile and size, rather than applying one-size-fits-all rules, which are widely unpopular in community banking.

“Everything on that list is a priority,” Hill said. “We’ll be dividing it up into common elements and pursuing some of it by legislation and some of it by regulation.”

Lorrie Trogden, president and CEO of the Arkansas Bankers Association, sees Hill’s chairmanship as a winning moment for the state’s banking sector, which she said has struggled with one-size-fits-all regulations.

“We agree that regulation is necessary, but it should not be one-size-fits-all, or so overly burdensome that it may force the bank to stop offering certain services that our customers want,” Trogden said.

She laid out two specific regulations the Arkansas Bankers Association hopes to see altered during Hill’s chairmanship: Sections 1071 and 1033 in the Dodd-Frank Wall Street Reform & Consumer Protection Act.

Section 1071 requires financial institutions to collect and report data on small-business lending to help identify discrimination, and 1033 deals with consumer data sharing between banks and third parties.

Trogden said the regulations were both “extremely costly,” and that 1033 presents data privacy issues.

Hill said “Arkansas is home to some of the best community banks in the country,” and that it’s mostly family- and small investor-owned banks that “bear the brunt of this lack of tailoring and lack of focus.”

“When you have a high cost of regulatory compliance, that is directly connected with how big your bank has to be to afford the people to do the compliance,” Hill said. “I’m going to work hard in this Congress to try to tailor regulations based on the business strategy and size of the institution.”

And Hill does have a lot of plans for reducing the regulatory burden.

For bank mergers and acquisitions, he wants to install automatic approval after 120 days unless regulators explicitly deny the application. He wants to give regional Federal Reserve banks, rather than the board, authority over smaller bank mergers and create more flexibility for deals in counties without physical bank branches.

His principles also aim to make it easier for community banks to access funding and raise capital in several ways. He wants the Federal Deposit Insurance Corp. to maintain its 2020 rules on brokered deposits, which aim to help banks diversify their funding sources. For smaller banks looking to grow, he proposes allowing them to use debt financing by raising asset thresholds. He also wants to help family-owned banks transfer ownership easily by increasing how many shareholders they can have while maintaining tax status as Subchapter S corporations.

Hill wants to streamline the regulatory examination process by coordinating the timing of state and federal reviews, reducing how often well-performing banks need to be examined, and creating a clearer process for banks to appeal regulatory decisions they disagree with.

The document addresses bank failures too, proposing new ways to deal with failed banks that could increase competition by making it more difficult for banks that hold more than 10% of nationwide deposits to acquire failed institutions.

Hill also emphasized the need for regulators to better understand and oversee new financial technology.

As chairman, Hill said he sees technology as a challenge and an opportunity for community banks. He wants to make it easier for smaller institutions to partner with fintech companies and implement artificial intelligence solutions to compete with bigger banks that employ development staff.

“They have to partner with fintech firms, and that’s been very challenging in recent years,” Hill said. “That’s an area that we should focus on to make it easier and more effective for smaller banks to partner with and add fintech and AI innovations into their companies.”

But such partnerships come with complications. Trogden said banks face significant risks when partnering with fintech companies because current regulations hold banks responsible for fintech activities.

“We need the oversight first. We need banks that partner with fintech companies to have clear rules of the road and a clear contract and operating agreement about who’s performing what service,” Hill said. “But we need the regulators to encourage fintech partnerships and the use of AI, both in compliance issues as well as in revenue generation issues.”

When it comes to cryptocurrency and blockchain technology, Hill emphasized the need to look beyond the headlines about Bitcoin prices. He’s aiming to “demystify” the space during his chairmanship, and said stories about “pump-and-dump scheme” coins are a distraction from the utility of the technology.

“I think a lot of people confuse the forest for the trees,” Hill said. “Blockchain is simply an operating system that people write applications on, just like they write a deposit system on an IBM computer, or they write a music app that goes on your smartphone.”

Hill said blockchain has practical applications that could benefit community banks. He believes the technology can lower compliance costs and fraud, as well as potentially eliminate foreign exchange risks for people sending or receiving money in another country.

Trogden said the Arkansas banking community remains cautious but interested in blockchain technology.

Looking ahead, Hill plans to focus on creating clear regulatory frameworks for both traditional banking and emerging technologies. One of his first acts as chairman was establishing a task force to examine what he describes as “distracting mandates” that have diluted the Federal Reserve’s mission.

“My practical experience is really going to guide my work,” Hill said. “And that practical experience also is a powerful unifier and sales tool with my colleagues as to what direction to take.”