Legislators joined community bankers on Tuesday to argue that small banks deserve simpler and less restrictive regulations than major financial institutions.
In a hearing, the House Financial Services Committee's Financial Institutions and Consumer Credit subcommittee hosted four community bank leaders to hear their complaints and problems in dealing with rules on capital and lending requirements.
The bankers, representing their own banks and national groups, claimed that the increased burden of new regulations leads small banks to focus their attention on compliance instead of serving their customer base, and they warned that community banks could be forced to consolidate to stay alive.
"The consequences of excessive regulation are real," Ken Burgess, the chairman of First Bancshares of Texas, said. "Costs are rising, access to capital is limited for community banks, and revenue sources have been severely cut. It means a weaker economy. It means slower job growth. With the regulatory overreaction, piles of new laws, and uncertainty about government’s role in the day-to-day business of banking, meeting local community needs is difficult at best." Burgess also represented the American Bankers Association.
In particular, representatives of smaller banks asserted that a limitation on mortgage lending, instituted as part of the Dodd-Frank bill, is unnecessarily burdensome and restrictive.
They noted that young doctors and farmers who work seasonal schedules are often safe borrowers but may not look like it on paper, so they could be denied a loan under the new qualified mortgage rule.
"Unfortunately this rule will carve out a lot of good borrowers for mortgages," said William Loving, president and CEO of the Pendleton Community Bank, based in West Virginia, also representing the Independent Community Bankers of America.
Charles Kim, an executive at the Missouri-based Commerce Bancshares Inc., also representing the Consumer Bankers Association, added that the rule "probably makes it harder to make loans in under-served markets."
"What we would be doing with the qualified mortgage as it is proposed is locking out a whole segment of Americans who want the American dream of owning a home," said Rep. Gregory Meeks (D-N.Y.), the ranking member of the subcommittee.
An international agreement on bank holdings, known as Basel III, also came under fire for being too restrictive on community banks.
"The rule was written for the world's banks, and it makes sense for those systemically important institutions," Kim said. "It wasn't written for us. It really doesn't work for us."
Meeks added, "It was not their activity that blew up the global banking system, and I think the capital requirements placed on banks should recognize that."
Legislators seemed nearly unanimous in their support of the community bankers.
"This is an issue that is affecting our country as a whole," said Rep. Duffy, who joked that Congress's reputation as partisan and dysfunctional was wrong on this issue.
Tuesday was the subcommittee's second recent hearing on small financial institutions, along with an April 10 examination of credit unions' regulatory burdens.