"Many of the banks can’t do some of the things they want to do to help folks. A lot of the problems have to do with regulations or the threat of regulations coming out of Washington D.C," he said.
Speaking from Nevada, a state that has been crushed by the housing meltdown, Cain argued that banks are hesitant to lend because they’re afraid of being shut down if they run afoul of regulations imposed following the 2008 financial collapse.
"[The banks] have to maintain their portfolios at a certain level or they get shut down by the FDIC.," Cain said. "The number of banks that have been shut down in the last year is greater than the amount that were shut down the year before. Because of FDIC. rules, some of them are so scared that they’re going to step outside of a rule and get shut down, that some of them just don’t get as creative as they could get."
There have been 80 bank failures so far in 2011, which is actually down from 157 in 2010, although there have been more than 300 since 2008. Many of the failed banks were dealing with bad loans made during the run-up to the housing bubble.
"Here’s how you encourage the banks: Remove barriers that are keeping them from doing business the way they want to," Cain said.
"Most bankers would want to renegotiate with people on their mortgages, but I’m telling you that there are restrictions that are government driven that is keeping them [from lending]," he added.
"I’ve had bankers telling me this, they’ve been giving me lists of things that can be done. They want to help people, they really do. But it’s the threat of government regulations and the threat of the Dodd-Frank bill and rolling that out."
The Dodd-Frank Wall Street Reform Act is in the middle of a multiyear rulemaking and implementation stage as its hundreds of regulations are researched and written.
Some Republicans say the legislation goes too far and will obstruct economic growth.