Hispanic-owned companies play an important role in our national economy and this trend is only expected to continue. Data shows Hispanic-owned businesses are growing at a faster rate than any other demographic in the United States, by as much as three times the national average.
Regional banks, for example, are important sources of financial support for small businesses and consumers. Improperly tailored regulations that are primarily meant for larger banks ensnare these smaller banks and have ripple effects for banking customers and the economy. Regional banks are often the place business owners turn to first to secure a loan, open a checking account, and conduct other business. These entrepreneurs know that regional banks do not have the same risky investments money market banks do, but have much more capital available than community banks. They’re not called the “sweet spot” of banking for nothing.
Yet, the current regulatory environment impedes these banks from lending to customers, like small businesses and entrepreneurs who need loans to grow their business and create jobs.
After the 2008 financial crisis, Congress passed the Dodd-Frank Act, an 848-page law that treats all banks above $50 billion the same, regardless of business model. (J.P. Morgan Chase, the largest bank, has more than two trillion in assets.) Some studies estimate banks have spent nearly $40 billion and 73 million hours complying with these regulations. Compliance costs regional banks at least two billion dollars every year.
Another recent study found that systemic regulations on regional banks reduce lending by up to eight percent—totaling $20 billion over five years. Freeing up this additional capital would help small business owners secure the funding needed to grow their operations, comply with other regulations, train employees, and upgrade their technology, and make other investments. Of course, it could also help those just starting a new business, providing the funds to build a store, purchase equipment, and hire employees.
Congress should act to reverse some of the effects of inappropriately tailored regulations to promote an environment that supports economic growth and success. Recent FDIC data has shown many areas of lending are still below 2007 levels, including mortgages and home equity lending, despite home prices increasing at a steady rate. Construction and development loans have decreased more than 50 percent from 2007 levels. And, while the median loan request from small businesses is $100,000, typically the businesses only receive about 40 percent of that.
By lumping regional banks in with Wall Street banks, and therefore forcing them to spend time and money complying with ill-advised regulations, the economy suffers from a shortage of much-needed capital, which could kick-start much-needed economic growth. Restricting the banks that provide support to Main Street America does nothing to enhance the stability and soundness of the financial industry. Instead, such a framework only hurts the consumers and small businesses that rely on these institutions.
We need to look at a different way to determine risk and move beyond a one-size-fits-all system that placed broad regulatory burdens across the board. Our focus needs to be easing regulations on the more secure banks to free up capital to put towards supporting small business creation and economic growth.
While more Hispanics than ever are proud business owners, we still have a long way to go to ensure they have the resources to keep supporting jobs, inject money into the economy, and achieve the American Dream. The fact is, small businesses cannot grow without proper financial support, which is much harder to come by in today’s landscape. Regulations meant to prevent another financial crisis might have a laudable intent, but swinging the pendulum too far and placing obstacles on banks that were not responsible for the 2008 recession is counterproductive. Congress would be wise to recognize this distinction and act accordingly.
Lopez is president of the Hispanic Leadership Fund, a national organization that advocates for public policies that promote liberty, opportunity, and prosperity for all Americans. Follow him on Twitter @MarioHLopez
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