Give America's banks room to grow. They'll drive the economy forward.
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Several days ago, I had the honor of accompanying nine outstanding community bank leaders to a meeting with the president of the United States. For a full hour, President Trump engaged these bank CEOs with questions, demonstrating an understanding of their business models, a deep interest in the regulatory challenges they face, and an instinct toward addressing those challenges as quickly as possible.

The meeting couldn’t have come at a better time. This week, nearly 1,500 banking industry leaders — a record number — are descending on D.C. for the American Bankers Association’s Government Relations Summit. They will share the same message on Capitol Hill and with regulatory agencies that President Trump heard: Remove regulatory impediments and let us accelerate the American economy again.

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That’s not to say there shouldn’t be strong regulation. But that regulation shouldn’t get in the way of banks extending loans to creditworthy customers and otherwise serving their clients and communities. Yet in an environment where the Dodd-Frank Act and other recent regulations have cumulatively added 25,000 pages of new and proposed rules, and where banks are selling or merging at a pace of more than one each business day, it is clear that ill-tailored regulation is doing just that.

 

Some on Capitol Hill have attempted to use community banks’ continued resilience in the face of this onslaught as an excuse to leave the regulatory environment untouched. Indeed, many banks are profitable and loans are growing. But that’s what we should expect in a growing economy. Banks are lending because that is what banks do.

But what about the banks that have disappeared? Since the Dodd-Frank Act was enacted nearly seven years ago, more than 1,900 banks — or 24 percent of the industry — have disappeared. We now have fewer than 6,000 banks for the first time since the 1890s. Such rapid consolidation, combined with the lack of new entrants, is a troubling trend with negative consequences for customers and communities alike.

According to a 2012 FDIC report, there are more than 600 counties where a community bank is the only financial institution. If that bank disappears, there is no incentive for investors to start a new bank to serve that community. This leaves consumers and businesses with fewer choices of competitive products and services, which translates into less economic activity and slower growth in local communities.

The “everything’s just fine” point of view also loses perspective on potential. Banks could be lending more, and the economy could be growing faster, if regulations were rationalized. That’s what bankers are telling policymakers — that without reasonable and rational reform, we will never realize the thousands of businesses that could be started or scaled, the hundreds of thousands of homes that could be built and purchased and the millions of financial dreams that could come true but won’t because they don’t fit into the unnecessarily restrictive boxes our policymakers have contrived.

Consider loan growth. Loans are growing, but at half the pace they did years before the financial crisis. Community banks power the economy in part by providing nearly half of loans less than $1 million that go to small businesses, which in turn account for more than half of net new job creation. Is it any accident that both GDP growth and the business startup rate are running well below historical levels, especially at this point in an economic recovery?

And mortgages remain tightly bound by a web of Dodd-Frank rules. According to a recent ABA survey, just 9 percent of single-family mortgage loans made in 2016 were made outside of the “qualified mortgage” box, which means a one-size-fits-all arbitrary regulatory standard is keeping too many creditworthy families out of homes they can readily afford.

For those who look at bank income statements and think that only cosmetic regulatory changes are needed, the bankers gathered in Washington this week have a simple message: Imagine what we could do without such a burden. Imagine the new businesses started, new jobs created and new homes built.

Give America’s banks some reasonable room to maneuver — in a safe and sound manner — and we’ll drive the economy forward.

Rob Nichols is president and CEO of the American Bankers Association.


The views expressed by contributors are their own and are not the views of The Hill.