Political foes agree: Small banks pounded by Dodd-Frank

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Contrary to popular belief, bipartisan policymaking is alive in Washington. Amid acid partisan rancor, the Treasury Department’s recent report on banking regulations strikes on common ground shared by many in the nation’s capital: the need to reform laws affecting community banks.

The Treasury report spotlights the regulatory burdens plaguing these locally-based institutions, which provide nearly half of the banking industry’s small-business loans despite making up less than 20 percent of its assets. Despite their low financial risk and high economic reward, community banks suffer from an onslaught of regulations — exacerbated by Washington’s response to the 2008 financial crisis — that is contributing to the nation’s tepid economic growth.

{mosads}Mindful that policymakers’ Wall Street-directed response to the crisis caused collateral damage on Main Street and eager to bolster the weakest economic rebound since World War II, Democrats and Republicans have demonstrated common cause in working to ease the regulatory burden on community banks.


That community bank relief is a rare source of agreement at a time of hyperpartisanship should come as little surprise. There are community banks in every congressional district, serving as an indispensable source of credit for urban, suburban and rural communities.

I testified before Congress this month while former FBI Director James Comey appeared before the Senate Intelligence Committee and a rollback of the Dodd-Frank Act passed the House without a single Democratic vote. But as a Texas community banker asked to address the Senate Banking Committee on Capitol Hill, I did not experience the partisan gnashing of teeth I might have expected from Washington.

Instead, I heard from senators on both sides of the aisle committed to reforming the nation’s one-size-fits-all financial regulatory system in favor of a tiered model based on institution size and risk.

It wasn’t just talk. Much of the debate over financial regulatory reform has shifted to the Senate, and there is substantial bipartisan support for community bank relief in that chamber. Last year, 70 senators signed a letter to the Consumer Financial Protection Bureau seeking an exemption for community banks from many of the agency’s rules.

Already this year, there are numerous bipartisan bills pending in the chamber, including measures offering relief from new mortgage regulations, soon-to-be-implemented data-collection standards and capital requirements designed for global financial firms.

The Treasury report expands the opportunity for pro-community bank bipartisanship. Following recent community banker meetings at the White House and Treasury Department, including a gathering of more than 100 in the Jacqueline Kennedy Garden last month, administration officials are responding to the call for reforms that will increase community-based lending and promote a more robust economic recovery.

The Treasury’s report includes provisions to strengthen community bank mortgage lending, ease commercial lending rules that harm small businesses and farms and refocus capital rules that were meant for the largest and riskiest financial firms but have roped in local institutions.

This ceaseless barrage of duplicative, one-size-fits-all regulations — which have increased by nearly 40 percent since 2005 — has changed the nature of community banking from local investment to paperwork, compliance and examination. In a 2015 survey from the Independent Community Bankers of America, three-quarters of respondents said new mortgage regulations are keeping them from making more residential mortgage loans.

A report released in February by the Federal Reserve Bank of Dallas identified regulatory burden as the most prominent factor limiting lending to small businesses.

Community banks serve their communities in good times and in bad. They have been instrumental in helping the nation recover from the financial crisis and economic downturn that continues to hamper solid job growth and higher wages. But the nation continues to be hampered by a lethargic rebound with a growth rate of just over 2 percent — the weakest in the post–war era. It doesn’t have to be this way.

Tailoring regulations to the size and risk profile of affected institutions would ensure appropriate oversight of the largest financial firms while providing more flexible rules for the local banks that pose no systemic threat.

Recognizing the economic benefits of local banking, Republicans and Democrats are working to advance policies designed to free Main Street community banks from government regulations designed for larger and riskier Wall Street financial firms.

With the new Treasury report making waves in the nation’s capital and the plethora of bipartisan bills advancing in Congress, there is an opportunity for Washington to find common cause in fixing what’s wrong with our regulatory structure by promoting what’s right with it: community banks.

Scott Heitkamp is president and CEO of ValueBank Texas in Corpus Christi, Texas, and chairman of the Independent Community Bankers of America, the primary trade group for small U.S. banks.

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

Tags Bank Dodd–Frank Wall Street Reform and Consumer Protection Act economy Finance Financial crisis of 2007–2008 Great Recession Great Recession in the United States Presidency of Barack Obama United States federal banking legislation
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