WASHINGTON, June 15, 2016 - Representatives of small, rural banks are pleading for Congress to ease the regulatory burden that resulted from the Dodd-Frank reforms enacted after the Great Recession.
While most of the hundreds of regulations required under Dodd-Frank were aimed at the big financial institutions blamed for the financial crisis, witnesses told a House Small Business subcommittee hearing last week that small, community banks often have been affected by a “trickle down” effect. Committee staffers said this occurs when supervisors, “informally and perhaps not wholly intentionally, create compliance expectations for smaller banks that resemble expectations created for larger institutions.”
Shan Hanes, president of the First National Bank of Elkhart, Kansas, tried to show the lawmakers how increased regulations are affecting banks that serve small communities like Elkhart, with a population of about 2,000. Hanes held up two sheets of paper and said they represented the forms a bank like his had to fill out 20 years ago for a home mortgage, when he first got into banking.
Next, to represent today’s requirements, he held up a half-inch thick stack of papers and riffled it in the air. “They have made things so complicated, customers won’t even read the document,” Hanes said.
Hanes was joined at the hearing by Roger Beverage, CEO of the Oklahoma Bankers Association (representing the American Bankers Association) in asking for relief for small banks from what they said was the onslaught of new regulations that followed the passage of the Dodd-Frank Act in 2010. They said the new rules, with the added compliance costs, are driving small community banks out of business.
A third witness, Marcus Stanley, policy director for Americans for Financial Reforms, agreed that some reforms are needed, but he said some of the proposals being considered by Congress to help smaller banks are written too broadly and that larger banks could use these “loopholes” to once again game the system.
Rep. Judy Chu of California, the subcommittee’s ranking Democrat, also cautioned against moving too quickly, noting that in the financial collapse that prompted the Dodd-Frank law, more than $16 trillion in wealth disappeared as the bottom fell out of the housing market. “Our top priority,” Chu said, “is to protect consumers.”
Rep. Tim Huelskamp, R-Kan., chairman of the Subcommittee on Economic Growth, Tax and Capital Access, said that in many instances, rural banks are staying alive by merging with larger institutions that may not understand the local community.
“In rural towns without many other alternatives for access to capital, the results of top-down regulation can be devastating and impact the whole town,” Huelskamp said. “Home mortgage lending, small business lending, agricultural lending ‒ all areas where community banks play a lead in providing capital‒ become much more difficult, and much more costly to consumers.”
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