Regulation Is a Fair Price for Government Support

In all the years I've been covering the banking industry, I've never been able to square bankers' constant demands for less regulation with their repeated requests for more government backing on loans, deposits and insurance.

This disconnect was highlighted in multiple hearings on Capitol Hill this week, where bankers and industry lobbyists testified for, and against, more government involvement without seeming to realize the irony of their mixed message. 

The hearing that received the most attention was one held by a House financial institutions subcommittee in which several community bankers testified that the Dodd-Frank Act and other new laws and regulations have substantially increased compliance costs and could ultimately threaten their existence.

Meanwhile, in other hearing rooms this week, bankers were urging lawmakers to: pass a Farm Bill that would expand government guarantees for farm loans and preserve federally backed crop insurance for bank customers; reauthorize a program that provides property owners with government-subsidized flood insurance so they can obtain government-backed mortgages; and reauthorize and expand funding for the Export-Import Bank, which provides banks with substantial government guarantees on trade-related loans.

It's worth noting, too, that community bankers continue to push for an extension to the soon-to-expire Transaction Account Guarantee program that offers unlimited deposit insurance on transaction accounts.

I'm not suggesting that these aren't worthwhile programs. The Ex-Im Bank's reauthorization — hung up by the usual partisan bickering — seems to be a no-brainer given the importance of global trade to the overall economy. And without flood insurance many home loans would simply never get made.

And I think it's entirely possible that some regulations are overkill. It seems a colossal waste of time, money and trees for banks to send out privacy notices that no one reads. And who can blame banks for charging thousands of dollars to close a mortgage given the mounds of government-mandated paperwork they have to process?

Still, something has to give.

Considering the trauma our economy has been through, new regulations that better protect consumers — mandating clearer disclosures on overdraft policies, for example — seem perfectly reasonable.

What's hard to understand is how bankers can complain about these added regulations when they have received so much government support over the last few years.

Small-business lending, for example, would be nearly nonexistent these days without government intervention. The Small Business Lending Fund has supplied hundreds of small banks with low-cost capital to fund loans, and a temporary increase in guarantee levels on Small Business Administration loans led to record SBA lending for banks of all sizes last fiscal year. It is no coincidence that overall business lending slowed in April — the same month that the SBA guarantee reverted from 90% to its usual 75%.

I haven't even mentioned deposit insurance.

Simply put, if community banks want to retain their sweet government perks, then they need to accept the trade-off of more oversight.

Besides, community banks caught a lot of breaks in Dodd-Frank, and in many ways they are well-positioned to win back commercial and consumer business that for years they have been losing to their big-bank counterparts.

I spoke with lots of bankers for the cover story I wrote for American Banker Magazine's May issue and many of them said that, despite the added regulations, now is the best time ever — yes, ever — to be a community a banker.

Unfortunately, too many bankers remain focused on turning back the clock rather than trying to seize these new opportunities.

Alan Kline is the news editor of American Banker. The views expressed are his own.