Bachus to Regulators: Cut Banks a Break

WASHINGTON — In his first official speech since becoming chairman of the House Financial Services Committee, Rep. Spencer Bachus defended community bankers Thursday, telling bank examiners to back off and let financial institutions lend more freely to help spur small business job growth.

"We all know that inadequate underwriting and loose credit standards contributed to the financial crisis but the pendulum has swung too far toward regulatory micro management," the Alabama Republican said. "We can't allow arbitrarily applied regulatory directives to stifle prudent lending."

Speaking at a small business conference hosted by the Federal Deposit Insurance Corp., Bachus said regulators should focus on preventing bad trends in the industry, including overly lax underwriting, but should not scrutinize every single loan written by community bankers.

 "Instead of focusing on patterns or practices that suggest poor underwriting or lax risk management some examiners are micro-managing the daily activities at community banks," Bachus said. "All of us in Washington, both in Congress and at the agencies represented in this forum, must continue to examine the mixed messages being sent to community banks which continue to create uncertainty and impede recovery."

Bachus said the theme for his agenda this year will be to focus on helping businesses expand and boost the economy by pushing back against regulatory burdens that inhibit bank lending, including the hundreds of regulations being implemented under the sweeping Dodd-Frank regulatory reform act that was signed into law last year.

"Under my chairmanship, the Financial Services Committee will focus this year on fashioning policies that encourage, not inhibit, job creation and facilitate a robust economic recovery," he said. "Our focus will be to ensure that over three hundred new federal rules mandated by Dodd-Frank be written in a way that does not further impede job growth, burdening American small business in a sea of bureaucratic red tape."

The Alabama Republican's tone and theme were significant, indicating strong support for community bank issues. Under the banner of job growth – which is the theme of Republican leadership – Bachus painted the Dodd-Frank bill as a job-killing measure, echoing a similar approach taken by GOP leadership to the health care reform bill.

Bachus said that community banks have long been the backbone of America's small businesses and that they need to be able to lend without the regulators second guessing their lending decisions. He blamed Dodd-Frank for interfering in that process.

"Unfortunately, the new regulatory structure of Dodd-Frank will redefine the way our economic system and our financial services system operate in the future, constricting jobs and punishing Main Street businesses that did nothing to cause the crisis," Bachus said. "During my conversation with employers, I am constantly told that one of the biggest obstacles they face is receiving financing from banks. The search for sufficient capital is a struggle even for companies with good credit history and long established relationships with local banks. The majority of small businesses depend on their community banks for credit."

Bachus also took shots at the government's actions to bailout systemically significant institutions during the financial crisis, saying those decisions had left community banks at a competitive disadvantage.

"This morning Chairman [Sheila] Bair said that while failures peaked in 2010, the FDIC's losses were down because smaller institutions were failing," he said. "The fact that smaller community banks are failing can be partially traced back to government policies that gave our too big to fail institutions in my opinion a competitive advantage. The fact that community banks are failing will have disastrous impact on small businesses going forward because these small banks are more likely to extend credit to small businesses than their big bank counterpart."

Bachus, however, did praise a joint regulatory guidance spearheaded by the FDIC nearly a year ago which directed examiners not to overly limit prudent small business lending, but faulted the agencies for not drilling the directive down to examiners out in the field.

"That guidance is not always filtering back to the operational level as indicated by the constant stream of comments I and my colleagues, both Republicans and Democrats, receive from community banks and their small business customers," Bachus said. "The guidance is being offset by examiners and other regulators in the field who have not followed the policies promulgated by their agencies in Washington but continue to be overly restrictive when evaluating the credit decisions of those they regulate. This has become so commonplace it has become known as the mixed messages problem."