How to Convert Resisters to Dodd-Frank Reform

Since the Dodd-Frank Act passed in 2010, Louisiana has lost 25 banks through mergers and acquisitions. Many banks cite increased regulatory costs as a factor in their decision to sell, and more consolidation is almost certainly on the way unless the regulatory burden is eased.

Therefore I felt I’d been punched in the gut reading a recent article about Congress members’ skeptical attitudes about the need for regulatory relief. The article included this discouraging assessment from Rep. Jim Hines: “This is an environment in which proposed changes to Dodd-Frank, meritorious or otherwise, are a lot less likely to get a dispassionate hearing.” I had believed that community bankers were in a good position to meet with some success in their efforts to persuade Congress to help them better serve their customers.

Those who are still reluctant to support common-sense reforms to Dodd-Frank should consider the following three points.

The first is a letter from Federal Deposit Insurance Corp. vice chairman Thomas Hoenig published Dec. 22 in the Wall Street Journal. Hoenig writes of big banks’ victory in repealing the swaps push-out rule under Dodd-Frank, "it is not lost on me that in the face of overwhelming bipartisan legislative, interagency and industry support for regulatory relief for community banks, the only relief in the legislation primarily benefits three of the largest banks." When even federal regulators say that regulatory relief is needed, it must mean we have reached critical mass. 

State regulators also believe that Congress needs to help lift the regulatory burden on community banks. This is evident from the testimony of Candace A. Franks, bank commissioner of the Arkansas State Bank Department, before the Senate Banking Committee on Feb. 10. Speaking on behalf of the Conference of State Bank Supervisors, she said:

My testimony today will highlight the importance of community banks and their relationship-based business model, the shortcomings of our current community bank regulatory approach, and state regulators' vision for a new framework for community bank regulation. I will also discuss specific ways in which Congress and the federal banking agencies can adopt right-sized policy solutions for community banks.

Clearly CSBS and state bank regulators in 50 states believe that changes are merited as well.

Lastly, consider the recently released Harvard Kennedy School study by Marshall Lux and Robert Greene. “Our findings appear to validate concerns that an increasingly complex and uncoordinated regulatory system has created an uneven regulatory playing field that is accelerating consolidation for the wrong reasons,” the study concludes. This report draws on data from the FDIC to demonstrate the value of community banking, the issues challenging small banks and the steps that lawmakers can take to address these challenges.  

Congressional action is required to achieve the changes that Hoenig, Franks and the Harvard study support. I hope that these issues can be addressed on their merits, rather than clouded by some lawmakers’ emotional attachment to Dodd-Frank. People can and should come together with goodwill to address the real issues that will benefit the customers and communities of our uniquely American community banking system.

Robert T. Taylor is chief executive officer of the Louisiana Bankers Association.