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A recent research paper found that community banks' assets, along with market share in most types of commercial lending, have fallen since the Dodd-Frank Act was passed. The report is giving advocates of smaller institutions more data to rally around.
February 13 -
Sen. Elizabeth Warren said community banks have continued to be profitable despite new rules under the Dodd-Frank Act while raising fresh warnings about unnecessary changes to the financial reform law in the guise of regulatory relief.
February 12 -
Support for fully exempting community banks from the Volcker Rule continues to grow, but advocates fear it could be waylaid by a larger fight in Congress over changes to the Dodd-Frank Act.
February 6 -
WASHINGTON The Senate Banking Committee will hold a hearing Tuesday examining regulatory relief for small banks and credit unions, kicking off what is expected to be a central debate this term over changes to the Dodd-Frank Act.
February 4
Regulatory burdens allow big banks to flourish at the expense of their smaller competitors. This has become so obvious in the aftermath of the Dodd-Frank Act that even Goldman Sachs chairman Lloyd Blankfein admits to it.
The financial industry is an "expensive business to be in if you don't have the market share and scale," Blankfein
Blankfein's comments were made in the context of Goldman's institutional client services business. But these concerns are broadly applicable across the financial services industry. There is nothing wrong with big, established banks gaining market share because they offer the mix and quality of products and services that customers want. There is something wrong, however, with these large banks beating off their smaller, newer rivals with a club fashioned by Washington legislators and regulators.
The Senate Banking Committee has considered the regulatory burden on community banks in two recent hearings. At
Before Dodd-Frank, financial institutions were able to make loans to customers with whom they had long relationships and therefore had good reason to anticipate would be willing and able to repay. Now financial institutions are compelled to turn away these same customers because their loans would carry too much regulatory risk. Long-term, mutually beneficial banking relationships are crumbling as new regulations mount.
The federal regulators who
It is true that rulemaking would be slowed if regulators are required to do the additional work upfront to answer the critical question of whether the benefits of a new rule outweigh the costs. But as I described in a 2012
In a new Harvard Kennedy School
Yet Sen. Elizabeth Warren posited at the Senate Banking Committee hearings that small banks' calls for regulatory relief are in fact veiled attempts by large banks to chip away at financial reform. After all, she argued, Dodd-Frank exempted community banks from certain provisions and authorizes regulators to make additional adjustments.
The problem is that exemptions don't always work. As Sen. Jeff Merkley explained, requirements can trickle down from big to small banks. He described how the following conversation often occurs between regulators and community bankers:
"Well, you must do X."
"Well, why is that?"
"Well, it's a best practice, and so you really don't legally have to do it, but we expect you to do it."
This scenario is consistent with the findings of a February 2014
Even when small banks receive explicit exemptions, we found that rules nonetheless impose additional burdens upon them. For example, although the Bureau of Consumer Financial Protection does not directly supervise community banks, the new agency was one of the biggest concerns for the small banks in our survey. Similarly, nearly half the banks in our survey reported being affected by the Durbin Amendment, a price cap on debit card processing fees that expressly does not apply to small banks. Small banks also expressed considerable frustration that Dodd-Frank's regulatory burdens were not producing any offsetting benefits for bank customers.
Poorly crafted regulations may warm some people's hearts because they enjoy sticking it to the financial industry. But the real victims of such regulatory vengeance are the individuals, companies, and communities that rely on banks of all sizes.
We should get rid of regulations that cost more than they are worth. This is a sensible way to ensure that financial institutions large, small, well-established and new can serve customers effectively and affordably.