In our recent American Banker article, we suggested that the Dodd-Frank Act and accompanying regulations are akin to use of a grenade to control garden undergrowth. On September 16, representatives of smaller banks and credit unions echoed our comments in a hearing before the U.S. Senate Committee on Banking, Housing & Urban Affairs. During the hearing, those bank representatives requested relief from what they called "unnecessary requirements that do little to improve safety and soundness, but add significantly to the cost of providing [financial] services."1
The hearing marks an important educational step in reform efforts, providing the Senate Committee valuable information from both regulators and stakeholders in the community banking world. The hearing began with a panel of representatives from the FDIC, the OCC, the Federal Reserve, the NCUA and the Conference of Bank Supervisors, who gave insight into community banks and how they differ from larger "too-big-to-fail" banks in terms of client base, relationship focus and regulatory policy. The regulators described in detail several areas where they have attempted to use their current statutory authority to reduce the regulatory burdens for smaller financial institutions.
The second panel included industry representatives, who described the compliance burdens on small financial institutions. While the regulators provided general policy comments, the industry representatives were more explicit about their positions on specific pending legislation, including the CLEAR Relief Act (S. 1349), the RELIEVE Act (S. 2698), the Privacy Notice Modernization Act (S. 635), the HELP Rural Communities Act (S. 1916), the Credit Union Share Insurance Fund Parity Act (H.R. 3468; see also S. 2699), the Capital Access for Small Community Financial Institutions Act (S. 1806), the Mortgage Choice Act (S. 1577), and the CFPB Examination and Reporting Threshold Act (S. 2732). Although not necessarily relevant to a Senate Committee hearing, the industry representatives also took advantage of face time with regulatory representatives to comment on certain pending regulatory proposals.
Most of the witnesses were positive about the health of the community banking system and the regulatory efforts to minimize Dodd-Frank-related burdens on community banks, but agreed that the current statutory structure imposes overly-burdensome compliance regulations on community banks. The witnesses' testimony reflected three common suggestions for how Congress should approach any potential reform. First, each repeated the familiar mantra that the burden on smaller financial institutions must be commensurate with the risk those institutions pose to the safety and soundness of the banking system as a whole. Second, the witnesses agreed that to meet the goal of commensurate burdens, flexibility should be encouraged in any future legislation so regulators can apply the legislation on a sliding scale, reducing the burdens on smaller financial institutions. Finally, many of the witnesses appeared to share the opinion that asset thresholds for defining a community bank should be raised so that more financial institutions may take advantage of moderately reduced regulatory burdens.
We will continue to monitor and provide updates on significant legislative, regulatory and policy developments related to the Dodd-Frank Act's regulatory burdens on smaller banks and credit unions.
1Testimony presented at the hearing by representatives of the FDIC, the OCC, the board of governors of the Federal Reserve System, the Office of Examination and Insurance of the National Credit Union Administration, the Kentucky Department of Financial Institutions (on behalf of the Conference of State Bank Supervisors), the American Bankers Association, the Independent Community Bankers of America, the Credit Union National Association, the National Association of Federal Credit Unions, Americans for Financial Reform, and the Center For Responsible Lending can be found here.