Regulators vs. Your Local Banker
Federal rules are choking community banking. Here’s how Congress can step in and offer relief.
By Camden R. Fine
March 10, 2015 7:09 p.m. ET
The steady piling of regulations on community banks has brought Washington to a crossroads. Policy makers can either reform the system to ensure regulations proportional to bank size and complexity, or they can continue toward a future of fewer, larger and riskier financial institutions. Left unchecked, regulatory overkill threatens the very survival of America’s local banking industry and the local entrepreneurs who depend on it.
A recent study by Marshall Lux and Robert Greene of the Harvard Kennedy School, “The State and Fate of Community Banking,” details the risks government overregulation poses to community banks and the markets they serve. Released in February, the study found that America’s community banks continue to play a vital role in key lending segments, providing 77% of agricultural loans and more than half of small-business loans. Well capitalized and less leveraged than larger institutions, community banks stepped up lending following the 2008 financial crisis while their too-big-to-fail competitors closed their doors to borrowers.
Messrs. Lux and Green conclude that while community banks “continue to play a uniquely important role in U.S. agricultural, residential and small business lending markets . . . and while community banks weathered the crisis with greater resilience than many mid-size counterparts, since the [2010] passage of the Dodd-Frank Act the pace at which community banks have lost market share is nearly double what it was during the crisis.”
In other words, despite the benefits of the safer and more secure community-bank business model, regulation is fueling consolidation. And as the Harvard study noted, regulatory burdens, which have significantly increased since the crisis, pose a disproportionate cost to smaller community financial institutions. Washington must move quickly if it is to reverse the damaging effects of applying these post-crisis one-size-fits-all regulations to community banks.
Testifying before the Senate Banking Committee on Feb. 12, John Buhrmaster, then-chairman of the Independent Community Bankers of America and president and CEO of 1st National Bank of Scotia, N.Y., warned that unchecked regulation will kill off community banking and localized economic growth: “The rich tradition of community banking—built on personal relationships, customized offerings, and local decision making—is at risk today because of regulatory overkill grossly out of proportion to any systemic or consumer risk posed by community banks.”
ICBA, which represents 6,400 community banks nationwide, has called for regulations tiered and proportionate to the size and complexity of regulated institutions. Less-complex institutions should be subject to less-complex regulation, while the largest and riskiest firms should face the strictest oversight. Makes sense, right? With government regulation fueling banking consolidation, the onus is on Washington to reverse the trend.
Fortunately, the ICBA has identified a number of rules ripe for reform that would provide much-needed regulatory relief to community banks. The ICBA’s “Plan for Prosperity” focuses on three areas: offering community banks relief from certain mortgage regulations to promote local lending, improving access to capital to sustain community bank independence, and reforming regulators’ oversight and examination practices to better target the true sources of financial risk.
Among its many provisions, the ICBA plan would revise the Basel III capital rules to focus more on large and international banks, improve accountability in bank exams by establishing a workable appeals process, and strengthen the industry’s voice in Washington by creating an assistant Treasury secretary for community banks.
The 114th Congress should, as soon as possible, amend federal banking regulations and end the mortal threat regulatory overreach poses to hometown community banks and the local economies they serve. The nation’s community banks are waiting at the crossroads. They have done their jobs very, very well. It is now time for lawmakers to do theirs.
Mr. Fine is president and CEO of the Independent Community Bankers of America.
http://www.wsj.com/articles/camden-r-fine-reg...1426028957
Federal rules are choking community banking. Here’s how Congress can step in and offer relief.
By Camden R. Fine
March 10, 2015 7:09 p.m. ET
The steady piling of regulations on community banks has brought Washington to a crossroads. Policy makers can either reform the system to ensure regulations proportional to bank size and complexity, or they can continue toward a future of fewer, larger and riskier financial institutions. Left unchecked, regulatory overkill threatens the very survival of America’s local banking industry and the local entrepreneurs who depend on it.
A recent study by Marshall Lux and Robert Greene of the Harvard Kennedy School, “The State and Fate of Community Banking,” details the risks government overregulation poses to community banks and the markets they serve. Released in February, the study found that America’s community banks continue to play a vital role in key lending segments, providing 77% of agricultural loans and more than half of small-business loans. Well capitalized and less leveraged than larger institutions, community banks stepped up lending following the 2008 financial crisis while their too-big-to-fail competitors closed their doors to borrowers.
Messrs. Lux and Green conclude that while community banks “continue to play a uniquely important role in U.S. agricultural, residential and small business lending markets . . . and while community banks weathered the crisis with greater resilience than many mid-size counterparts, since the [2010] passage of the Dodd-Frank Act the pace at which community banks have lost market share is nearly double what it was during the crisis.”
In other words, despite the benefits of the safer and more secure community-bank business model, regulation is fueling consolidation. And as the Harvard study noted, regulatory burdens, which have significantly increased since the crisis, pose a disproportionate cost to smaller community financial institutions. Washington must move quickly if it is to reverse the damaging effects of applying these post-crisis one-size-fits-all regulations to community banks.
Testifying before the Senate Banking Committee on Feb. 12, John Buhrmaster, then-chairman of the Independent Community Bankers of America and president and CEO of 1st National Bank of Scotia, N.Y., warned that unchecked regulation will kill off community banking and localized economic growth: “The rich tradition of community banking—built on personal relationships, customized offerings, and local decision making—is at risk today because of regulatory overkill grossly out of proportion to any systemic or consumer risk posed by community banks.”
ICBA, which represents 6,400 community banks nationwide, has called for regulations tiered and proportionate to the size and complexity of regulated institutions. Less-complex institutions should be subject to less-complex regulation, while the largest and riskiest firms should face the strictest oversight. Makes sense, right? With government regulation fueling banking consolidation, the onus is on Washington to reverse the trend.
Fortunately, the ICBA has identified a number of rules ripe for reform that would provide much-needed regulatory relief to community banks. The ICBA’s “Plan for Prosperity” focuses on three areas: offering community banks relief from certain mortgage regulations to promote local lending, improving access to capital to sustain community bank independence, and reforming regulators’ oversight and examination practices to better target the true sources of financial risk.
Among its many provisions, the ICBA plan would revise the Basel III capital rules to focus more on large and international banks, improve accountability in bank exams by establishing a workable appeals process, and strengthen the industry’s voice in Washington by creating an assistant Treasury secretary for community banks.
The 114th Congress should, as soon as possible, amend federal banking regulations and end the mortal threat regulatory overreach poses to hometown community banks and the local economies they serve. The nation’s community banks are waiting at the crossroads. They have done their jobs very, very well. It is now time for lawmakers to do theirs.
Mr. Fine is president and CEO of the Independent Community Bankers of America.
http://www.wsj.com/articles/camden-r-fine-reg...1426028957
