The Subcommittee on Economic Growth, Tax, and Capital Access of the Committee on Small Business met Thursday morning to address concerns surrounding the regulatory effect on small banks.
Witnesses at the hearing included Shan Hanes, President and CEO, First National Bank of Elkhart; Roger M. Bevarage, President and CEO Oklahoma Bankers Association; and Marcus Stanley, Policy Director, Americans for Financial Reform.
The hearing, titled "Bearing the Burden: Over-regulation’s Impact on Small Banks and Rural Communities," first dives into where the uptick in regulation began: the crisis.
According to a memo for the hearing, between December 2007 and June 2009, America endured the worst recession since World War II. One of the key drivers of the recession was the collapse of financial institutions due to subprime lending and risky derivative trading. This occurrence left many wondering if banking was regulated enough.
The Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 was enacted to establish a more regulated and trusted banking system, but its effects have trickled down to small banks. The memo noted that over 80 percent of small banks have reported seeing their annual compliance costs increase at least 5 percent.
"Generally, regulatory burdens and compliance costs are greater for small firms that have less revenue and a small employee base to spread over costs," the memo stated. "Given this, small financial institutions such as community banks have been forced to bear a severe regulatory burden."
In his testimony, Hanes focused on the following points surrounding small bank regulation:
- Banks compete with competition on an uneven playing field.
- Banks must deal with the daily impact of new and enhanced bank regulations and impediments to growth for rural communities.
- Bank’s specific impediments to growth and impact on rural lenders.
- The current issues with appraisers in rural America and the impact on our business as lenders.
Bevarage recommended that Congress take action to ensure credit flows to communities across the country by supporting tailored regulations for the banking industry, improving access to home loans, and removing impediments to serving customers.
"America’s hometown banks have been the backbone of communities across the nation. Our presence in small towns and large cities everywhere means we have a personal stake in the economic growth, health, and vitality of nearly every community," he said. "Once again, this is particularly true for those banks that serve rural America. A bank’s presence is a symbol of hope, a vote of confidence in a town’s future. When a bank sets down roots, communities thrive. When they leave or reduce services, communities, and consumers do not thrive. It’s that simple."
"Rural banks will continue to serve their customers to the best of their abilities despite the many obstacles that have hurt their business models. Rural banks will compete with anyone on a level playing field and they have not backed down from such competition in the past. But when there is a combination of an unfair playing field and over burdensome regulations, all banks have great difficulty in surviving, not just competing," Hanes said. "Banks are drivers of the economy, and this is especially true for rural banks. With smart reforms to unfair competition, regulations that hold banks back from helping their customers and providing incentives for people to become involved in rural appraising, rural banks will once again be able to help their local economies grow."
Stanley, in his testimony, made two points regarding small bank regulation: First, both long-term economic trends and the experience of the 2008 financial crisis and resulting Great Recession have put major pressures on the community banking sector, and second, the period since the Dodd-Frank Act was passed in 2010 has been a period of economic recovery for community banks.
"Whatever the intentions behind these regulations may have been, the effect has been that many of the smallest financial institutions, our community banks, have borne a harsh regulatory burden," the memo stated. "Regulations have hampered the ability of these banks to serve their communities, and nowhere is this more apparent than in rural areas. Rural communities have had an especially difficult time rebounding from the recession."
Click here to view a video of the hearing.