LBA Statement on U.S. Senate Passing First Significant Changes to Crisis Era Legislation
Statement By Robert Taylor, LBA Chief Executive Officer
In 2010, Congress passed the Wall Street Reform and Consumer Protection Act, better known as the Dodd-Frank legislation, in response to the financial crisis centered around residential mortgage lending, the failure of the existing U.S. financial regulatory framework to anticipate and act upon signs of growing risk in the system and the direct U.S. government aide to prevent failures of large U.S. financial institutions. Greater consumer protections were instituted in the creation of the Consumer Financial Protection Bureau. Since 2010, federal regulatory agencies have implemented this legislation with mixed results. Generally, the U.S. financial system is more stable today than in 2010 through stronger and more meaningful capital requirements, greater focus on identifying potential risks and greater attention on liquidity requirements.
Louisiana bankers have not found it necessary to have federal government assistance to employ the tried and true fundamental banking principals of sound banking practices and operate in a safe and sound manner. The CFPB has brought the protection of the consumer into greater focus in Washington, but Louisiana’s community banks never did lose that focus. Louisiana bankers believe that educating a customer on the financial matters that impact them is the best way to protect them from financial sharks. That is why Louisiana bankers have been so active in financial education in their communities and schools since the 1950’s. Community banking is relationship banking. Bank customers treated fairly and professionally have been and will remain the key to ongoing success for the communities the banks serve and the banks themselves.
As with any significant changes enacted from Washington, D.C., Dodd-Frank has flaws and unintended consequences. A group of Louisiana bankers met with Senate Banking Committee Chairman Chris Dodd, the namesake of the Dodd-Frank legislation, in Washington during consideration of that legislation. In that meeting, he told the bankers his legislation was not intended to negatively affect community banks. The experience of Louisiana’s community bankers, and more importantly their customers, since the passage of Dodd-Frank shows that to be inaccurate. A significant flaw in Dodd-Frank is its application to community banks that had nothing at all to do with the financial crisis. Louisiana community banks have had their costs increase substantially to comply with regulations with little to show for it in increased safety and soundness and consumer protection. We hear from bankers that consumers have found credit more difficult to access, end up having to wait longer to get the credit approved, pay higher costs to obtain the credit and generally feel the long arm of the federal government’s attempt to protect them. Member of Senate Banking Committee U.S. Sen. Mark Warner (D-VA) stated ‘Virginia only lost one community bank during the financial crisis. We’ve lost 21 since Dodd-Frank passed. Regulations should keep Wall Street in check, not run small community banks out of business.’ Sen. Warner voted for S. 2155. Louisiana also lost only one bank during the financial crisis. Louisiana has lost 38 community banks since Dodd-Frank was enacted in 2010. Further, since Dodd-Frank passed there are only seven new bank charters in the country, an extremely small number investors commonly attribute in large part to excessive cost of regulatory compliance.
Louisiana bankers are grateful to the U.S. Senate, and particularly Sens. John Kennedy (R-LA) and Bill Cassidy (R-LA), for passing the Economic Growth, Regulatory Relief and Consumer Protection Act, S. 2155. It is significant that democrats and republicans came together to pass legislation almost wholly focused on community banks. That shows an understanding that Dodd-Frank overstepped in its impact on community banking. It is important to note that the reforms impacting Wall Street and the consumer protection embodied in the Consumer Financial Protection Bureau remain intact in law. S. 2155 is primarily a series of targeted relief for community banking and their customers. For example, residential mortgage changes in the bill will assist bankers in serving customers, especially those serving rural areas of the state by easing the appraisal requirements. It’s instructive that the state bank regulators around the country support many of the community bank provisions in S. 2155. These state bank regulators see through their examinations the same thing the bankers have seen: the need to better calibrate the law to suit the community bank model.
S. 2155 now moves to the U.S. House of Representatives for their consideration.