Democrats are warning that Republican efforts to provide regulatory relief for small banks could be a Trojan horse for efforts to roll back the 2010 Dodd-Frank financial reform law for big banks.
Both parties agree that community banks need relief from the financial regulations that have accumulated since the financial crisis meant to curb risks at megabanks like JPMorgan Chase and Citigroup that have trillions in assets.
But the effort may get stalled by liberals’ heightened worries about Wall Street’s influence on Capitol Hill.
“I’m not interested in moving proposals that will weaken or roll back Wall Street reform,” said Sen. Sherrod Brown, D-Ohio, at a Senate hearing Thursday on community banks.
Brown, a liberal who consistently pushes tougher regulation on megabanks, acknowledged the need for relief for smaller banks, who are seeking exemptions from examinations, regulations and mortgage rules intended for the big banks.
But he and fellow Wall Street critic Sen. Elizabeth Warren, D-Mass., indicated this week that they are still on high alert from December, when a bill to fund the government included a measure sought by big banks that undid one part of Dodd-Frank.
That small banks are making money shows that Congress and regulators have done a “pretty good job” of tailoring regulations to avoid placing overly burdensome requirements on community banks, Warren said.
“We should be very skeptical of regulatory relief bills that are promoted as helping small banks that are pushed by [American Bankers Association] lobbyists for the big banks,” she said Thursday.
Senate Banking Committee Chairman Richard Shelby, R-Ala., has made regulatory relief for community banks a priority early in 2015. “Something must be done to relieve the regulatory burden on institutions that provide essential banking functions to communities across America,” Shelby said Thursday, at the second hearing this week on the topic.
Regulators indicated when they testified earlier in the week that they agreed that community banks needed exemptions in several areas.
In particular, community banks, defined by the Federal Deposit Insurance Corporation generally as banks with less than $10 billion in assets, are seeking to have home loans they keep in their own portfolios exempted from the Consumer Financial Protection Bureau’s rules.
Daniel Blanton, the CEO of Georgia Bank and Trust, said that relationship banking has allowed him to make safe loans in circumstances that would be ruled out by the CFPB’s regulations today, such as when fathers approach him about getting home loans for their newly married children.
In the past, Blanton testified, he could make those loans. “Under the definition now, I know from day one they don’t qualify,” he said.
Nevertheless, Warren sounded skeptical about the need for relief in that area. At Tuesday’s hearing, she also raised doubts about another community bank priority — exempting banks with as much as $50 billion in assets from CFPB examination requirements. Currently, the limit is set at $10 billion.
“The big banks are going to keep using the small banks as a cover for their special rollbacks. … We shouldn’t fall for that trick,” Warren said, noting that most community banks were under $10 billion in size, and most were under $1 billion.
The idea that Congress is covering for Wall Street by exempting banks with less than $50 billion in assets is “just ridiculous,” said Tony Fratto, a partner at the communications firm Hamilton Place Strategies that represents some big banks.
“Large banks would see no changes,” Fratto said in a response to Warren, noting that instead it would be banks like the Bank of Hawaii, with $14.5 billion in assets, that would be affected, rather than the megabanks.
Warren’s concerns about the push for community bank relief were echoed by other Democrats on the panel.
“I think that regulatory relief, at least as I envision it, to make and help community banks and others be able to function in the marketplace and help consumers is a shared bipartisan interest,” said Sen. Bob Menendez, D-N.J. “I hope it is not the opportunity in which some will look to slay the very provisions that ultimately that have brought us further and further away from systemic risk,” he cautioned.
