Community Banks and Consumers, 1,
Red Tape and Over-Regulation, 0.
It seemed like only yesterday that President Donald Trump promised to “do a big number” on Dodd-Frank, political shorthand for the over-reaching, Obama-era law passed in 2010 to put speed limits, guardrails and brakes on Wall Street after the 2008 meltdown.
That “big number” finally arrived, in the form of S.2155, The Economic Growth, Regulatory Relief and Consumer Protection Act. S.2155 was passed by the U.S. Senate in March, and the U.S. House, on May 22, and then was signed into law by President Trump on May 24th.
It was a banner day for community banks, who have suffered under the weight of the Wall Street Reform and Consumer Protection Act for nearly a decade.
While the new law stops short of “repealing and replacing Dodd-Frank,” and its 2,300 pages, as some had called for, it promises to be a giant leap forward in efforts to preserve small community banks. It will help reverse the collateral damage caused by efforts to rein in Wall Street, as evidenced by the rapid disappearance of community banks from an increasing number of counties in Pennsylvania, the stagnation in the launch of de novo banks, and a spate of bank mergers.
According to Sen. Pat Toomey, a staunch conservative who was a stalwart leader in passing S.2155 and who himself “lived” the fall-out over banking over-regulation when he launched a bank in 2005, “It was a long, hard slog,” to pass S.2155. “I’m pleased we kept every Republican senator voting for it.”
“It’s an important victory for the economy and small business,” Toomey added. “It’s also an important reminder that we can get much accomplished, even in this polarized environment.”
S.2155 could not come soon enough, for not only community banks, but the average American who wants to buy a home or car, or start a new business. Community banks provide 60 percent of loans to small businesses and 80 percent of agricultural loans. They can often get to “yes,” when someone seeks a loan, while the faceless big banks often give loan-seekers a hard and fast “no.”
“This is truly a historic effort all around, from its bipartisan support in both the House and Senate, to full-throated support in the Administration, to the tens of thousands of community bankers across the country coming together to urge its passage,” PACB President/CEO Nick DiFrancesco said. “It truly underscores the importance of community banks to our country’s economic potential, the necessity of their presence in our communities and recognition of their need for relief.”
S.2155 is a robust package of community bank regulatory relief measures that will strengthen economic growth, job creation, and consumer protection, he added. Pennsylvania’s community banks ensure that citizens, whether in our very diverse urban neighborhoods or our rural communities, continue to have access to critical capital, which provides mortgages to families and loans to small businesses.
Congressman Keith Rothfus (R-12) a huge proponent of the bill notes, “the most important takeaway from S.2155 is that it right-sizes regulations for banks of various sizes.”
“Over the last few years, one-size-fits-all rules from Washington have led to higher costs and reduced access to financial services for many Americans. The new law will help more consumers get mortgages, loans for their businesses, and other services that they need to achieve the American Dream.”
Under the provisions of S.2155, the complex community bank capital requirements would be simplified to boost lending to local small businesses. Mortgage loans that community banks hold on their books would meet “qualified mortgage” standards, giving consumers more choices in securing a home mortgage. More well-rated community banks would face comprehensive examinations every 18 months, instead of every 12 months, freeing up resources to focus on local communities. Certain community banks would be allowed to file shorter quarterly financial reports twice per year, allowing them to devote more time to lending and fewer hours and agita on paperwork.
S.2155 would reform appraisal requirements to facilitate mortgage credit in rural communities, and preserves the existing, long-standing Home Mortgage Disclosure Act reporting standards for more than 90 percent of mortgages.
PACB waged a full-throttle lobbying effort to roll back Dodd–Frank over the past eight years.
Current ICBA Chairman and CEO of Standard Bank, PaSB in Monroeville, PA, Tim Zimmerman noted, “The passage of S.2155 was truly a historic team effort built on a foundation over eight years in the making. As soon as the impact of Dodd-Frank became clear, on top of an environment where the regulatory burden was already stifling, ICBA and PACB worked tirelessly side by side with community bankers toward regulatory relief. That included thousands of hours of lobbying in the halls of Congress, hundreds of letters to lawmakers, dozens of op-eds, media interviews, 15,000 grass roots messages to members of Congress, 500,000 social media impressions and 20,000 plus signatures over two petitions along with years of hearings and testimony.”
Toomey applauded that sustained, and ultimately successful, crusade.
“PACB was very helpful,” he said. “We were constantly getting important input on how onerous regulations were affecting community banks and their ability to lend. Their ongoing engagement was very, very helpful.”
To drive home the vast disparities between the big banks and the small, he encouraged community bankers to continue to “share their fantastic success stories and small business success stories” with members of Congress.
“Big banks don’t have those stories and aren’t in that space,” Sen. Toomey said.
“Community banks are an indispensable source of capital for small business, especially in small communities.”
Congressman Rothfus, Pennsylvania’s only representative on the House Committee on Financial Services stated, “PACB members played an important role in making the case for the bill and defending the many provisions that will help community banks and their customers. Thanks to the efforts of your members, much of Pennsylvania’s congressional delegation voted to send S.2155 to the President’s desk.”
For the past year, DiFrancesco and Troy Peters, PACB Chairman and President/CEO of Jonestown Bank & Trust Co., engaged in a Rolling for Repeal tour, criss-crossing the state on motorcycles to visit community banks and bring awareness to the Dodd-Frank Act’s harmful effects on community banks and consumers, and urging its repeal. One of their most recent stops was in Coatesville, a once-dying but now-rejuvenating town that serves as Exhibit A for the Dodd-Frank fallout.
At the time it was enacted eight years ago, Dodd-Frank was the most consequential Wall Street reform since the 1930s, when the Great Depression and the stock market crash sent tremors through consumer confidence and our nation’s economic EKG. Dodd-Frank was designed to undo the excesses that caused the 2008 meltdown, such as unsound lending and ill-conceived investment by big banks.
But the irony of the Great Recession and the “too big to fail” movement was that the large banks still got larger. The new onslaught of regulations clearly did not achieve their stated purposes. Hurt most were rural areas, where smaller banks provide a disproportionate share of loans.
Troy Peters saw the benefits of S.2155 in the face of one loyal customer.
“Jay, a successful business owner and first generation Indian-American customer of ours, came to us because he wanted to purchase a home,” Peters recalled. “He is a loyal customer and we wanted to help him and his family.”
Unfortunately, Jay could not purchase a home through Jonestown Bank & Trust Co. because he did not fit the Qualified Mortgage criteria. He had to go outside the banking industry to get the loan, and therefore most likely did not receive the proper disclosure and stable fixed market rate that he would have received from a community bank.
“S. 2155 will allow folks like Jay to truly live out the American dream,” Peters said.
“Over the past decade Pennsylvania communities have suffered through the loss of financial services because of Dodd-Frank’s collateral damage. S.2155 corrects the overreach of Dodd-Frank and keeps intense regulatory focus on the largest Wall Street banks. It is the people of Pennsylvania who benefit the most from this corrective legislation,” said DiFrancesco.
“Community bankers banded together, worked tirelessly, and achieved substantial regulatory relief via passage of S.2155,” ICBA President and CEO Rebeca Romero Rainey wrote in ICBA’s Main Street Matters blog. Romero Rainey wrote that while this law is an important breakthrough in community bankers’ ongoing regulatory relief efforts, it is by no means the end of the journey.
“No matter what the issue may be—whether it’s the need for less burdensome regulations around Bank Secrecy Act requirements, Consumer Financial Protection Bureau overreach, or leveling the playing field with tax-exempt credit unions and the Farm Credit System—ICBA’s relentless advocacy will continue to ensure an environment where community banks flourish,” she wrote.
The proof that victory is not final can be seen in maps of Pennsylvania showing how many of our 67 counties lack even one community bank.
A steadfast advocate of community banks, Cong. Rothfus shared, “Since the end of the financial crisis, we have seen an average of one community bank or credit union disappear every day. This has meant that consumers have faced higher costs and reduced access to vital financial products.”
Sixteen counties in Pennsylvania do not have a community bank headquartered there, and 15 more remain one merger away from that vacuum. PACB pledges to continue to advocate for financial access for every American, whether in rural valleys or urban neighborhoods.
“The banking sector, and small banks in particular, are still wildly over-regulated,” Toomey said. When he started a bank in 2005, he was shocked by the amount of regulation, he confessed—and that was before Dodd-Frank, he noted with incredulity.
“The federal government is still too prescriptive,” he stated.
“If we don’t have banks headquartered in a county, we don’t have a voice to those legislators and our needs are being overlooked,” DiFrancesco said. “We lose relationships and thus a seat at the table. Also, those communities access to financial services is compromised.”
“Community banks play a very important role in supporting Main Street businesses and American families,” Cong. Rothfus added. “This is often overlooked by opponents of regulatory reform. Unfortunately, the one-size-fits-all approach from Washington over the last decade has put community banks – which were not the cause of the financial crisis – at a disadvantage. This has led to consolidations and closures which limits consumer access and hurts underserved communities.”
The outpouring of gratitude to our federal lawmakers who voted for S.2155 has been swift and sincere.
Sen. Toomey, said some Democrats who voted for S.2155 are now being targeted by the left wing of their party. It will be difficult to secure those votes again, he predicted.
“This is why it’s so important for the Republicans to hold the House. I don’t think Nancy Pelosi will make regulatory reform a priority,” he said.
“Before I came to Congress, the previous administration had created an environment in Washington where government overreach was the new normal,” said Congressman Lou Barletta, who is now running for the U.S. Senate. “Due to the work of this Congress and the current administration, the economy is now roaring, with historically low unemployment, rising wages, bigger paychecks, and soaring confidence among consumers and job creators. We must continue this trend by cutting red tape and providing the American people with the tools they need to drive their local economies. By passing this bill, we are taking authority out of the hands of unelected Washington bureaucrats, tearing down overly burdensome regulations, and giving the people of Pennsylvania the power and tools they need to achieve the American dream.”
Ultimately, Dodd-Frank’s “one-size-fits-all,” approach, has made big banks bigger while smaller banks have suffered. In Pennsylvania alone, 500 bank branches have closed their doors as a result of this law.
The passage of S.2155 will roll back the burdensome and unnecessary Dodd-Frank regulations that prevent hardworking taxpayers from accessing the credit they need to buy a home or a car, or finance their own business. It also addresses the regulatory burdens that hinder Main Street financial institutions from serving America’s job creators by providing the credit they need to grow and create better paying jobs.
“By providing regulatory relief to local lenders, community banks can get back to their core mission of helping small businesses on Main Street expand and grow jobs in our local communities,” said Cong. Mike Kelly. “Community banks can now better serve their customers. By getting rid of overly burdensome Washington red tape and paving the way for more economic growth, this legislation is a win-win.”
“Deep customer relationships and local expertise make community banks an indispensable partner in efforts to revitalize Main Street,” added Cong. Rothfus.
Sen. Toomey said, “Community banks are an essential source of capital for small businesses, especially in small communities. They are the lifeblood of our economy and the source of innovation and ideas.”
S.2155 is a triumph for not only community banks, but every American, Toomey said, because “when we lower the regulatory burden, especially with unnecessary regulations, we lower the cost of compliance and make credit more available and affordable.”
And with that transformation, the American dream just became more available and affordable as well.