{"id":3296,"date":"2017-04-13T23:35:42","date_gmt":"2017-04-14T03:35:42","guid":{"rendered":"https:\/\/www.sogolytics.com\/blog\/?p=3296"},"modified":"2019-09-24T08:41:30","modified_gmt":"2019-09-24T12:41:30","slug":"the-price-of-regulations-on-community-banks","status":"publish","type":"post","link":"https:\/\/www.sogolytics.com\/blog\/the-price-of-regulations-on-community-banks\/","title":{"rendered":"The Dodd-Frank Disconnect &#8211; The Price of Regulations on Community Banks"},"content":{"rendered":"<p>The Dodd-Frank regulations\u2014enacted in response to the collapse of Lehman Brothers and the other near failures of 2008 and 2009\u2014have caused banks to be more cognizant of the risks and more careful in their lending practices, extending loans only to the most qualified customers. The largest institutions are now subject to \u201cstress tests,\u201d a simulation developed by the Federal Reserve to enable them to assess how a given financial institution\u2019s portfolio would hold up if they were faced with their own \u201cLehman moment.\u201d Furthermore, the Volcker Rule restriction prohibits federally insured institutions from trading for their own profit, while also limiting their ownership of risky investments.<\/p>\n<div class=\"div-minispacer\"><\/div>\n<blockquote><p><em>\u201cCompliance has become a major distraction for community bank managers. Any community banker will tell you that their job has fundamentally shifted from lending and serving customers to struggling to stay on top of ever-changing rules and guidance.\u201d<\/em> <strong>\u2014<\/strong>Marshall Lux, John F. Kennedy School of Government at Harvard University<\/p><\/blockquote>\n<div class=\"div-minispacer\"><\/div>\n<p>According to the Federal Reserve, commercial bank loans have increased 77% since hitting a post-crisis low in October 2010, and total loans and leases by banks grew by almost 7% per year during the last three years. And, bank profits have been soaring. <strong>The Law of Unintended Consequences<\/strong> Despite the seemingly positive outlook, during a meeting with small business owners, President Trump proclaimed: <em>&#8220;Dodd-Frank is a disaster. We&#8217;re going to be doing a big number on Dodd-Frank.&#8221;<\/em> The rules aimed at large, multifaceted institutions have fallen hard on banks with less than $10 billion in assets\u2014a group that accounts for about two-thirds of all small-business lending. Dodd-Frank was built primarily to address the excesses of large, global institutions, not small-town banks that take risks on people they know, and don\u2019t pose the same risks to the financial system as large banks. It&#8217;s a disconnect that should be recognized\u2014and repaired.<\/p>\n<div class=\"div-minispacer\"><\/div>\n<blockquote><p><em>\u201cRegulation is killing community banks, and if the process is not reversed, we could end up in a world where we have four big banks in this country.\u201d <\/em> \u2014Steve Mnuchin, Secretary of the Treasury<\/p><\/blockquote>\n<div class=\"div-minispacer\"><\/div>\n<p><strong>The Financial CHOICE Act: Regulatory Relief for Community Banks and Credit Unions <\/strong> In 2016, House Financial Services Committee Chairman Jeb Hensarling (R-Texas) Introduced the <a href=\"http:\/\/financialservices.house.gov\/uploadedfiles\/financial_choice_act_comprehensive_outline.pdf\">Financial CHOICE Act<\/a> (Creating Hope and Opportunity for Investors, Consumers, and Entrepreneurs) to replace the Dodd-Frank Act and promote economic growth. The CHOICE Act includes regulatory relief for community banks and credit unions and would repeal the Volcker Rule (limiting trading by financial institutions), and the Durbin Amendment (limiting debit card transactions fees). The CHOICE Act includes reforms to ease the strain on consumers finding it increasingly difficult to access affordable credit, as well as that of community financial institutions unable to offer the products and services that those consumers demand.<\/p>\n<div class=\"div-minispacer\"><\/div>\n<blockquote><p><em>\u201cThe regulatory pendulum had likely swung too far in the aftermath of the 2007 to 2009 financial crisis. Community and regional banks in particular should be treated with a lighter touch based on each institution&#8217;s risk profile rather than one-size-fits-all rules.\u201d<\/em> \u2014Dennis Lockhart, Former Federal Reserve Bank of Atlanta President and CEO<\/p><\/blockquote>\n<div class=\"div-minispacer\"><\/div>\n<p>Among other reforms, the law would require financial regulatory agencies to appropriately tailor regulations to fit an institution\u2019s business model and risk profile, thereby reducing pointless compliance costs and allowing banks to devote more of their operating budgets to meeting customer needs. A significant provision provides <strong><em>\u201cRelief from Regulatory Burden for Community Financial Institutions.\u201d <\/em><\/strong> The proposed law has been subject to extensive hearings, and the outcome of this legislation and the overall fate of Dodd-Frank remain uncertain. However, some or all of the provisions of the Financial CHOICE Act could eventually become law. Chairman Hensarling plans to introduce an updated version of the Dodd-Frank \u2014 gutting Financial CHOICE Act by the end of the month. A modified version could be made agreeable to both parties in the Senate and, despite Democratic opposition, it would be far easier to pass this law than either a tax-reform bill or ACA reform.<\/p>\n<div class=\"div-minispacer\"><\/div>\n<p>Sogolytics works with financial services industry leaders to <a href=\"https:\/\/www.sogolytics.com\/survey-templates\/financial-services\/?utm_source=blog&amp;utm_campaign=dodd-frank\">measure client satisfaction and employee engagement<\/a> within their organizations.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Dodd-Frank regulations\u2014enacted in response to the collapse of Lehman Brothers and the other near failures of 2008 and 2009\u2014have caused banks to be more cognizant of the risks and more careful in their lending practices, extending loans only to the most qualified customers. The largest institutions are now subject to \u201cstress tests,\u201d a simulation developed by the Federal Reserve to enable them to assess how a given financial institution\u2019s portfolio would hold up if they were faced with their own \u201cLehman moment.\u201d Furthermore, the Volcker Rule restriction prohibits federally insured institutions from trading for their own profit, while also limiting their ownership of risky investments. \u201cCompliance has become a major distraction for community bank managers. Any community banker will tell you that their job has fundamentally shifted from lending and serving customers to struggling to stay on top of ever-changing rules and guidance.\u201d \u2014Marshall Lux, John F. Kennedy School of Government at Harvard University According to the Federal Reserve, commercial bank loans have increased 77% since hitting a post-crisis low in October 2010, and total loans and leases by banks grew by almost 7% per year during the last three years. And, bank profits have been soaring. The Law of Unintended Consequences Despite the seemingly positive outlook, during a meeting with small business owners, President Trump proclaimed: &#8220;Dodd-Frank is a disaster. We&#8217;re going to be doing a big number on Dodd-Frank.&#8221; The rules aimed at large, multifaceted institutions have fallen hard on banks with less than $10 billion in [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[175],"tags":[220,258,24,251,60],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v19.7.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>The Dodd-Frank Disconnect - The Price of Regulations on Community Banks - Sogolytics Blog<\/title>\n<meta name=\"description\" content=\"The Dodd-Frank regulations\u2014enacted in response to the collapse of Lehman Brothers and the other near failures of 2008 and 2009\u2014have caused banks to be\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.sogolytics.com\/blog\/the-price-of-regulations-on-community-banks\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Dodd-Frank Disconnect - The Price of Regulations on Community Banks - Sogolytics Blog\" \/>\n<meta property=\"og:description\" content=\"The Dodd-Frank regulations\u2014enacted in response to the collapse of Lehman Brothers and the other near failures of 2008 and 2009\u2014have caused banks to be\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.sogolytics.com\/blog\/the-price-of-regulations-on-community-banks\/\" \/>\n<meta property=\"og:site_name\" content=\"Sogolytics Blog\" \/>\n<meta property=\"article:published_time\" content=\"2017-04-14T03:35:42+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2019-09-24T12:41:30+00:00\" \/>\n<meta name=\"author\" content=\"Sogolytics\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.sogolytics.com\/blog\/the-price-of-regulations-on-community-banks\/\",\"url\":\"https:\/\/www.sogolytics.com\/blog\/the-price-of-regulations-on-community-banks\/\",\"name\":\"The Dodd-Frank Disconnect - The Price of Regulations on Community Banks - Sogolytics Blog\",\"isPartOf\":{\"@id\":\"https:\/\/www.sogolytics.com\/blog\/#website\"},\"datePublished\":\"2017-04-14T03:35:42+00:00\",\"dateModified\":\"2019-09-24T12:41:30+00:00\",\"author\":{\"@id\":\"https:\/\/www.sogolytics.com\/blog\/#\/schema\/person\/137ad89cc093b0bb889c68e4b1825fb1\"},\"description\":\"The Dodd-Frank regulations\u2014enacted in response to the collapse of Lehman Brothers and the other near failures of 2008 and 2009\u2014have caused banks to be\",\"breadcrumb\":{\"@id\":\"https:\/\/www.sogolytics.com\/blog\/the-price-of-regulations-on-community-banks\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/www.sogolytics.com\/blog\/the-price-of-regulations-on-community-banks\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/www.sogolytics.com\/blog\/the-price-of-regulations-on-community-banks\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"The Dodd-Frank Disconnect &#8211; 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