Nearly three years after the enactment of the Dodd-Frank Act, community banks continue to struggle with navigating the confusing, complex, voluminous, and harmful rules and regulations of this law according to a recent report from the Federal Deposit Insurance Corporation (FDIC) reviewed at today's Financial Institutions Subcommittee hearing.
A portion of the report focused on the regulatory costs for community banks, where the participants stated that no one regulation, but rather the cumulative effects of all regulatory requirements weigh down their banks. The regulatory burden is also preventing new community banks from forming. No new community bank charters have been granted since 2011, due in part to the regulatory burden of Dodd-Frank.
A majority of the bankers interviewed also reported that their banks are increasingly relying on third-party consultants and service providers to assist with interpreting and implementing new or changing rules and regulations, citing their inability to understand and implement regulatory changes within required timeframes and their concern that their method of compliance may not pass regulatory scrutiny.
"The FDIC study attempts to quantify the growing burden of complying with the myriad of financial regulations for community financial institutions. This was a common theme for our subcommittee last Congress and I expect it will continue to be a common concern for community bankers going forward. In January of 2011, just six months after the Dodd-Frank Act was signed into law, we heard from a community banker in West Virginia who already hired an additional compliance officer to deal with the increasing complexity of compliance," said Financial Institutions Subcommittee Chairwoman Shelley Moore Capito (R-WV).
"I understand this is a difficult figure to quantify but we must keep up the discussion amongst policy makers, regulators, and community bankers about ways to reduce this growing burden. We need to have safely run financial institutions in our local communities, but we must ensure that the costs of compliance do not outweigh the benefits and that regulations emanating from Washington can be handled by Main Street lenders," Subcommittee Chair Capito added.
Wednesday's hearing was the first in what will be a series of hearings focused on the regulatory burden the Dodd-Frank Act imposes on financial institutions across the country.