The regulatory burden stemming from the confusing, complex and voluminous rules and regulations mandated by the Dodd-Frank Act are having a harmful effect on community banks' ability to serve their customers, according to industry experts testifying at today's House Financial Services Committee Financial Institutions Subcommittee hearing.
"The challenges facing community banks across the nation are not new. Every time our nation experiences a financial crisis Congress, responds with new regulations and in some cases new agencies. Rather than identifying outdated, unnecessary, or overly burdensome regulations while formulating new policies, too often the response is to pile new regulations on top of the old. We are seeing this now as the Dodd-Frank Act is implemented by federal financial regulatory agencies," said Financial Institutions Subcommittee Chairwoman Shelley Moore Capito (R-WV)
"Unfortunately the growing regulatory burden is having a real effect on communities across the nation. The more time and resources community bankers devote to compliance, the less time they have to work with their communities to drive innovation and economic growth. This is especially troubling given that community banks provide 46 percent of the industry's small denomination loans to farms and businesses. These types of loans are often labor intensive and the strong relationships community bankers have with their clients allows them to provide tailored products," Capito added.
Witnesses from the community bank industry testified to the problems they face due to Dodd-Frank's one-size-fits-all approach, which largely imposes the same regulatory burdens on small institutions as larger ones. Because smaller institutions do not have the same economies of scale as larger institutions, these costs disproportionately impact their ability to offer competitive pricing for their services.
Kenneth Burgess Jr, Chairman of FirstCapital Bank of Texas, said "During the last decade the regulatory burden for community banks has multiplied tenfold, with more than 50 new rules in the two years before Dodd-Frank. Dodd Frank will add hundreds more affecting all banks. Managing this tsunami of regulation is a significant challenge for a bank of any size, but for the median-sized bank with only 39 employees, it is overwhelming. Historically, the cost of regulatory compliance as a share of operating expenses is two and a half times greater for small banks than for large banks. It means more money spent on outside lawyers to manage the risk of compliance errors and greater risk of litigation. All of these expenditures take away from resources that can be directly applied to serving the bank's community."
Tuesday's hearing was the third in a series of hearings the committee is having to focus on Dodd-Frank's regulatory burden and the resulting harmful economic consequences.