Legislation Introduced in Congress to Ease Regulations on Small and Medum-Sized Banks
While recent news cycles dominating Washington have focused on Russia, health care, and now tax reform, some little-noticed progress is being made in deregulating the financial services sector.
Earlier this week, Rep. Blaine Luetkemeyer (R-Mo.), chairman of the House Financial Services subcommittee, introduced legislation to lift some of the heavy burdens off of smaller banks as part of a “buffet” of regulatory relief bills in Congress this session. The bill, cosponsored by five Democrats and four Republicans, seeks to roll back stipulations from the 2010 Dodd-Frank Act, which subjects banks with $50 billion or more in assets to more stringent regulatory requirements and significant compliance costs.
In particular, Luetkemeyer’s bill directs the Federal Reserve to look at interconnectedness, cross-border activities, and complexity when assessing their regulatory requirements, not just size. Currently, the $50 billion limit is an arbitrary designation that subjects medium-sized regional banks, which range somewhere between $50 billion and $250 billion in assets, to the same standards as large, multi-trillion dollar banks.
This change makes sense, as regional banks that predominately take deposits and have little exposure to derivatives or trading are clearly not “systemically important” as defined by Dodd-Frank.
The need for this regulatory relief is supported by mounting evidence that shows small and medium-sized financial institutions have been devastated from regulatory overreach. One notorious example comes from a report that found that more than 1,708 U.S banks, or one in five, have disappeared since Dodd-Frank was enacted. Further, a recent Treasury Department report on banking regulations found:
The implementation of Dodd-Frank … created a new set of obstacles to the recovery by imposing a series of costly regulatory requirements on banks and credit unions, most of which were either unrelated to addressing problems leading up to the financial crisis or applied in an overly prescriptive or broad manner.
As my colleagues Iain Murray and John Berlau have argued, lifting regulatory barriers will allow banks to focus on serving their customers, as opposed to paperwork and compliance. This recent deregulatory approach gets banks back to doing what they do best—growing businesses, creating jobs, and fostering a robust economic recovery.