Heading into 2018, there are plenty of reasons for Michiganians to be optimistic: Our state’s population has grown for five straight years, our unemployment rate is almost on par with the national average, and both Michigan and Michigan State football are ranked in the top 25 nationally.
However, this outlook isn’t rosy enough that we should stop pushing for needed change. For instance, U.S. News ranks our state only as the 33rd best state in the country, due in part to an average economic ranking. While our job growth ranking is 18th, we only rank 24th for GDP growth. All of these things are interconnected: We cannot have a strong economy without GDP growth. But we cannot have GDP growth if we don’t have businesses starting up and jobs being created.
Although growing the economy doesn’t have an easy fix, there is one step our members of Congress should immediately take to put us on the path to prosperity: tailoring financial institution regulations based on a bank’s actual risk level. The current system relies on a one-size-fits-all system for institutions with more than $50 billion in assets; this catch-all includes everything from regional banks focused on community lending to the Wall Street banks responsible for the recession.
When we regulate these institutions in the same way, despite their variances, it ends up harming our communities. Because regional banks are bogged down with compliance, it shifts resources away from lending. If small businesses lack access to capital, it keeps them from expanding — or opening up shop entirely — and limits the number of jobs created. And, without strong Main Streets and a healthy number of jobs, our GDP doesn’t grow and our economy doesn’t improve.
The solution is, thankfully, common sense and would benefit all of us in Michigan. The bipartisan Systemic Risk Designation Improvement Act of 2017, which has been introduced in the House and Senate in recent months, would instruct regulators to look at several factors to determine a bank’s risk level. Size would be one factor, but most importantly, it wouldn’t be the only decider. The bill adapts a test already used by international regulators, relying on factors such as interconnectedness, complexity, and global activity.
The riskiest financial institutions would still be subject to strict regulations, but less risky regional banks would see their burden lessened so they can get back to lending and supporting communities. For a place like Michigan, which has seven regional banks operating in the state, this would make a great difference.
In order to help their constituents here at home, it’s imperative Michigan’s congressmen and women support the Systemic Risk Designation Improvement Act of 2017. Regulating financial institutions appropriately will improve Michigan’s outlook in 2018 and beyond.
John Llewellyn spent 12 years as the vice president for government affairs at the Michigan Bankers Association and is a former state representative.