Our editorial: Pass relief to help small banks survive
Regulatory efforts put in place after the 2008 financial crisis and aimed at banks deemed “too big to fail” have had a devastating impact on regional and local banks that suddenly found themselves too small to survive.
The Dodd-Frank Act has kept the giant financial institutions healthy and accountable, but smaller, regional banks have been unable to meet its stringent lending and asset requirements, and have been overwhelmed by its compliance costs.
Since the Obama administration’s signature financial regulation was adopted, more than 20 percent of U.S. banks have disappeared, most of them small, local banks with a limited geographic footprint. Almost no new banks have opened.
These are the banks that local communities depend on for the home mortgages and small business loans that often don’t interest the giant institutions.
The impact has been felt particularly in urban communities such as Detroit, where it has become extremely difficult for the average resident to get a mortgage under the new rules.
A bill debated in the U.S. Senate this week would ease some Dodd-Frank requirements and give regional banks a better chance of surviving.
Co-sponsored by Michigan Sen. Gary Peters, the bill would take a number of steps to provide relief to smaller banks.
Those lending institutions would be placed on a longer examination cycle to cut-down on paperwork demands, see reduced reporting requirements and be exempted from complex global capital standards that have little application to their business anyway.
They would also be required to keep a lesser amount of assets in reserve.
At the same time, the bill would ease restrictions on lending for the smaller banks so they could make riskier “qualified” loans. That would help greatly in Detroit, where capital for start-up businesses is scarce and the mortgage market is extremely tight.
Bridge Magazine reported that just 19 percent of home sales in Detroit in 2016 involved a mortgage. That’s a huge anchor on the revival of the city’s neighborhoods.
The Peters bill would allow banks to offer more lending options, and to opt out of certain escrow requirements, saving consumers money.
It also reduces paperwork requirements for rural housing authorities.
This is a welcome piece of legislation that rights some of the unintended consequences of Dodd-Frank.
Still, Peters, a Democrat, has come under fire from the Elizabeth Warren wing of his party, which sees any modification of the financial regulation as a concession to Wall Street.
That’s not the case with this bill. It actually increases some of the requirements on the largest banks.
But small banks are clearly suffering, and that hurts the local communities they serve. Common sense adjustments to regulations that have unintentionally done harm should not be out of the reach of Congress.
Dodd-Frank has been in place for nearly a decade, and its impact on crucial regional banks can be clearly seen. The Peters bill should get bipartisan support and pass the Congress.