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Bristow banker testifies on Dodd-Frank impact

Testifying on behalf of ABA before the House Financial Services Committee on March 2, Albert C. “Kell” Kelly, Jr., chairman and chief executive officer of SpiritBank in Bristow, said the level of regulatory burden that is being foisted on banks must be addressed to give all banks a “fighting chance” to survive and to meet the needs of their local communities.

“We strongly believe that our communities cannot reach their full potential without the local presence of a bank – a bank that understands the financial needs and credit needs of its citizens, businesses, and government,” Kelly said . “A bank's presence is a symbol of hope, a vote of confidence in a town's future. When a bank sets down roots, communities thrive.”

Kelly further noted that banks are working hard every day to make credit available to those in their community, but that their efforts in this regard are hampered by rising regulatory costs and second-guessing by bank examiners. The combined pressure of new regulations and overzealous examiners is making it very difficult for traditional banks to meet the credit needs of their local communities, he said.

With respect to the Dodd-Frank Act, Kelly gave three examples of how the legislation will negatively impact small banks.

He noted first that through the Act the government has inserted itself in the day-to-day business of banking. As an example, Kelly cited the Durbin Amendment and the debit interchange price control proposal promulgated by the Federal Reserve pursuant to the amendment. He stated that the so-called “carve-out” for institutions with less than $10 billion in assets will simply not work.

“The price cap proposed by the Federal Reserve is so severe that it creates enormous economic incentives for retailers to adopt strategies to favor the cards with lower interchange rates,” he said. “Market share will always flow to the lowest priced product, even if those lower prices are mandated only for some. Having two different prices for the exact same product is not sustainable.”

Kelly urged the Congress to revisit the amendment and take immediate action to stop the proposed Fed rule from being implemented.

Kelly then raised the notion that the cumulative burden of complying with hundreds of new regulations will lead to massive industry consolidation. In particular he mentioned the additional weight of having to comply with the rules promulgated by the new Consumer Financial Protection Bureau (CFPB).

“Small banks are not exempt from the CFPB,” he said. “All banks – large and small – will be required to comply with all rules and regulations set by the bureau and bank regulators will enforce these rules as aggressively as the bureau. The cumulative burden of hundreds of new or revised regulations may be a weight too great for many smaller banks to bear.”

Kelly argued that the CFPB should focus its energies on supervision and examination of non-banks, maintaining that many of the problems that led to the financial crisis occurred outside the regulated banking sector. He noted that this helped spur the creation of the CFPB and urged Congress to ensure that focusing on non-banks is a top priority for the bureau.

Finally, Kelly said that some rules under Dodd-Frank will drive banks out of some business lines. He noted that rules relating to municipal advisors, if not properly implemented, will drive community banks out of providing basic banking products to local and state governments. He also said that mortgage risk-retention rules, again, if not done properly, will drive some community banks out of mortgage lending. Kelly urged Congress to exercise its oversight authority to assure that the rules adopted will not have adverse consequences for municipalities and mortgage credit availability.

In closing, Kelly stressed that consumers ultimately bear the consequences of government restrictions and that overly burdensome regulation can pose severe harm to the economy.

“These impediments raise the cost and reduce the availability of credit,” he said. “Fewer loans mean fewer jobs, and fewer jobs mean slower economic growth. Since banks and communities grow together, limits on one mean limits on the other.

Click here to read a written copy of Kelly's testimony.

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