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White House releases community banking report: Dodd-Frank reportedly had no negative impact

Last week, the President's Council of Economic Advisers released a report on the state of the community banking industry. The report claims that the Dodd-Frank Act and other regulations have had little to no effect on community bank consolidation. 

You can read the entire report by clicking here.

“I'm not quite certain what planet these people are on, but it's not the same one I'm on,” OBA President Roger Beverage said. “Primarily, they seem to be talking more about banks greater than $100 million in total assets.  At least that's how I read their report. For states like Oklahoma, that's a lot (40 percent) of the banks in our state.”

The report at least recognizes the importance of community banks by “providing access to banking services for millions of Americans and serving as the only local source of brick-and-mortar traditional banking services for many counties, as well as key sources of credit for rural communities and small business loans.”  

“What the report seems to ignore is the reality of what the regulatory avalanche has meant to consumers,” Beverage said. “Talking about community banks remaining 'strong across a range of measures ... since [Dodd-Frank was] passed in 2010' – while true – misses the point. The point is that it's consumers (bank customers) who have paid the price for something that wasn't caused by their local bank.  

“In spite of the report's misleading claim 'that access to community banks remains robust and their services have continued to grow in the years since Dodd-Frank has taken effect ...' the truth is many community bank customers no longer meet the arbitrary requirements established by federal banking regulators and the (Consumer Financial Protection Bureau), and are thus not eligible for credit. It's the consumer that should be the focus, not the strength of community banks.

“In our state, and in many of the states here in 'fly-over country,' more than 25 percent of our state's banks are no longer in the mortgage business. Their customers no longer meet the qualifications for a mortgage loan, not because of something the customers have done, but because of the arbitrary and punitive standards established by Washington.”

The report also makes the claim that smaller community banks have been dealing with “longer-term structural challenges” that go back decades.

“These structural challenges underscore the importance of implementing Dodd-Frank in an equitable way that gives community banks a fair chance to compete, which has been a key priority for the Obama Administration,” the report says.

“Yes, there are ongoing structural challenges facing community banks in particular,” Beverage said. “But I'm having a real hard time with the claim that helping community banks has been a key priority for the Administration,” Beverage said. “The claim belies the reality we've been dealing with since 2010, which is solid opposition from Democrats generally and the White House specifically.  

“We have not been asking for a repeal of Dodd-Frank, although you'd think we were asking for a lot more than that based on some of the comments on Capitol Hill,” he said. “We've been asking for a few 'tweaks' that will reestablish the ability of smaller community banks in states like ours to continue to serve their customers.”  

The report tries to rebut the argument that the declining number of smaller banks is evidence of the need to provide some regulatory relief for community banks.

The report says:

In reality, due to bank branching patterns, the number of institutions does not provide a comprehensive picture of the health of community banks, and other indicators like lending growth and geographic reach show that community banks remain quite strong.

“Once again, the report misses the point we've been making,” Beverage said.  “Yes, Oklahoma banks are profitable. Yes, Oklahoma banks are strong and well-capitalized. But without some 'scale' it's simply not possible for smaller banks in particular to absorb the compliance costs associated with the regulatory onslaught. Everyone knows that impact of regulatory costs incurred disproportionately impacts smaller community banks, and those costs are passed along to consumers, making their access to credit – if they meet the new qualifications – more costly.”  

Beverage noted the report does note the importance of “continuing to tailor regulatory requirements to reflect the different needs of community banks and the lower level of financial risk that they pose.”

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