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Senate Committee Discusses Regulatory Burdens on Smaller Lenders

columnsDuring a hearing spread out over two days at the U.S. Senate Committee on Banking, Housing, and Urban Affairs on February 10 and 12, Committee chair Richard Shelby (R-Alabama) pointed out a "bipartisan understanding" that financial institutions need relief from perceived overregulation.

The hearing, entitled "Regulatory Relief for Community Banks and Credit Unions," was a gathering of the committee's lawmakers to discuss the effect of recent regulatory burdens placed on smaller banks and credit unions in response to the financial crisis.

"As the hearing on Tuesday demonstrated, there is a bipartisan understanding that something must be done to relieve the regulatory burden on institutions that provide essential banking functions to communities across America," Shelby said on Thursday, the second day of the hearing.

Shelby said the purpose of the hearing was to focus on "unnecessary statutory and regulatory impediments" placed on community banks and credit unions, and he told the members of the committee that "[a]lthough we may not agree on many things, I believe that we can all agree that community banks and credit unions play a vital role in our local economies."

Ed Templeton, Chairman of the National Association of Federal Credit Unions (NAFCU), testified to the committee that credit unions have a long history of helping the economy grow, and that "the need for regulatory relief is even stronger in 2015." Templeton pointed out that 96 percent of the 1,100 federally insured credit unions that have gone out of existence since 2010 had assets of less than $100 million.

"While NAFCU and its member credit unions take safety and soundness extremely seriously, the regulatory pendulum post-crisis has swung too far toward an environment of overregulation that threatens to stifle economic growth," Templeton said in his testimony.

Not everyone was convinced that the recent flurry of regulations enacted by such regulatory agencies as the Consumer Financial Protection Bureau (CFPB) have hurt smaller financial institutions. Senator Elizabeth Warren (D-Massachusetts), a chief architect of the CFPB, pointed out to Daniel Blanton, chairman-elect of the American Bankers Association, that the earnings of community banks increased significantly in 2014 and even said they were doing "better than big banks."

"We've heard a lot today about how smaller banks are being smothered by unnecessary regulation, supposedly because of Dodd-Frank rules, like the new mortgage rules that went into effect in the first quarter of 2014," Warren said. " ... [T]he banking industry did substantially better after the (CFPB's) mortgage rules went into effect in January of 2014. Why are they making more money since the rules went into effect and are doing better than the big banks?"

Senator Sherrod Brown (D-Ohio), ranking member of the committee, told the lawmakers that Congress passed, and the President signed into law, several regulatory relief proposals that received bipartisan support.

"If we hope to find consensus on more regulatory relief proposals for community banks and credit unions this Congress, we will need to engage in a process similar to the one that allowed these bills to make it across the finish line," Brown said. " ... The regulators understand the concerns being raised by community banks and credit unions—they made it clear in their testimony this week and in their actions over the past several months. They have responded by making—or considering—changes to their supervision and regulation of these institutions in a way that lessens their regulatory burden, while at the same time safeguarding safety and soundness and ensuring strong consumer protections."

Brown noted two such proposals that have been recently introduced. One of them is the Privacy Notice Bill, introduced by Senators Heidi Heitkamp (D-North Dakota) and Jerry Moran (R-Kansas), which has 75 co-sponsors. This bill provides an exception to the annual written privacy notice requirement. The other proposal he mentioned, introduced by Brown himself during the last Congress, would allow privately insured credit unions to become members of the Federal Home Loan Bank System and would make it easier for credit unions to make small business loans and improve access to mortgages.

While Brown spoke of regulatory relief proposals that had been introduced, at the same time he made it clear that he did not want to do anything that would erode Wall Street reform legislation such as Dodd-Frank.

"And I want to reiterate that I am not interested in moving proposals that weaken or roll back Wall Street Reform, or undermine safety and soundness and consumer protection," Brown said. "But, I think we should act on the proposals that we all agree, after fair consideration, will make a difference for the smallest institutions."

About Author: Seth Welborn

Seth Welborn is a Harding University graduate with a degree in English and a minor in writing. He is a contributing writer for MReport. An East Texas Native, he has studied abroad in Athens, Greece and works part-time as a photographer.

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