Industry experts who testified before a recent House subcommittee said the regulatory burden stemming from the rules of the Dodd-Frank Act has had a negative impact on the ability of community banks to serve customers.
“The challenges facing community banks across the nation are not new,” Shelley Moore Capito, the chairman of the House Financial Services Subcommittee on Financial Institutions and Consumer Credit, said. “Every time our nation experiences a financial crisis Congress, responds with new regulations and in some cases new agencies. Rather than identifying outdated, unnecessary or overly burdensome regulations while formulating new policies, too often the response is to pile new regulations on top of the old. We are seeing this now as the Dodd-Frank Act is implemented by federal financial regulatory agencies. Unfortunately the growing regulatory burden is having a real effect on communities across the nation. The more time and resources community bankers devote to compliance, the less time they have to work with their communities to drive innovation and economic growth. This is especially troubling given that community banks provide 46 percent of the industry’s small denomination loans to farms and businesses. These types of loans are often labor intensive and the strong relationships community bankers have with their clients allows them to provide tailored products.”
Kenneth Burgess, the chairman of FirstCapital Bank of Texas, which has $713 million in assets, said the regulatory burden on community banks has increased “tenfold.”
“Dodd Frank will add hundreds more [rules] affecting all banks,” Burgess said. “Managing this tsunami of regulation is a significant challenge for a bank of any size, but for the median-sized bank with only 39 employees, it is overwhelming. Historically, the cost of regulatory compliance as a share of operating expenses is two and a half times greater for small banks than for large banks. It means more money spent on outside lawyers to manage the risk of compliance errors and greater risk of litigation. All of these expenditures take away from resources that can be directly applied to serving the bank’s community.”