New Mexico banking regulator Richards: Basel III rules, Dodd-Frank endanger community banks

Cynthia Richards, the director of financial institutions for New Mexico’s Regulation and Licensing Department, recently said that Basel III rules and the controversial Dodd-Frank Act could put the state’s community banks out of business.

“As the community banks go in New Mexico, so goes our economy,” Richards told members of the Senate Finance Committee, according to Capitol Report New Mexico.

Richards told reporters after the meeting that “parts of Dodd-Frank…have been helpful” for community institutions, including bank stress tests, adding that the legislation has helped to manage large national financial institutions that handle billions of dollars.

The state regulator added, however, that some parts of Dodd-Frank financial reforms, as well as the Basel III capital standards, put too much of a regulatory burden on small financial institutions across New Mexico.

“They were written for banks that were ‘too large to fail’ when the [2008 financial] crisis happened [like] Lehman Brothers,” Richards said, Capitol Report New Mexico reports. “Those same regulations, those same standards put in place have now trickled down the smallest community banks that don’t have compliance officers in place to be able to understand and know how to implement that in a small bank that obviously doesn’t have the funds to hire a person of that stature to do that job.”

Richards said that the full implementation of Dodd-Frank would force community banks to close.

“There are many small banks that are already discouraged,” Richards said, according to Capitol Report New Mexico. “The presidents of these banks and the board of directors of these banks are fearful they’re not going to get carved out.”

Richards said that New Mexico’s customers would have to seek out a credit union or national bank, adding that she could visualize a future where bank customers in New Mexico would be split between a large bank in the north and one in the south part of the state.

Federal regulators have heard similar sentiments from community banks across the country as they read through more than 1,500 comment letters. Community banks maintain that they should not be subject to the same requirements as larger banks because they did not participate in the same types of risky activities that contributed to the recent financial crisis.

“As we work toward finalizing the rule, we will seek to further tailor the requirements as appropriate for community banks,” Michael S. Gibson, the director of the Federal Reserve’s banking supervision and regulation department, said, Capitol Report New Mexico reports.

Richards expressed hope that the potentially harmful regulations are set aside while the necessary rules remain in place.

“I just want to say that just because we’re regulators doesn’t mean we’re anti-consumer,” Richards said, according to Capitol Report New Mexico. “We’re very pro-consumer. Our consumers have over $8 billion in our depository institutions in New Mexico…My money is in one of those. I want to make sure my money is safe. You want to make sure your money is safe.”

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