In response to the financial crisis in 2009 the Wall Street Reform and Consumer Protection Act, also known as the Dodd-Frank Act, became law with the purpose of imposing financial regulations meant to curtail the country’s biggest banks.. The real outcome, however, has been much different, with the big banks getting even bigger as the number of community banks declines. That’s the reason why the Pennsylvania Association of Community Bankers (PACB), led by JBT President Troy Peters has launched Roll for Repeal. The goal of Roll for Repeal is to reverse parts of Dodd-Frank that are crippling community banks; the very banks that have played such an important role in helping the country recover from the financial crisis of 2009 created by the Wall Street big banks.
Why Community Banks Are Vital
According to the Federal Deposit Insurance Corporation (FDIC), community banks, in comparison to bigger banks, are the source of more residential mortgages, small business loans and agricultural loans. Community banks reinvest in their communities and promote localized growth which in turn reaches out and improves the broader economy. By design, community banks are more consumer-friendly and the most accountable to their customers in addition to also being major contributors to the areas they serve when it comes to philanthropic efforts. Community banks operate under a business model that focuses on relationships and accountability to customers.
The Negative Effects of the Dodd-Frank Act
Regulation That Hurts Community Banks
While the aim of Dodd-Frank was primarily trained on Wall Street banks it is community banks that are being hit the hardest. Since Dodd-Frank’s passage in 2009, the number of community banks has decreased, declining by roughly 1,500. Meanwhile, the megabanks have seen their asset share rise to historically high levels, with 0.2% of U.S. banks now holding more than two-thirds of the assets. In other words, the banks that created the system-wide risks that led them to the brink of failure now control more assets than ever. How did this happen? The increased regulation requirements of Dodd-Frank (all 22,000 pages of them) have created a complex web of rules that have the unintended effect of forcing smaller, community banks to invest in more and more compliance resources. Larger banks simply add to their staff and hire lawyers to help them navigate the regulations, passing those costs on to customers. That is a luxury community banks simply cannot afford. As a result of feeling the enormous weight of these regulations more community banks are forced to consolidate, giving consumers fewer and fewer banking options at a time when community banks are already the only physical banking presence in nearly one in five of the nation’s counties.
Loan Approvals More Difficult, Less Likely
With the number of community banks shrinking, more and more consumers are left to deal with the big banks for getting loans. Applying with these larger institutions is resulting in a higher percentage of consumers facing either rejection of their application or stiffer terms. In particular, self-employed people are having more trouble qualifying for loans due to the regulations and the approval process has become daunting and tedious. Yet small business owners are vital to the growth of most communities. The extensive regulations have also slowed down the entire lending process to both individuals and businesses and fewer people are able to qualify for mortgages. So while the regulations were primarily intended for Wall Street banks, they are causing harm to community banks and the local consumers and businesses they serve.
Corrective Action Needed
If corrective action isn’t taken, countless families and small businesses throughout Pennsylvania and the country could lose their only local banking and lending option. Fortunately, a bi-partisan coalition in Washington D.C. has formed to try to repeal several parts of Dodd-Frank to protect community banks from overreaching regulations.
Roll for Repeal
JBT President and PACB Chairman Troy Peters and PACB President Nick DiFrancesco are taking to the road on their motorcycles to spread the repeal Dodd-Frank message to communities throughout Pennsylvania in an attempt to influence change. The pair meet with the staffs of local community banks as well as with local politicians and local media to reinforce the important role community banks play in the day-to-day life of so many. The tour includes a stop at JBT’s Cleona branch in November.
How You Can Help
Contact your local representative and voice your support for community banks like JBT. There are some needed corrective measures that Dodd-Frank established, which is why a complete repeal isn’t necessary. However, some of the regulations are damaging and do nothing to help consumers like you. In fact, the regulations make it harder and more expensive for consumers to achieve their financial goals, while also taking money away from local communities.