July 2016 - Lessons Learned

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38 | TH E M R EP O RT O R I G I NAT I O N S E R V I C I N G A NA LY T I C S S E C O N DA R Y M A R K E T ORIGINATION THE LATEST Is Over-regulating Hurting Small Communities? Rural bank execs voice concerns over the regulatory impact their industry—and towns—are seeing. T he Subcommittee on Economic Growth, Tax, and Capital Access of the Committee on Small Business recently met to examine the impact regulatory changes have on small banks, and if memos from the hearing are any indication, it appears rural banks and lenders have borne quite the burden since Dodd-Frank's enact - ment in 2010. The hearing, titled "Bearing the Burden: Over-regulation's Impact on Small Banks and Rural Communities," dove into where the uptick in regulation began: the crisis. Witnesses at the hearing included: Shan Hanes, President and CEO at First National Bank of Elkhart; Roger M. Beverage, President and CEO at Oklahoma Bankers Association; and Marcus Stanley, Policy Director at Americans for Financial Reform. According to a memo for the hearing, between December 2007 and June 2009, America endured the worst recession since World War II. One of the key drivers of the recession was the collapse of financial institutions due to sub - prime lending and risky deriva- tive trading. This occurrence left many wondering if banking was regulated enough. The Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 was enacted to establish a more regulated and trusted banking system, but its ef - fects have trickled down to small banks. The memo noted that more than 80 percent of small banks have reported seeing their annual compliance costs increase at least 5 percent as a result. "Generally, regulatory burdens and compliance costs are greater for small firms that have less rev - enue and a small employee base to spread over costs," the memo stated. "Given this, small financial institutions such as community banks have been forced to bear a severe regulatory burden." In his testimony, Hanes focused on the following points surrounding small bank regulation: • Banks and their competition are on an uneven playing field. • Banks must deal with the daily impact of new and enhanced banking regulations and im- pediments to growth for rural communities. • Banks have specific impedi- ments to growth and this im- pacts rural lenders. • Issues exist with appraisers in rural America and are impact- ing lenders. Bevarage recommended that Congress take action to ensure credit flows to communities across the country by supporting tailored regulations for the bank - ing industry, improving access to home loans, and removing im- pediments to serving customers. "America's hometown banks have been the backbone of communities across nation. Our presence in small towns and large cities everywhere means we have a personal stake in the economic growth, health, and vitality of nearly every community," he said. "Once again, this is particularly true for those banks that serve rural America. A bank's pres - ence is a symbol of hope, a vote of confidence in a town's future. When a bank sets down roots, communities thrive. When they leave or reduce services, com - munities, and consumers do not thrive. It's that simple." Hanes shared similar sentiments. "Rural banks will continue to serve their customers to the best of their abilities despite the many obstacles that have hurt their business models," he said. "Rural banks will compete with anyone on a level playing field and they have not backed down from such competition in the past. But when there is a combination of an unfair playing field and over burdensome regulations, all banks have great difficulty in surviv - ing, not just competing. Banks are drivers of the economy, and this is especially true for rural banks. With smart reforms to unfair competition, regulations that hold banks back from helping their customers and providing incentives for people to become involved in rural appraising, rural banks will once again be able to help their local economies grow." Stanley, in his testimony, made two points regarding small bank regulation: First, both long-term economic trends and the experi - ence of the 2008 financial crisis and resulting Great Recession have put major pressures on the community banking sector, and second, the period since Dodd-Frank enactment has been a period of economic recovery for community banks. "Whatever the intentions behind these regulations may have been, the effect has been that many of the smallest financial institutions, our community banks, have borne a harsh regula - tory burden," the memo stated. "Regulations have hampered the ability of these banks to serve their communities, and nowhere is this more apparent than in ru - ral areas. Rural communities have had an especially difficult time rebounding from the recession."

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