Subcommittee Finds The Regulatory Burden on Small Financial Institutions Is Limiting Choice for Consumers and Small Businesses

Number of Banks At Lowest Level Since The Great Depression

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Washington D.C., Dec 3, 2013 | DJ Jordan, Joel Hannahs (202-225-5821) | comments

The House Small Business Subcommittee on Investigations, Oversight and Regulation, under the chairmanship of Rep. David Schweikert (R-AZ), today held a hearing to examine the effects of the overall regulatory burden on small financial institutions, namely banks and credit unions. The hearing specifically analyzed the impact of the Consumer Financial Protection Bureau and Basel III capital standards, among other financial regulations.

According to the Federal Deposit Insurance Corporation, the number of banking institutions in the U.S. has fallen to its lowest level since at least the Great Depression, and many of the smallest banks have merged or closed. Small financial institutions are facing escalating regulatory compliance costs as a result of reforms to the regulatory structure enacted in the aftermath of the 2008 financial crisis, resulting in fewer lending options for consumers and small businesses.

“After an economic recession, this administration decided to do the opposite of what needed to be done to boost innovation, growth and jobs,” said Chairman Schweikert. “They promoted a law that has proven to be one of the most market-restricting in our nation’s history. The Dodd-Frank Act’s new rules are very complex and they have increased compliance costs – these are proving to be destructive to small lenders and the customers they serve.”                                                       

Materials from the hearing are available on the Committee’s website HERE.

Notable Quotes:

Linda Sweet, President and CEO of Big Valley Federal Credit Union in Sacramento, CA, testifying on behalf for the National Association of Federal Credit Unions, said, “Despite the fact that credit unions are already heavily regulated, were not the cause of the financial crisis, and actually helped blunt the crisis by continuing to lend to credit worthy consumers during difficult times, they are still firmly within the regulatory reach of several provisions contained in the Dodd-Frank Act, including all rules promulgated by the Consumer Financial Protection Bureau (CFPB). The breadth and pace of CFPB rulemaking is troublesome as the unprecedented new compliance burden placed on credit unions has been immense.

“The impact of this growing compliance burden is evident as the number of credit unions continues to decline, dropping by more than 800 institutions since 2009. While there are a number of reasons for this decline, a main one is the increasing cost and complexity of complying with the ever-increasing onslaught of regulations. Many smaller institutions cannot keep up with the new regulatory tide and have to merge out of business or be taken over
.”

B. Doyle Mitchell, Jr. President and Chief Executive Officer of Industrial Bank in Washington, DC, testifying on behalf of the Independent Community Bankers of America, said, “Left unaddressed, the increasing burden of regulation will discourage the chartering of new community banks and lead to further industry consolidation. Consolidation will lead to higher loan interest rates for borrowers, lower rates paid on deposits, and fewer product choices. A more concentrated industry, dominated by a small number of too-big-to-fail banks, will jeopardize the safety and soundness of the financial system and expose taxpayers to the risk of additional costly bailouts.”

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