State delegation favors rollback of banking rules

Senate debates it this week

WASHINGTON — The U.S. Senate this week will debate whether to roll back portions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which placed tighter controls on banks after the 2008-09 financial crisis.

The bipartisan bill, known as the Economic Growth, Regulatory Relief and Consumer Protection Act, has drawn initial support from more than 60 U.S. senators, enough to block a filibuster and force a vote on the measure.

Members of the Arkansas congressional delegation all support changes to the 2010 law, arguing that it places excessive restrictions on the state’s community banks.

“Dodd-Frank has got a lot of warts,” said U.S. Rep. Steve Womack, a Republican from Rogers.

The legislation “was not well-crafted,” said U.S. Rep. French Hill, former chairman and chief executive officer of Delta Trust and Banking Corp. and a Republican from Little Rock.

The law itself is nearly 850 pages long and is now accompanied by thousands of pages of regulations, complicating business for lenders across the state.

Bill Holmes, the Arkansas Bankers Association’s president and CEO, said the law is costly and time-consuming and does little to protect Arkansas deposits.

Facing a crisis a decade ago, lawmakers “wrote an awful lot of rules that were not as finely honed or finely

etched as they should be,” Holmes said.

Arkansas institutions have been dealing with the consequences ever since, he said.

“The stress that it has put on the normal bank in Little Rock, Arkansas, or in Bodcaw, Arkansas, or in Horatio, Arkansas — pick a small town anywhere in the country — they’re not equipped to be able to handle the requirements,” he said.

The 122 “regulated, traditional banks and thrifts” that the association represents have combined deposits of $64.2 billion, the organization said.

JPMorgan Chase & Co., in comparison, has total assets of $2.5 trillion.

Nationwide, community banks spent $5.4 billion complying with all the rules and regulations in 2016, according to economists at the Federal Reserve Bank of St. Louis.

Dodd-Frank was passed shortly after the nation’s worst financial crisis since the Great Depression.

Banks deemed “too big to fail” were blamed for the financial collapse, which jolted the markets and required government bailouts.

A Senate subcommittee investigation said the downturn “was not a natural disaster, but the result of high risk, complex financial products; undisclosed conflicts of interest; and the failure of regulators, the credit rating agencies, and the market itself to rein in the excesses of Wall Street.”

Dodd-Frank requires banks to hold more capital in reserve and to have more assets that can be more easily liquidated. Large banks also must undergo periodic “stress tests,” examining whether they could withstand a crisis similar to the one in 2008. It also increased regulations on lenders large and small.

The new legislation, SB2155, would ease restrictions on the nation’s 5,227 community banks — generally those with less than $10 billion in assets. But it also contains provisions that would benefit some of the larger institutions.

Under the 2010 law, banks with more than $50 billion in assets are considered “systemically important financial institutions” and face “enhanced prudential regulation” and “more stringent standards” than smaller banks.

If it passes, the banks with less than $250 billion would typically avoid the designation and the enhanced scrutiny that comes with it.

They would also see certain fees eliminated.

None of Arkansas’ homegrown banks are categorized as Systemically Important Financial Institutions. Bank of the Ozarks, Arkansas’ largest, has $21.3 billion in assets — well below either threshold.

Overall, the Congressional Budget Office estimates that the changes would increase deficit spending by $671 million over the next decade.

The U.S. Public Interest Research Group, a consumer activist group, has denounced the legislation.

“It’s harmful and unnecessary. It’s totally fueled by political considerations,” said Ed Mierzwinski, the group’s federal consumer program director.

The nation’s banking industry reported net income of $164.8 billion in 2017, down $6 billion from the previous year. Analysts said one-time adjustments related to the recent law contributed to the drop.

Without those adjustments, net income would have climbed to $183.1 billion, according to the Federal Deposit Insurance Corp.

Community banks reported net income of $20.6 billion last year, up $757 million.

“The banks are very successful right now. Small banks are making profits. Big banks are making profits,” Mierzwinski said. “It’s just less than 10 years out from the second-biggest financial collapse in our history. We should not be doing this.”

Members of the Arkansas congressional delegation say the existing restrictions are excessive.

“When you think about small community banks that serve rural areas, when you put a stranglehold on their ability to get capital out there for home loans or small businesses, that has a negative impact on rural communities,” said U.S. Rep. Bruce Westerman, a Republican from Hot Springs.

U.S. Sen. John Boozman, a Republican from Rogers, said Dodd-Frank needs to be fixed.

“There’s some good things in it. There’s some bad things in it. It penalizes our community banks which had nothing to do with the meltdown in 2008 and 2009. … It’s really driven up their cost of compliance,” he said.

U.S. Sen. Tom Cotton, a Republican from Dardanelle, called SB2155 “a great bill for the state of Arkansas.”

“The Dodd-Frank bill in 2010 addressed some genuine problems that especially big banks or unregulated financial entities had created, and they applied a one-size-fitsall to our small hometown banks,” he said. “In Arkansas, pretty much by definition, every one of our banks is a small bank in the great scheme of things compared to Bank of America or J.P. Morgan or Wells Fargo.”

U.S. Rep. Rick Crawford, a Republican from Jonesboro, said he hopes to see changes in the Dodd-Frank bill.

Banks would benefit from changes, “just like most industries that are over-regulated,” he said.

The House has already passed legislation rolling back Dodd-Frank provisions. But that version, which included sweeping changes to the Consumer Financial Protection Bureau, was opposed by nearly all Democrats.

House Republicans say they’ll want to make changes to the bipartisan Senate version if it makes it to their chamber.

Hill, the representative and former banker, said he’s “cautiously optimistic” about the latest bill’s chances.

“Hopefully, we’ll see a positive result in the U.S. Senate and be able to work with them on a combined product,” he added.

Although SB2155 faces opposition from some Senate Democrats, several of the party’s more centrist members are already on board.

In the Natural State, Democratic Party of Arkansas Chairman Michael John Gray says changes are overdue.

“What I hear from banks in Arkansas is that some of these regulations in DoddFrank are too burdensome for them. Just because there are bad actors on Wall Street doesn’t mean we should be punishing Arkansas banks like Centennial and First Security,” he said in a written statement. “If this legislation will help banks doing business in places like Jackson, White, or Jefferson County, I’m all for it.”