US must reform bank regulation
Since the recession in 2008, members of Congress on both sides of the aisle have made it their mission to change the way banks operate as a means to keep our financial system safe. The Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in 2010 to regulate large, complex banks that posed significant risk to the overall financial sector, but in doing so has negatively affected the economic recovery right here in Ohio.
Dodd-Frank mandates that any bank with an asset threshold of $50 billion must comply with heightened regulation standards. But what makes a bank with $51 billion in assets riskier than one with $49 billion?
The answer is simple, nothing. Risk cannot be determined by a single factor. A person’s wealth, for example, is not measured solely on his or her checkingaccount balance, but also includes investments, properties and liquid assets. If we only look at one aspect of a bank’s business, how can we accurately measure its risk?
Even the creators of DoddFrank understand that it is flawed, including former Massachussetts Sen. Barney Frank, who noted, “We put in there that banks got the extra supervision if they were $50 billion in assets. That was a mistake.”
But how does this arbitrary method for determining bank regulation hurt Ohio?
These regulations have curbed the ability of banks, particularly regional banks, to provide loans to Ohio business owners and entrepreneurs. Regional banks are important partners to those looking to start or grow businesses; however, with Dodd-Frank’s regulations, regional banks have had to focus on compliance rather than commercial lending. In turn, businesses are struggling to get the capital they need to expand and make improvements to their companies.
Ohio’s economy is driven by small and medium-sized businesses. According to the U.S. Small Business Administration, 46 percent of Ohio’s population is employed by small businesses. The magnitude of this figure cannot be ignored. We need to ensure Ohio is a place that welcomes and fosters business development and growth to keep our economy strong.
To address this imbalance in financial regulation, Sens. Claire McCaskill, D-Missouri, and David Perdue, R-Georgia, as well as Rep. Blaine Luetkemeyer, R-Missouri, have introduced Senate and House versions, respectively, of the Systemic Risk Designation Improvement Act of 2017. Columbus representatives Joyce Beatty, a Democrat, and Republican Steve Stivers have signed on as co-sponsors of the legislation, which will employ five factors that determine a bank’s risk to the overall financial system.
This practical approach would give business owners the tools we need to succeed and grow the economy. According to Policy Matters Ohio, a nonprofit policyresearch group, Ohio remains 200,000 jobs short of its pre-recession labor force and, since 2009, the employment rate has risen only 1.9 percent. With appropriate regulation on regional banks, though, we can improve these stats. Our leaders in Washington must support this legislation in the best interest of Ohio. We need them looking out for us back at home.
Sumithra Jagannath Founder, president ZED Digital Columbus
Donald Hubin Chairman National Parents Organization, Ohio Chapter Columbus