Illinois community banks hoping for Dodd Frank rollback

Illinois News Network - Cole Lauterbach - 03 April 2017

U.S. Rep. Randy Hultgren, R-Illinois, says Congress should have relief on the horizon for small community banks that struggle to comply with the more than 23,000 pages of regulations that came from the Dodd-Frank Act.

For many small towns in Illinois, the community bank or credit union is a powerful, and sometimes only, tool for economic development. Since Dodd-Frank was passed in 2010, their numbers dropped by 22 percent. The ones still around are forced to turn away more loan requests. The Illinois Bankers Association says that bankers are often as likely to decline a loan based on compliance with Dodd-Frank than they are on credit factors. This can cripple small businesses and, as Hultgren says, family farms. 

"They're the ones who, I think, felt the brunt of losing these local institutions that had been able to make loans while understanding the specifics of a community," Hultgren said.

In terms of contributions to the financial crisis, small banks had very little to do with the collapse of the economy.

"Forty-two community banks and 106 credit unions have closed their doors in Illinois since Dodd-Frank has passed. A lot of it is due to the huge amount of regulation that came to these smaller entities that never had anything to do with the financial crash," Hultgren said.

Supporters of Dodd-Frank say it keeps banks from creating another financial crisis by regulating behavior that could again crash markets. But the new proposal would double, and in some cases triple, fines paid by banks that break regulations. 

David Schroeder, vice president of Federal Governmental Relations with the Community Bankers Association of Illinois (CBAI), agreed that, while Dodd-Frank was intended to rein in larger banks and financial firms, an unintended consequence has been the negative impact on small community banks.

“A number of the provisions of the Dodd-Frank Act which have been implemented by the regulators are negatively impacting community banks’ ability to serve their customers and communities ...” Schroeder said. “The new requirements have convoluted the lending process to the point where many community banks have exited residential mortgage lending altogether.” 

L. Dean Clausen, CEO of Bank Champaign, said banks exist in a regulated industry, so regulations are to be expected. But the pace and objectives of the Dodd-Frank Act, among other newer regulations, have been crippling.

“It is true that recently, the cost to comply with the cascade of regulations has risen and continues to rise,” Clausen said. “It would not surprise anyone if the compliance portion of our business costs small banks two senior-level people and one clerical-level person. In our organization, that amounts to 15 to 17 percent of salaries.” 

Rep. Jeb Hensarling, R-Texas, could file his proposal rolling back many of Dodd-Frank's regulations as early as this spring, according to Hultgren.

Schroeder said small bankers are hopeful.

“Community bankers and CBAI stand ready to work with a new Congress and administration to provide meaningful regulatory relief in the form of tiered regulation and supervision for community banks, and is hopeful that this relief be given the very highest priority,” he said.