US Senator Mike Rounds Weekly Column: Providing Regulatory Relief for Community Banks

Providing Regulatory Relief for Community Banks
Senator Mike Rounds
Feb. 13, 2015

MikeRounds official SenateSmall main-street banks are critical to the success of small businesses in South Dakota. They offer loans to farmers and support our small businesses that provide good jobs and essential services to all corners of our state. Often times, they also serve as community centers where birthdays, anniversaries, town meetings and other gatherings are held and lifelong memories are created. We understand that the longevity and prosperity of community banks are essential.

Recently, financial institutions have been hounded by onerous rules and regulations, especially small community banks. With more than 6,500 community banks throughout the country supporting even the remotest areas, the federal government must make sure it is enabling, not hindering, their ability to function properly.  Almost half of small businesses, which we all know are the driver of job creation and economic growth in America, are supported by small community banks. Providing these institutions with regulatory relief is critical.

We recently examined ways we can help community banks during a two-part hearing in the Senate Banking, Housing and Urban Affairs Committee.  During the hearings, we specifically focused on the need to roll back some of the regulations in the 2010 Dodd-Frank financial reform law. Dodd-Frank was intended to clean up the mess caused by the housing finance collapse which had nothing to do with community banks. Unfortunately, this has hit small banks with unnecessary regulatory roadblocks.

In the first part of our hearing, we questioned the regulators responsible for implementing these rules for community banks. I challenged officials concerning burdensome paperwork requirements. Currently, financial institutions are required to file periodic financial and other information with their respective regulators. These forms are currently 80 pages long and contain more than 670 pages of instruction material. Complying with this paperwork has been increasingly difficult for smaller banks with inherently fewer resources.  I was pleased to hear many of the witnesses agree that reforms are necessary to ease these regulatory burdens.

The second part of the hearing included testimony from community bankers. They offered additional insight on how we can best provide relief from some of the outdated and unnecessary regulations, and how specifically they have hindered their ability to be effective. The bottom line is this: if banks are going to be subject to a more intrusive regulatory environment, those costs will eventually be passed down to the consumer. And if community banks are put at a competitive disadvantage, then consumers – including many South Dakotans – would have less flexibility and fewer choices when it comes to financial decisions. This ultimately bogs down economic activity, beginning at the local level.

Small community banks don’t think of banking in terms of ‘derivatives’ and ‘default swaps’ like they do on Wall Street; they think of banks in terms of how they can best serve their communities – their friends, neighbors, store owners and job providers. I wholeheartedly support efforts to provide them with regulatory relief and separate them from Wall Street banks. I will continue to seek ways to do so as a member of the Senate Banking Committee.