Pub. 4 2015 Issue 6

August 2015 17 l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s J ULY 21 IS THE FIFTH ANNIVERSARY OF THE Dodd-Frank Act. The legislation was hailed by its proponents as critical to ensuring a safer, more stable financial system. But in reality, in replacing flexible bank supervision with a rigid regulatory structure, Dodd-Frank’s authors have put many banks — particularly small community banks, in harm’s way. In failing to anticipate the effect that Dodd-Frank would have on different sectors of the banking industry, lawmakers left community banks struggling to keep up with outsized regulatory demands and the excessive cost of complying with thousands of pages of new regulation. This flood of new rules has hamstrung larger banks as well, though they have been able to bring greater resources to the table. ABA anticipated the law’s effects, which is why we adamantly opposed the legislation. We knew the CFPB was invested with way too much power and not enough oversight. We knew the bill — which reached beyond crisis issues to impose unrelated restrictions, such as government price controls on banks’ interchange services — would unfairly impact traditional banks, which were more victim than villain in the crisis. We fought consistently throughout the legislative process to eliminate or temper such provisions, warning that they would result in fewer consumer choices and restricted credit. By working together with state bankers associations and grassroots bankers, we improved the Dodd-Frank bill as much as the politically charged atmosphere at the time would allow. And since enactment, we have focused on making the required rules more workable, emphasizing the need for regulation to be tailored to the different risk profiles and business models of our diverse industry. While that has helped — for instance, we won a safe harbor for QM loans and scored big improvements to the Volcker Rule, particularly after we sued the regulators over it — Dodd-Frank has still dramatically impacted community banks. Fearful of running afoul of new regulations, many have opted to forgo new product lines and even traditional ones, most notably residential mortgages. Faced with increased risk and diminishing returns, many small banks have chosen to merge with other institutions or simply close their doors. In fact, since the height of the crisis in September 2008, the banking industry has lost more than one bank per business day — 1,965 to be exact. Dodd-Frank may not be the only cause for that, but there is no question the law is reshaping the U.S. financial system — with small banks emerging as the biggest losers. Taken together these figures illustrate the darker side of Dodd-Frank, and the effect that tens of thousands of pages of prescriptive regulations have had on the banking industry. It also raises the question: Has Dodd-Frank, however well intended, done more to harm banks than to make the industry safer? The best way to mark Dodd-Frank’s anniversary is to candidly address the legislation’s accomplishments as well as its shortcomings. Even former Rep. Barney Frank, for whom the law is named, has admitted that fixes need to be made. No bill that large and complex gets every provision right. Sen. Richard Shelby’s regulatory relief bill, which is currently pending in the Senate, attempts to right some of what Dodd- Frank got wrong. It also includes common-sense changes to non-Dodd-Frank rules, such as the requirement that banks mail privacy notices every year even when their policies haven’t changed. The enactment of such legislation may be the best way to recognize Dodd-Frank at five. It would help ensure the law does what was intended — ensure a more stable financial system that supports the health of banks and their communities. E-mail Frank Keating at keating@aba.com © 2015 American Bankers Association. All rights reserved. Reprinted with permission. DODD-FRANK AT FIVE: IT’S NO ‘HAPPY’ BIRTHDAY By Frank Keating, President and CEO American Bankers Association