Regional banks continue to suffer under improperly tailored regulations
By Senator Slade Blackwell
More than seven years ago, following the financial crisis, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law. These regulations, which were supposed to only be applied to all banks above $50 billion, were meant to better protect the financial system from risk to prevent another crisis.
But, here’s the catch: the banks that are most heavily impacted by this law aren’t the “too-big-to-fail” banks responsible for the recession, but rather they’re smaller, regional banks.
When faced with burdensome regulations like those found in Dodd-Frank, regional banks are forced to focus more on compliance and less on helping their customers. These institutions are the driving force of their communities. They help move the economy and the community by loaning money to small and large businesses, which in turn creates jobs.
Alabama has not been spared from the effects of Dodd-Frank. There has been an average of 64,400 jobs missed per year because of the hindered regulations. Also, had Dodd-Frank not been in place, there could have been $7.5 billion in additional annual GDP. Whether Alabama banks should have an opportunity to grow is not a political question, it’s an economic one.
When regional banks cannot lend to small and medium businesses, these businesses cannot start, grow, or support jobs. More lending leads to more jobs created, which reduces the unemployment rate.
The problem with Dodd-Frank is that the $50 billion number included in the bill was pulled from thin air. The Act’s co-creator, former Senator Barney Frank, even called that number “a mistake,” and said, “all numbers are arbitrary.” Therefore, Congress needs to move to a system that doesn’t rely merely on an institution’s asset size. Instead, the regulatory framework should be tailored to a bank’s risk, not its size, which would allow regional banks to spend more time on their customers’ needs and not on compliance with needless, and burdensome, regulations.
Regional Alabama banks are nowhere near as risky as the larger, complex Wall Street banks, like JP Morgan Chase with $2.5 trillion in assets. BBVA Compass, a regional bank headquartered in our very own Birmingham, is 29 times smaller than JP Morgan Chase and focuses on serving our communities. This is similar to other regional banks in Alabama, such as BB&T, PNC and Regions.
The differences don’t stop there. Birmingham-based Regions, for example, is mostly deposit-driven and has high loan volumes, whereas Wall Street banks not only have large percentages of trading and broker dealer assets but also partake in risky capital market activities. Plus, regional banks don’t have the same global presence as Wall Street banks do, instead only operating in a specific district.
Something needs to be done to lift the burden that the Dodd-Frank Wall Street Reform and Consumer Protection Act has placed on the Alabama banks that are so vital to our everyday lives. We need those institutions to give back to our communities more and worry about compliance costs less. Tailoring regulations based on an institution’s actual risk to the financial system would ensure safety, soundness, and economic growth.