WASHINGTON — Midsize and regional banks are seizing what they see as a window of opportunity to push forward on regulatory reforms, hoping to make headway on the issue while larger banks are still widely distrusted by the public.
On Thursday, 88 banks sent a letter to the House urging lawmakers to exempt midsize and regional banks from Dodd-Frank Act requirements aimed at preventing a failed bank from threatening the broader economy. Ranging in size from the $1 billion-asset Cenlar in Ewing, N.J., to the $366 billion-asset PNC Financial Services Group in Pittsburgh, the banks stressed that the cost of complying with regulations is sapping resources and inhibiting their ability “to successfully meet the credit needs” of consumers and businesses.
“Mid-size and regional banks need relief from the unnecessarily burdensome regulatory and supervisory framework, including needless rigorous stress testing, statutory and prudential obligations of Systemically Important Financial Institutions (SIFIs), resolution planning, and many other requirements under Dodd-Frank,” said the letter, which was signed by the Mid-Size Bank Coalition of America and Regional Bank Coalition. “The answer is not to eliminate regulations completely but to adapt them based on a bank’s business model and risk profile."
Banks have generally supported a bill introduced in the last Congress by House Financial Services Committee Chairman Jeb Hensarling, R-Texas, which would provide an “off-ramp” from Dodd-Frank by allowing bank that hold enough capital to be exempt from a number of the law’s provisions.
But whether legislation amending the 2010 financial reform law can be passed will likely depend on Democratic cooperation in the Senate.
Sen. Sherrod Brown, D-Ohio, the top Democrat on the Banking Committee and a strong proponent of Dodd-Frank, also counts a number of large regional banks as his constituents in Ohio and has said he believes that midsize banks should not have to comply with the same regulations as megabanks.
Debate over which banks should get regulatory relief will continue in this Congress as many lawmakers believe that the smallest community banks should get exemptions from Dodd-Frank. But Treasury Secretary-designate Steven Mnuchin, an ex-banker, has said that regional banks should receive relief as well.
“I am very concerned that we have and continue to be in the business of putting community banks and small regional banks out of business,” Mnuchin, the former chairman at OneWest Bank, said during a hearing on his nomination last week.
“If we want to have economic growth, for us to end up with four or five big banks in this country and — and dealing with the too big to fail and everything else or the too big to succeed, we need to have banks. We need to have regional banks; we need to have community banks. Those banks understand the people in the community and can make good loans."
In the regional banks' letter, the groups touted their ability to facilitate economic growth.
“Irrelevant asset thresholds limit traditional banking activity and end up harming the small- and midsize business that are the engine of U.S. job creation and economic growth,” the letter said.