While political gridlock exists in Washington on most issues, there’s one topic both sides of the aisle have come to agree on: The Dodd-Frank Act has hurt small financial institutions.
The bill was always meant to curb predatory behavior by Wall Street’s biggest banks, but small banks and credit unions were wrongfully swept up in the law. The good news is that a bipartisan group of senators recently moved to address the harmful effects.
Last year, Cornerstone Advisors performed an in-depth analysis on the impacts of arduous post-crisis financial regulations on credit unions, and the results were not surprising: Burdensome, growing regulatory costs are limiting credit unions’ abilities to serve their customers. As of 2017, the cost totaled $6.1 billion, which translates into $115 per credit union household.
Credit unions are not-for-profit, member-owned entities — and when a credit union makes money, that revenue goes back to our members in the various forms, which may include lower loan rates or higher interest returns, among other benefits.
Yet since the financial crisis, credit unions large and small, along with their community banking counterparts, have been saddled with overzealous regulations, despite the little risk we present to the financial system. In fact, small credit unions, those with less than $115 million in assets, bear the biggest brunt of regulatory burden when you compare the ratio of regulatory costs to assets.
Thankfully, we appear to be on the verge of actionable change. Last month, the Senate passed a commonsense Dodd-Frank reform bill, known as the Economic Growth, Regulatory Relief, and Consumer Protection Act, in a strong bipartisan vote. Over two-thirds of the Senate voted in favor of the bill. Now, the House is set to take up the bill and we hope they will pass it expeditiously.
A recent Wall Street Journal editorial said the House “deserves to shape the final product,” a move that would likely stall efforts to pass the bill. This bill won’t satisfy everyone — and it shouldn’t. It is targeted reform to Dodd-Frank’s ill-fated provisions that lumped small lenders in with Wall Street megabanks. And, importantly, it passed the Senate with strong bipartisan support, which we all know can be a rare feat in today’s political climate. Any changes are likely to derail the bipartisan agreement and bring Congress back to square one. That’s concerning given that it’s taken nearly a decade for Congress to act on Dodd-Frank, first with the House’s Financial Choice Act in 2017 and with the Senate’s bipartisan package this year.
As we’re in the midst of an election year, full-on campaigning season is just around the corner. For those up for re-election, supporting bills that will help their constituents should be of great importance. The Senate bill in its current form will relieve credit unions and other community financial institutions from regulatory burdens that take away resources from banking customers. For those retiring from Congress, ushering in smart policymaking will create a legacy that lasts long after their offices have been cleaned out.
While there is more that should be done to help credit unions, the Senate regulatory relief bill is the best chance we have for seeing balancing regulatory relief for small institutions while ensuring the riskiest banks are still subject to oversight. Most importantly, this bill is for the customers of small financial institutions around the country, who rely on our institutions for their banking needs.
We can’t slow down progress now. Congress should enact the legislation as soon as possible and use that momentum to continue to work on additional ways to provide regulatory relief to credit unions and small banks.