Excessive Regulation Detracts from Financial Literacy
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To make the process fairer to small banks, regulators should issue community bank summaries during the proposal stage, not when releasing final rules. They also should do more outreach to small banks and extend comment periods on major rules, writes the ABA's Hugh Carney.March 31
Years ago, when I first started working with community banks, a vice president of a community bank kept me waiting 45 minutes past our meeting time. When I sought out a reason for the delay, I found him in his office with an elderly woman. His desk was covered in receipts, and they were painstakingly going over this woman's finances.
The banker later explained to me that the woman was a customer who had overdrawn her accounts a few months ago. He had been working with her once a week to help her establish a budget and pay off her bills.
His generosity was astounding to me, but it shouldn't have been. Since then, I've witnessed many examples of community bank leaders going above and beyond to help customers better manage their finances. Unfortunately, those efforts are increasingly under threat. Today's harsh regulatory environment is sapping community banks of resources time, money, and staffers that they previously devoted to financial literacy efforts.
More than 16,000 pages of new federal regulations were added to the books in 2013 alone, according to the Banking Compliance Index developed by compliance software provider Continuity Control. The average community bank had to spend an additional $150,000 and 3,411 hours last year just to keep up with the new rules.
As a result, financial education responsibilities are increasingly falling on the shoulders of parents and schools both of which may be ill-equipped to handle the challenge. A vast majority (74%) of parents in a 2014 survey by T. Rowe Price said they were reluctant to talk to their children about financial topics, mostly because they didn't want their kids to worry about finances. Fewer than 30% of teachers said they have experience teaching financial topics and less than 20% said they feel "very competent" to do so, according to a 2010 study of more than 1,200 K-12 teachers by the nonprofit organization National Endowment for Financial Education.
With parents, teachers and kids all struggling with financial literacy, community banks are perfectly positioned to offer assistance. Staffers at local institutions not only understand personal finance products and practices but can also explain them in terms anyone can comprehend. Additionally, community bankers know their cities and towns and the unique financial needs and challenges of their residents.
Congress should take steps to rein in the increasingly burdensome aspects of regulation that take community bankers away from what they do best. While regulations ensuring the safety and soundness of financial institutions should not be compromised, many unnecessarily burdensome rules have been rushed through in the years following the financial crisis and could stand to be pared back.
Industry leaders are working to bring areas for improvement to legislators' attention, and community banks should work with their local representatives to do the same. The sooner we can rein in the regulatory burden, the sooner community banks can get back to focusing on their communities.
Gabe Krajicek is the chief executive of BancVue, a financial services company. He recently testified in front of Congress on behalf of community banks and credit unions.