Sen. Elizabeth Warren threw community banks a curve ball this week by questioning their need for regulatory relief.
Noting that small banks' profits went up even after the Consumer Financial Protection Bureau's ability-to-pay rule took effect in the first quarter of 2014, the Massachusetts Democrat said they seem to be doing just fine in the aftermath of the Dodd-Frank Act.
"The financial performance of the community banks shows that Congress and the regulators, I think, have done a pretty good job of tailoring the rules to protect community banks," Warren said during a Senate Banking Committee hearing on the impact of postcrisis regulations on small banks and credit unions. "We should be very skeptical of regulatory relief bills that are promoted as helping small banks, but are pushed by [American Bankers Association] lobbyists for big banks."
American Banker readers had no shortage of comebacks, arguing that while community banks' profits may be improving, their customers continue to feel the pinch of Dodd-Frank. Here's a roundup of ripostes from commenters across the financial industry (hat tip to reader "My 2 Cents" for the suggestion):
"Warren appears to be using community banks as human shields to guard the Dodd-Frank Act from needed reforms. Community banks' earnings are up because their losses are down, not because business is booming. Every business day another community bank disappears from America, not a sign of industry health." Wayne Abernathy of the ABA
"Let's go down the list of what Warren thinks doesn't hurt. Losing interchange income (the exemption just doesn't work), spending twice as much for compliance management, watching the CFPB create inane rules, and losing the ability to decide based on your faith in an individual to make them a loan that will be challenging, but you believe they can buy that house and make it work. Cancer may not hurt much when you are first diagnosed, but you know it will be unpleasant, time-consuming and expensive before you recover. That is, if you recover." "Pdf70101862"
"It would be so much more helpful if Warren, instead of focusing solely on bank profits, would look at how the typical clients of community banks, like small businesses and entrepreneurs, are not getting credit, all because of silly equity requirements that distort the allocation of bank credit. Unfortunately, her constituency might have too many bank bashers for her to do that." Occasional BankThink contributor Per Kurowski
"Does she really believe that an improving economy with fewer losses and lower loan loss accruals don't have something to do with improving profits? Does she really believe that a low interest rate environment and lower cost of funds don't have something to do with improving profits? Does she really think that consumers' ability to obtain mortgages has not been affected? Mortgages originated at my bank are down by more than 40%. Does she really think that retailers passed the interchange fee reduction on to the consumers? Does she really think that adding an enormous banking bill onto the back of community banks is not significantly more costly to keep up with? Like many politicians, Warren sees no problem with continuing to stack regulation upon regulation on top of community banks and [thinks] complying with a bunch more is no big deal. By the way, what's wrong with community banks' profits being up 7%? Last time I checked, banks are a for-profit business and a vibrant community banking industry is good for our communities and our country." "B Bexley"
"Ask any borrower whether the [Dodd-Frank] rules have helped them, or have the rules made it nearly impossible to jump through a lender's every hoop?" "Giorgos Baileys"
"Banksbig banks, medium banks, and even little banksare favorite whipping boys. Warren is no fool, and she is trying to ride that wave of economic disenchantment and populism to national office. Do not underestimate her. The industry needs to do everything it can to convince the little guy that bankers are in their corner." "Gmahler"
In a related story this week, researchers from Harvard University where Warren once taught law found that small banks have indeed been disadvantaged by regulation, prompting this comment from reader Mark Bruin: " Someone should show this to Elizabeth Warren. It came from Harvard so she should view it as gospel."