Executives at banks and credit unions across Michigan found common ground in advocating for legislation to ease federal regulations they say hurt smaller financial institutions and their ability to lend.
A trio of trade groups representing Michigan banks and credit unions support bipartisan legislation passed last month in the U.S. Senate to modify the Dodd-Frank Wall Street Reform and Consumer Protection Act enacted in the wake of the 2008 financial crisis. The House will now consider the legislation.
Executives at small institutions have long criticized the law as a “one size fits all” approach that unfairly burdened them with regulations put in place in response to problems caused by much larger competitors.
“The smaller banks got painted in the same way as the larger banks,” said Kelly Potes, president and CEO of Sparta-based ChoiceOne Bank. “What this does is try to get it back to where the smaller banks with the smaller level of risk don’t have to jump through all the hoops that a multi-billion-dollar bank has to.”
The Community Bankers of Michigan, the Michigan Bankers Association and the Michigan Credit Union League all voiced support for the Economic Growth, Regulatory Relief, and Consumer Protection Act and urged the state’s congressional delegation to do the same.
Mike Tierney, CEO of the Community Bankers of Michigan, notes that the unity between banks and credit unions “doesn’t happen very often.”
“(The legislation is) common sense regulatory relief and will help our banks do a better job for consumers, small businesses and farmers,” Tierney said.
The high cost of complying with the regulations and restrictions in Dodd-Frank has limited lending, as well as spurred consolidation and essentially halted startup activity, according to executives.
The legislation created a “sense of unity” among credit unions and banks to support the proposed changes, said Ken Ross, COO of the MCUL.
“We don’t team up with our colleagues in the banking industry very often. It speaks to the importance of this for community-based institutions, whether you’re a bank or a credit union,” Ross said. “We all have felt the pinch.”
The bipartisan bill passed the Senate last month with 67 votes, including Michigan Senators Debbie Stabenow and Gary Peters, both Democrats.
Peters was one of the original co-sponsors of the bill, which he called an attempt “to ensure that our financial regulations are tailored to the size and risk presented by different banks.”
“Big banks and Wall Street caused the financial crisis — not Michigan’s credit unions and community banks,” Peters said last month in a statement after the legislation cleared the Senate. “Our state’s credit unions and community banks kept Michigan families afloat during the financial crisis by providing loans when big banks would not. We should not have a ‘one size fits all’ approach to financial regulation.”
Significantly higher federal regulatory costs brought on by Dodd-Frank have been cited as a driver in many of the bank mergers in recent years that reduced the number of competitors in the market and made “the big banks bigger,” said Chuck Williams, president and CEO of Northpointe Bank in Grand Rapids.
Some bankers say their regulatory compliance costs have more than doubled since Dodd-Frank became law.
A study by the national trade group for credit unions, the Credit Union National Association, placed the regulatory burden of Dodd-Frank on its members at $6.1 billion in 2016, an increase of more than $800 million from just two years earlier.
Williams also complains of provisions under Dodd-Frank that have left community banks unable to lend to some commercial clients because they posed too high of a risk. The proposed changes would enable lenders to serve those clients and entrepreneurs whom they deem to be a good credit risk and are willing to “take a chance” on, but can’t serve now because they don’t have a proven track record of cash flow, he said.
“There are very bankable customers out there you cannot help today, so you have to turn them away,” Williams said. “You have economic activity such as new businesses that can’t even get started.”
Doug Ouellette, community bank president for Grand Rapids-based Mercantile Bank, is hopeful that Congress will enact the legislation and ease regulatory burdens, slow consolidation and “maybe even entice some new banks to open.”
“Competition is always good and we would welcome that,” he said.
Of the many proposed changes in the legislation, Ouellette and others like that it would increase the threshold from $250,000 to $500,000 for a small business loan that requires an appraisal by a state-certified appraiser. Getting an appraisal done today “is very difficult” in many markets, especially rural areas, because there are fewer appraisers in the post-recession economy, he said.
Requiring an appraisal also causes delays in processing the loan request, Ouellette added.
“It’ll allow us to jump in and serve our customers better and I believe the bankers in our markets know the values pretty well,” he said. “We still have to value the properties and justify why we’re doing what we’re doing, but it will get rid of that cost burden and allow us to move faster.”
Other key provisions in the legislation include easing reporting and disclosure requirements, and simplifying the calculation for capital requirements for institutions with less than $10 billion in assets.
The House has no timetable yet for taking up the legislation, which has been criticized by consumer advocates for rolling back Dodd-Frank too far and bringing back the conditions that led to the 2008 financial crisis and deep economic recession.
However, Tierney said the bill does not rollback or eliminate the law and only “modifies” it.
“No one wants to go back to that kind of recession,” he said. “It’s very sensible regulatory relief.”