Bankers in West Michigan and nationwide could get some regulatory relief this year.
The U.S. House recently passed legislation that would repeal many aspects of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, a law that bankers say went too far with tougher regulations and significantly raised compliance costs, hindered their ability to lend and even drove industry consolidation.
“Dodd-Frank has been a real challenge for the industry to swallow and absorb. It has, but there are certainly quite a few improvements that could be made that would be helpful to everyone,” said Mike Manica, president of Grand Rapids-based United Bank of Michigan, which has a dozen offices in the region and $631.1 million in assets.
“It’s probably one of the most universally hated bank reform acts in history,” Manica told MiBiz.
In particular, Manica would welcome bringing the Consumer Financial Protection Bureau, a watchdog created under the law, “into the normal mainstream” by giving Congress control over its budget and allowing the president to fire agency heads.
In addition to the House legislation, the U.S. Department of Treasury this month issued a report on a plan from President Donald Trump’s administration to deregulate Wall Street, including rolling back many of the provisions of Dodd-Frank.
The House bill and the Treasury Department report all point to potential relief ahead for bankers, especially smaller community banks that have had to adhere to the same regulations as their far-larger counterparts under Dodd-Frank.
“There is no common sense. It’s all black and white,” said Phil Koning, the president of West Michigan Community Bank in Hudsonville, which has seven offices in Ottawa and Kent counties and $407.8 million in assets.
Like many bankers, Koning is critical of the law, citing its higher reporting requirements, bureaucracy and other provisions that have driven up compliance costs. He estimates the federal law costs West Michigan Community Bank some $500,000 annually in compliance costs, an amount that exceeds the bank’s $464,000 in reported net income for the first quarter of 2017.
Another challenge comes in the form of reams of additional paperwork and information now required for financial products such as mortgages, Koning said.
“It really impedes our ability to help customers,” Koning said. “It has gone just so overboard.”
RED TAPE OR NECESSARY CHECKS?
The legislation passed by the House, known as the Financial Choice Act, represents efforts by GOP lawmakers to get rid of what they see as onerous federal regulations that they blame for burdening the banking system and limiting U.S. economic expansion and job growth.
The House passed the bill June 8 along party lines. The legislation now sits in the Senate, which may craft its own bipartisan version.
“If we want small businesses to continue to be the engine of economic growth, we must remove the regulatory red tape that is preventing community financial institutions from supporting small business job creation,” said U.S. Rep. Bill Huizenga, R-Zeeland.
However, Democrats decry the potential loss of consumer protections enacted with the Dodd-Frank Act and the reforms they say were needed to avoid another financial crisis like what occurred in 2008. They dub the legislation the “Wrong Choice Act.”
“Have Republicans forgotten just how much pain the Great Recession caused so many American families?” said U.S. Rep. Dan Kildee, D-Flint. “This is a highly partisan, hyper-ideological piece of legislation that takes us back to where we were, to the very same conditions that led to the financial crisis in the first place.”
ADJUST VERSUS REPEAL
Despite the “partisan rhetoric that is emanating from Washington right now,” Mercantile Bank CEO Robert Kaminski said he’s hopeful that Republicans and Democrats can “constructively work together and adjust Dodd-Frank.”
In an email to MiBiz, Kaminski said he’d like to see a bipartisan effort “to help ensure that banks operate safely and soundly, and at a reasonable cost, while allowing them to provide needed products and services to their communities.”
Kaminski also does not necessarily believe Dodd-Frank needs to be repealed entirely.
Dodd-Frank “was an understandable and necessary reaction to that economic catastrophe” and issues in the banking industry that contributed to the Great Recession, he said. The law did cause financial institutions to place a greater focus on risk management practices, “and that is a very good thing,” Kaminski said.
“I don’t think that a complete repeal of Dodd-Frank would be the best course of action, but certainly some changes to the existing regulations to improve the effects on financial institutions would be a positive step,” he said.
One change that’s definitely needed — and has long been a point of contention for community and regional banks — is differentiating between large and small institutions and how they’re regulated, according to Kaminski.
“Continuing to shape the regulations with the overarching objective that one size does not fit all institutions would be appropriate,” said Kaminski, who moved into the CEO position at the Grand Rapids-based Mercantile Bank on Jan 1.
Mercantile Bank has 49 offices in western and central Michigan with $3.01 billion in assets.
Koning of West Michigan Community Bank said he clearly sees that same sentiment today among federal banking regulators. He’s optimistic about a bipartisan approach in the Senate to create a bill that maintains “reasonable” aspects of Dodd-Frank and eases the high regulatory burdens.
Koning recalled a recent visit to Washington, D.C. organized by the American Bankers Association during which he and his colleagues from Michigan spoke with members of the state’s congressional delegation. Every one of them — both Republicans and Democrats — agreed that Dodd-Frank had proven too burdensome, especially for community banks.
“Both sides of the aisle see the issue,” Koning said.
United Bank’s Manica isn’t so sure that Congress can actually pass something that reforms Dodd-Frank. Given the highly partisan atmosphere in Washington, he wonders whether a Senate version can gain the 60 votes needed to enact a new law.
Unless the Senate bypasses the 60-vote rule, he believes there’s “virtually no chance” of getting a reform bill passed.
“With the way government works in Washington right now, I wouldn’t be confident of anything,” Manica said. “At best, I would put it at 50-50.”
Manica favors changes to Dodd-Frank that would modify the CFPB, and eliminate both the Durbin Amendment that limits fees charged to retailers for processing credit card transactions and the Volcker Rule that restricts banks from making certain investments.