ADVERTISEMENT

http://www.hartfordbusiness.com

Rep. Himes showed courage on bank regulatory relief vote

BY Martin J. Geitz

7/30/2018
Martin J. Geitz
In the past few weeks, two Connecticut community banks, each with well over 100 years of history serving central Connecticut, announced their sale to larger banks.

Farmington Bank and First National Bank of Suffield are just the most recent examples of strong, well-managed, locally focused, publicly held community banks that concluded that excessive regulatory burden was too high a barrier to their ability to achieve competitive returns for their shareholders.

In late May, Congressman Jim Himes showed great courage by voting for legislation to provide regulatory relief to community banks. Too late for Farmington and Suffield, however an important step for the 5,000 remaining community banks in the country and 40 in Connecticut. His Democratic Party leaders, including other members of the Connecticut Congressional delegation, would have preferred him to vote in line with their obstructionist agenda.

The Economic Growth, Regulatory Relief and Consumer Protection Act (Economic Growth Act) passed in the Senate and the House with enough Democratic support in both chambers to be called bipartisan.

In our current polarized political environment, we rarely see bipartisanship. The extreme members of both parties often penalize moderates like Himes who seek to constructively address our country's challenges.

Yet, our country's greatest legislative achievements were the result of bipartisanship and compromise, including the Civil Rights Act of 1964 and the Americans with Disabilities Act of 1990.

The Economic Growth Act rebalances the one-size-fits-all regulations of the Dodd Frank Act that disproportionately burdened community banks and credit unions.

The Dodd Frank Act was Congress' answer to the 2008 financial crisis, which was caused by excessive risk taking by Wall Street investment banks, lightly regulated financial companies, and too-big-to-fail banks. Although community banks played no role in causing the financial crisis, Dodd Frank Act authors applied most of its requirements to community lenders.

Our banking system is the product of public policy enacted through legislation. Since the 1980s, legislative changes have favored large banks and resulted in a decline in Federal Deposit Insurance Corp.-insured banks from 15,158 in 1980 to 5,606 today. The Dodd Frank Act has accelerated the rate of consolidation because smaller banks lack the scale to handle its new regulatory requirements.

According to the FDIC, 50 percent of the country's banking assets are controlled by nine banks. Eighty-three percent of the country's banking assets are controlled by 132 banks. Most of the Economic Growth Act's provisions address the 5,474 banks accounting for only 17 percent of the country's banking assets. These banks are neither a risk to the financial system nor to their customers and most of the Economic Growth Act recognizes that.

While the Economic Growth Act contains some controversial elements, it empowers regulators to ensure that adverse consequences are identified and addressed.

The most controversial element is a change in the definition of a Systemically Important Financial Institution (SIFI). Dodd Frank imposed heightened risk management requirements on all SIFIs. However, the Economic Growth Act has protections from misbehavior of banks formerly deemed SIFIs and empowers the Federal Reserve to impose SIFI requirements on large banks.

Community banks are the largest source of small business lending in the country. Most Congressional representatives like to say that they support community banks and the important role they play in the local economy. Yet, too many of those representatives failed to show up with their vote when it mattered.

Congressman Himes is a Connecticut profile in courage for recognizing that the survival of community banks was worth the compromises necessary to enact in the bipartisan Economic Growth Act.

Martin J. Geitz is the president and CEO of Simsbury Bank.