Community banks—the hometown financial institutions that have been serving America’s communities since our nation’s founding—operate a business model that is inherently supportive of consumers and local economies. The very foundation of community banking is built upon one-on-one relationships and reinvesting in local economies.
Unfortunately, increasing regulatory burdens, which have a disproportionate impact on smaller institutions, have made it harder for local consumers and small businesses to access credit.Community bankers are in the nation’s capital this week with a simple message to Washington on how to restore access to credit and revitalize our economy: ensure regulations affecting community banks are tiered and proportionate to their smaller size and reduced risk.
Just as it’s the responsibility of community bankers to keep their banks and their communities afloat during hard economic times, it’s also up to them to push for reform when regulations have gone overboard. Here are the key reforms community banks will be advocating at this week’s ICBA Washington Policy Summit:
1. Right-Sizing Regulation
Community banks are now subject to a regulatory regime unsuited to their business model, including new restrictions on mortgage lending and capital standards designed for the largest global institutions. These new regulations are having a dramatic impact on local borrowers. For example, roughly three-quarters of community bankers reported that new mortgage regulations are keeping them from making more residential mortgage loans in their communities.
This week in Washington, hundreds of community bankers will call on Congress to advance legislation, such as the CLEAR Relief Act (H.R. 1233/S. 812), that would moderate unnecessary regulations on the home loans that community banks hold in their portfolios. Their message: Washington can best promote access to mortgage credit by aligning mortgage rules with the existing community bank business model.
Further, under the Community Bank Access to Capital Act (H.R. 1523), community banks would no longer be subject to a regulatory capital regime intended for the largest international financial firms. Instead of the impossibly complex Basel III structure, community bank capital guidelines would be tiered and proportionate to these institutions’ smaller size, lower risk profile and traditional business model—promoting access to capital on Main Street.
2. Check the Data
In addition to reining in overly stringent and unnecessarily complex regulations, community bankers are also working to improve regulatory consistency when it comes to data security. Community banks are already subject to strict security standards under the Gramm-Leach-Bliley Act, which help them protect the confidential information of their customers. With recent retailer data breaches requiring community banks to reissue more than 11.5 million debit and credit cards at a cost of more than $130 million—funds that could have been used to support local lending—community bankers believe other players in the payments system, including retailers, should also be subject to similar rules. After all, meaningful consumer protection can only be accomplished by strengthening the weakest link, holding ALL parties to the same data-security and data-breach notification standards.
Now that Congress is considering several data- and cyber-security bills, they should also ensurethe costs of data breaches are borne by breached parties. These stronger and more consistent standards would ensure a more secure payments system for consumers and businesses.
3. Scuttling the Subsidies
As part of their push for fair and consistent policies, community bankers also are advocating an end to unwarranted tax subsidies for credit unions and the Farm Credit System. While these institutions operate like banks, with many growing into multi-billion-dollar financial centers that dwarf community banks, they enjoy generous taxpayer assistance.
The result is that their lending comes at a significant cost to taxpayers—an estimated $31 billion over 10 years for credit unions and at least $1 billion every year for the Farm Credit System. With congressional tax-writers considering a comprehensive rewrite of the federal tax code, repealing these outdated tax subsidies would ensure a more consistent and less costly approach to taxing financial institutions.
These are three important ways Congress can help keep Main Street vibrant and allow community bankers to do their jobs more efficiently and effectively. With community bankers on Capitol Hill this week, Washington should heed their calls. After all, nobody knows Main Street better than community bankers. If there’s anyone who knows what will help local customers and spur local economic growth, it’s the community bankers who live, work and serve in their communities every day.
Camden R. Fine is president and CEO of the Independent Community Bankers of America.