Reform Wall Street to Help Main Street
There’s finally light at the end of the seven-year-long tunnel: The Senate is set to take action to right the Dodd-Frank Act’s many wrongs. The proposed reform promises to benefit customers of Main Street financial institutions — regional banks, credit unions, and community banks — their communities and the economy as a whole.
Currently, these smaller institutions are burdened with unnecessary regulations and supervisory requirements that were intended to rein in large, risky, “too big to fail” banks. These regulatory burdens disproportionately impact smaller institutions, requiring them to shift resources away from consumers and businesses.
Unlike Main Street institutions, Wall Street institutions can better absorb Dodd-Frank’s costs through economies of scale. They also pose bigger risks to the financial system. But, as I have noted before, Wall Street banks have become less important as a source of capital for consumers, small businesses, and rural customers. With these regulations squeezing smaller financial institutions, there is less capital available for mortgages, business loans, and commercials projects.
Data from the Regional Bank Coalition estimates the current regulatory and supervisory requirements have led to a nearly 10 percent decline in the growth rate of total regional bank loans. Cornerstone Advisors estimates that credit unions face $6.1 billion regulatory burden from these regulations. These estimates are striking and don’t take into account Dodd-Frank’s effects on community bank lending.
The bipartisan reform bill, known as the Economic Growth, Regulatory Relief, and Consumer Protection Act (S.2155), will correct many of the improperly calibrated regulations impacting consumers and small businesses.
One major change will raise the asset threshold that triggers “systemically important financial institution” (SIFI) designation from $50 billion to $250 billion. As pointed out, the $50 billion threshold unfairly sweeps in regional banks and credit unions with the complex, risky institutions on Wall Street, despite the little risk they present to the financial system.
But while the $250 billion threshold represents a good first step, Congress must consider other ways to provide the remaining regional banks with regulatory relief once S.2155 passes. Many regional banks and credit unions operate in rural communities with few banking resources, which makes it all the more important they have resources available to help these communities thrive. One simple way to do this would be through additional tailoring for financial institutions above $250 billion.
Some groups opposing S.2155 have attempted to drum up fear by framing this reform as a deregulation of the banking system and its risky financial institutions. However, these claims are misleading. This bill is commonsense, controlled reform designed to help Main Street institutions get back to traditional banking services, instead of compliance; it’s why the bill was crafted by both parties and has bipartisan support — no easy feat in today’s political climate.
There are vast differences between the biggest banks and the Main Street institutions that Dodd-Frank fails to differentiate. It’s not just size (the top four have total assets over 1 trillion dollars). Main Street banks have simple business models focused on traditional banking services, whereas Wall Street banks have complex and risky portfolios steeped in derivatives and swaps, among others. And though some groups claim the bill would deregulate some of the risky foreign institutions, even Federal Reserve Chairman Jerome Powell recently said that was incorrect.
Congress must get distracted by these false claims. The facts aren’t hard to follow: The current approach is not working for consumers and Main Street; it’s time we provide smart regulatory relief in order to make our financial system safer and sounder.
The Senate and House need to take swift action on S.2155. This legislation is both pro-consumer and pro-small business. We cannot let another Dodd-Frank signing anniversary go by without long overdue regulatory relief. It’s not about Wall Street; it’s about Main Street.
Steve Pociask is present of the American Consumer Institute, a nonprofit educational and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org or follow me on Twitter @ConsumerPal.