- - Sunday, September 27, 2015


Let’s be brutally frank. Opportunities to pass vital, consensus, community bank regulatory relief legislation are fading. While Republicans and Democrats alike have pledged to reform excessive regulatory burdens on Main Street institutions to improve local economies, partisan bickering threatens to thwart enacting needed regulatory relief anytime soon.

Oddly, Senate Banking Committee Republicans are not the most significant threat to the Dodd-Frank Act, regardless of past partisan battles and finger pointing in recent years. In a bizarre twist, Senate Democrats now pose the greater threat to the stability and intended legacy of the act by opposing any meaningful reforms whatsoever.

In fact, Chairman Richard Shelby’s financial reform bill, which the committee passed earlier this year and which lawmakers continue to debate, largely endorses and leaves undisturbed the great majority and most critical provisions of the Dodd-Frank Act. This is especially true for those provisions designed to rein in the most egregious Wall Street abuses, of which there were and continue to be many.

Many Republicans decried Dodd-Frank as the end of free market capitalism. That hyperbole and spin even included dire predictions of Wall Street megabanks moving to London en-masse. Looking to distract Republicans from Wall Street’s widespread corruption of the free market, unsuccessful megabank lobbyists and their trade groups knowingly spun outrageous tales of community banks being responsible for passing Dodd-Frank.

The truth is that Dodd-Frank was a highly predictable reaction of a newly dominant one-party Congress and president, who inherited the worst financial crisis since the Great Depression. Triggered by a visceral and vocal public reaction, overreach became inevitable. Burdensome regulatory demands veered toward unworkable, as both Red and Blue state voters grew angrier and angrier at the seeming hubris of the Wall Street oligarchs.

What the general public saw was too-big-to-fail megabanks tanking the economy with impunity, then seeking refuge among Republicans in Congress. These lawmakers were no longer in the majority and rightly as concerned with public outrage as they were with the inevitable knee-jerk response that gave us excessive, one-size-fits-all financial regulation.

The result? The Wall Street Reform and Consumer Protection Act signed into law was further left of what self-described liberal Barney Frank passed out of the House. The Obama Justice Department compounded matters by giving the too-big-to-fail plutocrats “too-big-to-jail” status, in which law-enforcement officials hesitate to pursue financial wrongdoing at the nation’s largest banks because of the potential economic impact. This made a mockery of Wall Street reform, and compounded the growing crisis among Main Street community banks suffocating under the weight of a growing alliance between big government and a small group of financial hegemons.

Clearly, Chairman Shelby’s bill moves beyond the tired rhetoric heard over and over since the financial collapse. It offers a reasonable solution for moving forward on meaningful community bank regulatory relief so desperately needed in Main Street America. Unfortunately, Democrats on the panel have refused to budge in their opposition to the measure even as several moderate members indicated a willingness to work across the aisle. Holding firm to the overwhelmingly burdensome regulatory regime poses a mortal threat to our nation’s system of local financial institutions.

Let’s not forget that many provisions of the bill enjoy widespread bipartisan support. For instance, Chairman Shelby’s bill would offer community bank relief from some of the most burdensome mortgage rules enacted under Dodd-Frank to limit the negative impact on local borrowers and avoid driving smaller institutions from the housing market. This comes as the Consumer Financial Protection Bureau itself has taken steps to roll back the harmful effect of its mortgage rules on community banks.

The Shelby bill also includes modest reforms to regulatory examinations, quarterly reporting requirements and the Volcker Rule to right-size rules for community banks and the customers they serve. These policies are in line with reforms advocated by regulators such as Federal Reserve Governor Daniel Tarullo, Federal Deposit Insurance Corp. Chairman Martin Gruenberg and Comptroller of the Currency Thomas Curry — all appointed by President Obama. Further, Chairman Shelby’s staff has said they intentionally left out controversial provisions on the Federal Reserve and the Consumer Financial Protection Bureau to encourage bipartisan support.

While there are points for legitimate debate among reasonable lawmakers, the bulk of Chairman Shelby’s bill actually has a fairly narrow focus on what have generally been regarded among members on both sides of the aisle as consensus reforms. So if we focus on the policies in the Shelby proposal, there is plenty of common ground.

The U.S. Senate has an opportunity to do the right thing, but it must act. Democrats and Republicans need to reach across the aisle, end the bickering and uncertainty over financial reform, and find a path to support a compromise bill. They need to drop the ideological politics, focus on sound policy, and come together to pass common sense regulatory relief for Main Street. Otherwise, the Dodd-Frank Act will have the unfortunate legacy of regulating community banks out of existence and handing the banking system entirely over to Wall Street.

Camden R. Fine is president and CEO of the Independent Community Bankers of America.

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