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If they had fewer federal regulations to address, bankers at area financial institutions say, they could grow more easily.
Tom Hoenig at the FDIC says he wants to help them.
The vice chairman of the Federal Deposit Insurance Corp. is leading a charge to roll back some of the rules placed on community banks by the Dodd-Frank Wall Street Reform and Consumer Protection Act passed in 2010.
Now that the U.S. economy is back on track, many community bankers say that Dodd-Frank restricts them much more than it restricts large banks.
Large banks have departments full of lawyers and regulatory experts to help them navigate the rules of Dodd-Frank, area bankers say, but smaller banks and other financial institutions can’t afford to pay the same number of regulatory staff to help.
Hoenig is pushing to allow financial institutions with apparent sound financial practices more leeway in how they do business in the future.
Community banks and Dodd-Frank
Challenges community banks face under Dodd-Frank rules:
• General federal reporting requirements cost banks money.
• Mortgage lending requirements are complex and expensive.
• Some requirements limit possible revenue – especially as it applies to trading and derivatives.
Some proposed remedies:
• A bank’s net worth would need to be at least 10 percent of its assets to qualify
for relaxed rules.
• Push federal bank-examiner cycles to 18 months from the current 12 months.
• Allow qualifying banks to be exempt from filling out some sections of the quarterly Consolidated Report of Condition and Income regarding mortgage lending.
• Avoid additional capital standards and calculations required under the rules of the international bank standard group Basel Committee on Banking Supervision
Sources: Local banks and the Federal Deposit Insurance Corp.
Banks would need to demonstrate a capital level of 10 percent to qualify for future relaxed rules, meaning a bank’s net worth would need to be at least 10 percent of its assets, the FDIC has said. Hoenig also has suggested that community banks be rated on activities, rather than on asset size.
Such plans come directly from banker suggestions, according to Doreen Eberley, director of the division of risk management supervision at the FDIC.
Bankers have asked for fewer federal examinations and longer intervals between regulatory filings. The FDIC is trying to respond to them, Eberley said in a printed statement.
For Boulder Valley Credit Union, the FDIC’s proposed rollbacks come too little, too late. Boulder Valley merged with Premier Members Federal Credit Union in May, primarily because the stepped-up regulatory environment from Dodd-Frank increased the cost of doing business, said Carlos Pacheco, Premier Members’ chief executive officer.
The National Credit Union Association “has done a lot to shield credit unions” from increased regulatory requirements, Pacheco said. But it sure helps to now have four people dedicated to compliance and control at the combined Premier Members Federal Credit Union, rather than the previous two before the merger, he said. Premier’s combined asset size is $850 million.
Bank of Colorado president Shawn Osthoff said well-run and well-capitalized banks were not the ones that struggled during the recession. Such banks, including Bank of Colorado in Fort Collins, should not continue to face onerous regulations, he said. Osthoff supports the proposed rule to push federal bank-examiner cycles to 18 months from the current 12 months.
“We’re working our way out of the downturn,” Osthoff said, “and it just makes sense to ease regulations.”
Bank of Colorado has about $2.9 billion in total assets, about 60 percent of it from the Front Range and eastern Colorado and about 40 percent from the Western Slope.
Hoenig’s plans would help increase competition between smaller banks and “mega-banks” as well, said Kyle Heckman, president of Flatirons Bank in Boulder. Heckman said he supports Hoenig’s “common-sense approach.”
Potential easing on new mortgage lending rules caught the eye of Eric Hoffner, president of Farmers Bank in Ault. Hoffner worries that the new, complex and expensive regulations regarding mortgages could stop smaller banks from serving community needs in the future.
When it comes to mortgage loans, Farmers Bank officials always “have followed a conservative approach to qualifying individuals to make sure they meet down-payment, income and credit standards,” Hoffner said.
In addition to the general easing on examinations and mortgage lending rules, Hoenig is proposing a plan to allow qualifying banks to be exempt from filling out some sections of the quarterly Consolidated Report of Condition and Income, known as a call report.
If banks meet the 10 percent threshold of equity to assets, they also could avoid additional capital standards and calculations required under the rules of the Basel Committee on Banking Supervision, the international bank standard group, Hoenig has said.
While Hoenig’s plans may sound good, they would require legislative approval in Washington before they could be implemented, said John Podvin, a bank lawyer at Bieging Shapiro & Barber LLP in Denver. Hoenig’s simple “regulatory relief” plans need backing from Congress, Podvin said, adding that President Obama has said he would veto any legislation that crosses his desk that waters down Dodd-Frank.
“It all comes down to what Congress is willing to do,” Podvin said.