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Make *real* banking reform work for communities

Freedman's Bank Texas bank US bank reforms Charles Cooper

Texas bank regulator Charles Cooper discusses the plight of community banks and small-business lending in a cogent article for the Express-News, reprinted by permission.

AS A STATE REGUATOR, [I've found] nothing is more evident than how community banks impact Main Street America — in Texas and across the country. They are deeply invested in the community where their customers live and work, helping local businesses and residents, and generating economic growth from the bottom up.

Collectively these banks are responsible for almost half of all small business lending and three-quarters of all agricultural lending in the United States. At a time when the big banks offer cookie-cutter solutions and some are pulling back on their local presence, it is good to know that our citizens can rely on the local community bank that better understands their needs.

But in recent years, community banks have been hampered by regulations defined at the federal level. After the U.S. financial crisis nearly a decade ago, federal policymakers focused on how regulation could head off future crises. And so, a large number of new regulations and procedures were adopted.

Texas banking regulation Charles Cooper US bank reform Dodd-FrankThere was just one problem: Many new rules addressing too-big-to-fail institutions also applied to community banks that posed no systemic risk to taxpayers.

Due to this increased complexity, compliance costs have increased for community banks. A recent study by the St. Louis Federal Reserve Bank estimates community banks spend about $4.6 billion every year in regulatory compliance. These higher costs have been a contributing factor to a decline in the number of banks, in turn limiting access to credit and banking services for consumers.

IN TEXEAS, WE HAVE gone from 644 banks in 2009 to 464 today.

Fortunately, there is an opportunity to solve this problem. In the U.S. House of Representatives, the Financial Services Committee chairman is Texas’ own Jeb Hensarling, who has jump-started congressional efforts to right-size regulation for a post-crisis environment.

As Texans, we should be proud one of our own is playing such a critical role at the federal level.

In addition, similar reform efforts are underway in the Senate. Combined, these developments offer hope that regulatory reforms just might make their way into law.

Perhaps the best place to start is where there is bipartisan support. In my recent visit to Washington, D.C., I met with members of the Texas delegation and others in Congress. The one unifying topic — regulatory right-sizing for community banks.

WHAT COULD REFORM look like?

The Conference of State Bank Supervisors, whose members regulate 78 percent of all U.S. banks, supports creating a common definition for a community bank, and then exempting all those that qualify from federal rules aimed at bigger and more complex banks.

Such a definition — based on a combination of factors such as assets, local ownership and lending in the community — would enable legislators and regulators alike to create a regulatory regime tailored for community banks.

This idea of a community bank definition, and the accompanying right-sized regulation, is not a novel one.

US bank failures by state FDIC mapThe Federal Deposit Insurance Corp. uses a common definition to perform its community bank research.

Governors at the Federal Reserve Board support applying different rules for big and small banks.

In an executive order, President Donald Trump recently directed his administration to make sure that regulation is “effective, efficient and appropriately tailored” for financial institutions.

When folks head in the same direction, you tend to get results. With the political winds in Washington favoring community banks, I am optimistic we can achieve common-sense regulation that permits community banks to do what they do best — serve their communities.

Charles G. Cooper is commissioner of the Texas Department of Banking and chairman of the Conference of State Bank Supervisors.