Pub. 11 2016-2017 Issue 3

www.nebankers.org 8 Extraordinary Service for Extraordinary Members. Washington Update Dodd-Frank’s Price Tag Rob Nichols, President & CEO, American Bankers Association T HE PRESIDENT’S COUNCIL OF Economic Advisers seems to have taken to heartMarkTwain’s suggestion to “get your facts first, then you can distort themas you please.” A report from the group released in August reviews the aggregate per- formance of community banks then boldly—and illogically—concludes that theDodd-Frank Act has not harmed that segment. Specifically, the report claims that bank branching patterns, lending growth, and geographic reach “show that community banks remain strong.” The statement is jaw-dropping in its willful disregard for the true cause and effect of the disappearance of 1,708 banks—or 22 percent of the industry— since the enactment of Dodd-Frank in 2010. It’s as if theWhite House is saying “what does it matter if we are losing a bank a day, there are others around that can lend.” We know how much it matters—to you and to the communities that no longer have their local hometown bank. And we know that it is more than just market forces and “macroeconomic con- ditions” that are driving the twin trends of bank consolidation and the dearth of new bank charters. As I said in a letter to the Council of Economic Advisers (CEA) respectfully challenging its conclusions, the thou- sands of pages of new regulations that have been imposed on community banks in recent years is an enormous driver of decisions to sell to a larger bank. Those same regulations are restricting product offerings, like mortgages, and discouraging banks from growing for fear of the increased regulation that is triggered by crossing an arbitrary asset threshold. This leaves customers with fewer choices and communities with less service. Complex, ill-fitting rules—from Dodd-Frank and beyond—are also to blame for the lack of de novos in recent years. The CEA suggests the real reason is low interest rates, but large numbers of new banks have formed in past re- cessionary times, so that argument just doesn’t wash. The CEA’s conclusions, in short, feel forced and out of touch. Had the researchers called real, live bankers who are grappling with how to grow their business in the current regulatory environment, they could have gotten right to the heart of the matter. They might have heard something like this, taken from a note that one of ABA’s members recently sent explaining his bank’s decision to hang it up: “Unfortunately, we became a victim of Dodd-Frank. The effects of Dodd- Frank . . . plus other regulatory issues . . . resulted in financial projections show- ing substantial declines in revenues and increases in compliance costs, reaching the point that in a few short years an otherwise healthy community bank with strong capital and satisfactory earnings could no longer meet a number of finan- cial benchmarks set by the regulators. These conclusions forced the bank to sell now when our shareholders and some of our employees would be less adversely affected.” When this bankmerged with a larger one, half of its employees lost their jobs. And that highlights yet another costly toll of government-induced consolida- tion: the lost contributions of men and women who play leading roles in their communities. John Ikard, last year’s ABA chair- man, said it well in his farewell speech at our convention. A community can lose their bar or their grocery store, but they can’t lose their bank, adding that online lenders are no replacement. “You can’t go online to get a leader. Banks don’t just provide money. They provide the people who serve on the school board, United Way, churches.” That kind of involvement—which un- doubtedly makes communities richer— is not something any economist can put a value on.  Email Rob Nichols at nichols@ aba.com . ©American Bankers Association. All rights reserved. Reprinted with permission.