Pub. 6 2011-2012 Issue 4

www.nebankers.org 10 Extraordinary Service for Extraordinary Members. T HAT’S THE PRIMARY MESSAGE I’VE been delivering lately. It was also the topic of a recent op- ed I wrote for The Wall Street Journal. In the op-ed, titled “Banking in a Time of Over-Regulation,” I called for an approach to regulation that will ensure fundamental protection of con- sumers, the environment, and other concerns “without bogging businesses down in red tape or chilling expansion with threats of additional rules and harsh penalties.” You know this all too well. And you’ve told me about it as I’ve trav- eled around the nation this year and met with many of you. Now we’ve got to make others aware of this problem, including policymakers in Lincoln and in Washington, D.C. The Dodd-Frank Act, with its ap- proximately 4,000 pages of proposed and final rules, is threatening the survival of many community banks that are the economic lifeblood of small towns across America. “Man- aging this mountainous regulatory burden is a significant challenge for a bank of any size, but for the median-sized bank—with 37 em- ployees—it’s overwhelming,” I wrote in my Journal piece. “The cost of regulatory compliance as a share of operating expenses is two and a half times greater for small banks than for large banks.” Some of the troubling Dodd-Frank provisions include: • Risk Retention. The law requires banks to retain a portion of the risk of loans they originate and later sell to other parties. Banks then must hold capital against that retention, at a time when additional capital is particularly hard to come by. Banks will be forced to originate fewer mortgage loans, as their capacity to make and retain loans will steadily be used up. • Higher Capital Requirements and Narrower Qualifications for Capital. The capital regime sup- ported by Dodd-Frank will require banks to hold more capital, while restricting what qualifies as capital to little more than shareholder in- terest and retained earnings. New shareholder investors are hard to find especially for community banks. Regulatory pressure on bank earn- ings (through the Federal Reserve’s policy holding down interest rates, controls on interchange, restrictions on overdraft programs, and higher compliance costs) leaves little rev- enue to pay investors or to retain to boost capital. • SEC Municipal Advisors Rule. Banks that provide municipalities with traditional banking services, which are already subject to oversight by primary regulators, will be subject to additional registration and over- sight burdens by the Securities and Exchange Commission. The compli- ance costs of duplicative regulation Washington Update Newspapers and television and radio interview programs are showing a genuine interest in the regulatory burden that is hurting our banks, along with our local, regional, and national economies. Our Message: Banks Are Over- Regulated Frank Keating , President & CEO, American Bankers Association Q Over-Regulated — continued on page 13