Tipton Questions U.S. Treasury Secretary on Decline of Community Banks

Press Release

Today, Congressman Scott Tipton (R-CO) raised concerns during a House Committee on Financial Services hearing on the destructive impact federal regulations have had on the small community banks. Tipton questioned U.S. Treasury Secretary Jack Lew on why the Financial Stability Oversight Council (FSOC) has yet to review the impact regulations are having on community banks despite being statutorily required to do so under the Dodd-Frank Act. Tipton's questions stemmed from a meeting last week with community bankers in Delta, Colorado where the discussion focused on how Dodd-Frank regulations have increased regulatory compliance burdens and crippled the ability of small banks to lend to community businesses.

"In your opening statement you talked about the American recovery. You did not speak to the point that we have the lowest labor participation rate in 37 years, and that we're seeing for the first time more small businesses shut down, than new businesses starting up in this country. One of the important issues that we have particularly in rural areas like I represent is access to capital from community banks," said Tipton. "Recently, Senator (Elizabeth) Warren stated, "The financial performance of the community banks shows that Congress and the regulators, I think, have done a pretty good job of tailoring the rules to protect community banks.' Do you agree with that?"

"I think that both the law and the regulations implementing the law take into account the differences between small, medium, and large size institutions," Lew responded. "There may be additional flexibilities that need to be used, but I generally agree that there has been a lot of attention paid to not treating all financial institutions the same."

The impact of Dodd-Frank regulations on community banks is illustrated in a recent study from researchers at Harvard University's Kennedy school of government which tracked a disturbing trend of community bank consolidation that has accelerated due to the onerous provisions of Dodd-Frank. In the past two decades the total number of community banks has plunged 69% to just over 6,000 institutions left.

"Let me give you an example from my district. I just met with a small community bank in Delta Colorado, First Colorado National Bank. They said that burdensome capital requirements and excessive regulations require the bank to spend money on compliance instead of being able to grow the bank and have capital available for loans for the local community. They said that the bottom line is that they really feel that they no longer run their bank, but that it's being run by the federal government and by regulation. What do you tell that small bank?" asked Tipton.

"What I would tell that bank is that we have designed rules, and regulators have designed rules to try to take account in the differences in terms of the level of reporting and what's required and it would really depend on what the specific issues were," Lew said.

Tipton challenged Lew's claim during the hearing that he has spent a fair amount of time concerned with the impact of regulations on community banks. Tipton pointed to a review of the minutes of 40 FSOC meetings conducted from 2010 to 2014 which yielded not a single reference to community banks or the effect that regulatory burdens are having on their viability. Tipton emphasized to Lew that Section 112 of the Dodd-Frank Act instructs FSOC to identify regulatory conflicts and excessive regulatory burdens that are harming community banks and take steps to mitigate that harm.

"We've not ruled out doing a more formal review, but we've been in the implementation stage where agencies have had the first round of implementing Dodd-Frank on their plates," said Lew.

Tipton went on to then question Lew on the relationship between serving on FSOC and on the international Financial Stability Board (FSB), and whether there is any conflict of interest.

The Financial Stability Board (FSB) is an international group of central banks, government finance ministers, and financial regulators which was formed as an offshoot of the G-20 in April 2009. Like the FSOC, the FSB operates with a high level of secrecy, its meetings are not open to the public and it releases very little information about its deliberations. The Treasury, the Federal Reserve, and the SEC are the U.S. representatives to the FSB. As seen with insurance companies and now with asset managers, the FSOC has followed previous decisions by the FSB in designating systemically important institutions.

Source