Treasury Says Wall Street Reform Helps Small Banks. But Does It Really?


Wall Street policies may not be built for Main Street banks.

Aug 31, 2012

By: Michelle Patana

Wall Street reforms have received a great deal of negative attention from the financial industry. However, many have failed to differentiate between the illegitimate complaints filed by large institutions and the valid concerns of smaller community banks.

The U.S. Department of the Treasury recently released a report that notes the various ways in which Wall Street reforms have helped foster community banking programs and keep smaller banks thriving. However, its explanations fail to take into account the many legitimate concerns and issues that local institutions have put forth, such as the overall impact of the gigantic Dodd-Frank legislation on community banks.

For example, the Treasury Department asserts that the creation of the Consumer Financial Protection Bureau has helped "drive compliance with consumer laws." While this may be a necessary piece of legislation for megabanks that have faced billion lawsuits relating to compliance, the reforms are somewhat unnecessary for smaller banks that have always operated with integrity and in the interest of the consumer. When community banks are in the news, it is not due to a multi-billion dollar trading loss, rate-rigging scandal or mortgage fraud. Instead, it typically relates to how they are helping the communities they serve.

However, the new policies imposed by the CFPB have treated all financial institutions, large and small, uniformly and slapped them with broad new procedures relating to overdraft privilege programs, checking account disclosures and mortgage underwriting standards. And as a result, those community institutions that have always followed smart strategies in practice are now being forced to spend hundreds of thousands of dollars to have them written down on paper. Several industry professionals have noted that the high cost of hiring compliance officers, printing out new customer correspondence and updating systems, is likely to eat into the profits of many smaller institutions. This may impact their ability to lend and continue to offer affordable and lucrative products to consumer and commercial customers.

The Treasury Department also noted that the CFPB fully takes into account the effects of large-scale proposals on smaller entities. Despite various testimony, reports and updated data demonstrating the harm that these policies have caused to local institutions, little has been done to differentiate between those megabanks that need to be regulated and those smaller banks that have been successful in building healthy communities since before the CFPB was created.




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