Crapo bill could help Idaho community banks

A national banking bill put forth by Idaho’s Sen. Mike Crapo could pay big benefits back home, according to community bankers.

The bill, S.2155, is intended to roll back some Dodd-Frank compliance restrictions that were put into place in 2010. The Senate Banking Committee passed it on Dec. 5. It is expected to go to the full Senate by late February or early March, said Bill Cooney, senior vice president for Congressional relations for the Independent Community Bankers of America (ICBA), a trade association that represents more than 5700 community banks, including many in Idaho. Assuming the Senate passes it, it will go to the House. ICBA is encouraging the House to pass the Senate bill, because the body has already debated and passed a number of the provisions in S.2155, he said.

If the bill passes, the result could be more available capital for community banks in rural areas, including Idaho. “Tailoring regulations to better reflect a financial institution’s size and business model will allow them to free up resources that can be better used serving customers,” said Amanda Critchfield, spokesperson for Crapo, who chairs the committee. “This might mean more product offerings, loan approvals, credit, or mortgages.”

Small local financial institutions agreed. “[Crapo] has taken what he has heard in the field from institutions and been able to translate it into some real common-sense financial reform,” said Troy Stang, president and CEO of the Northwest Credit Union Association, a credit union advocacy group based in Tigard, Oregon, with offices in SeaTac, Washington, and Boise. The NWCUA recently agreed to merge with the Idaho Credit Union League.

As an example, today small banks need to consider small multifamily units for real estate loans as business loans, while large Wall Street banks would consider them residential loans, Stang said. S.2155 recharacterizes dwellings of up to four units as real estate loans. “Main Street Idaho will have more dollars to lend in their business portfolios, with real access to capital,” he said. “Communities will feel the difference.”

Dodd-Frank was a reaction to the 2008 recession and some of the practices of Wall Street firms that brought it on, but it went too far, Stang said. “There were unintended consequences, one of which was too many restraints on local community institutions,” he said. “There were the same compliance expectations of Wall Street banks as of a local community institution. The only difference is, local institutions don’t have rows of cubicles of attorneys to deal with the compliance burden.”

For example, Dodd-Frank doubled the amount of data that banks had to collect to offer a loan, from 24 data fields to 48, covering demographic areas such as sex and race, Cooney said. The Crapo bill says that banks that originate fewer than 500 loans per year are exempt from the new data requirements. “Community banks don’t discriminate against borrowers,” he said. “If they were discriminating against female applicants or minority applicants, they wouldn’t be in business very long.” Dodd-Frank also implemented more stringent capital requirements, which would be rolled back for community banks under S.2155, he said.

Critics of the bill say it doesn’t really address the problems community banks face, and at the same time it takes away tools from regulators. “The relief it promises to small community banks is premised first on the notion that small banks are suffering due to the Dodd-Frank Act,” wrote Ed Mierzwinski, federal consumer program director and senior fellow for the Federation of State Public Interest Research Groups (U.S. PIRG), in December. “In fact, the consolidation in the industry, though widely blamed on Dodd-Frank, was not caused by the act. According to Federal Reserve economists, bank consolidation has been occurring at a steady pace since at least 1984.”

Cooney disagreed. “It does not destroy Dodd-Frank,” he said. “It merely creates surgical exemptions for community banks and small credit unions. This really is a community banking regulatory relief bill.”