With banking reform bill, Main Street won’t suffer for Wall Street’s sins

One of the enduring truths of life is that it only takes a few bad apples to ruin it for the rest of us. It’s why we see disposable shaving refills locked up in plastic vaults at the drug store as if they were museum pieces, and why most stores no longer take your personal check. It explains the reason stadiums stop serving beer by the 7th inning, not to mention the outbreak of speed bumps across every parking lot and school zone.

While the vast majority of us can follow the rules when it counts, it only takes a handful of thieves, speeders and sports hooligans to resign the rest of us to annoying inconveniences. It’s not fair, but in the great scheme of things it’s something we just get accustomed to as part of daily life. But this principle of shared guilt shouldn’t serve as a blueprint for how our government crafts public policy.

{mosads}Unfortunately, America’s economy is still suffering collateral damage from the 2008 financial crisis for just this reason. Currently, regional banks are struggling to serve their communities due to the back-breaking demands placed on them by the Dodd-Frank banking reform passed in 2010, even though regional banks weren’t responsible for the 2008 financial meltdown.

Washington, in its “wisdom,” even recognized this fact, as the 2,300 page Dodd-Frank law was titled the “Wall Street Reform and Consumer Protection Act of 2010.” Yet in its zeal to clean up Wall Street, regional banks — which present little risk to the financial system — found themselves swept into its regulatory bin and have been suffering ever since.

The reason this matters is that regional banks serve our nation as the financial nerve center for Main Street, U.S.A., offering traditional banking services such as checking accounts, deposits, mortgages, and other lending. As these community-focused regional banks shift resources towards complying with Dodd-Frank’s burdensome regulations, so goes away critical capital for the start-up businesses that support America’s local communities, housing and job growth.

It’s not surprising that politicians, in their zeal to appease voters and pass financial reform, overshot the target and got it wrong. Much of what passes for regulation in Washington follows what’s known as Boyle’s Law, which states that the first pull on the cord always sends the curtains in the wrong direction. Most reasonable people react by switching which cord they pull, but after seven years, Congress has kept yanking the same wrong cord.

Under Dodd-Frank’s regulatory mountain, regional banks are controlled as if they were the risky, complex Wall Street banks, having to maintain higher capital ratios even though they don’t engage in trading the high-risk investments and derivatives that led to the crash.

The regulatory stranglehold Dodd-Frank inflicts on America’s regional banks extends to dozens of new requirements that puts them at a tremendous disadvantage to their Wall Street counterparts, saps them of resources to lend, while passing higher costs on to their customers, if not eliminating services altogether. It’s one thing to pass sensible reforms to protect consumers, but the impact of Dodd-Frank on Main Street banks is akin to forcing the neighborhood lemonade stand to hire a tax accountant and comply with OSHA.

Fortunately, Congress has taken the first step in giving these banks relief. Led by Senate Banking Committee Chairman Sen. Mike Crapo (R-Ind.) and a group of Democratic committee members, Congress is set to debate and vote on S.2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act. This bill raises the asset threshold triggering stricter, burdensome regulations from $50 billion to $250 billion, among other things.

This is a major victory for freeing the majority of regional banks from the shackles of Dodd-Frank, and a lifeline that will help consumers and businesses access the capital they need. Said Crapo when the bill was introduced:

“The reforms in this bipartisan bill help tailor the current regulatory landscape, while ensuring safety and soundness and relieving the burden on American businesses that are unfairly being treated like the largest companies in our economy. This bill holds real promise for Main Street banks, businesses and families.”

S.2155 is good for consumers, good for business, good for jobs, and good for America’s local communities.  It also paves the way for additional regulatory reform down the line, which is needed to provide the remaining regional banks above the $250 billion with relief. Tailoring regulations based on risk level, an idea that has had bipartisan support in the past, would further strengthen the financial system and provide more resources for consumers and businesses.

President Trump will sign this bill into law, if the Senate and House take action, which seems likely given the need to focus on economic growth. Although there are a number of issues up for debate, this definitely should be a priority, as it is smart policy and the right thing to do. When it comes to the financial crash of 2008, America’s Main Street banks have clean hands. They and their customers should not continue to be forced to pay for the sins of Wall Street.

Gerard Scimeca is vice president of CASE, Consumer Action for a Strong Economy, a free-market oriented consumer advocacy organization.