Videos & Speeches
Nov 30 2011
I want to bring to the attention of my colleagues in the Senate a pending piece of legislation, a bill that I have introduced dealing with our country’s economy and particularly as it relates to financial institutions and in particular our community banks.
There are, as we know, so many Americans who are looking for work. I would say our government’s first priority, I would say, is to defend our country, and we have been having that debate about how we do that, but we also have a significant responsibility to create an environment where businesses can grow and put people to work. I want to point out tonight a piece of legislation that I have introduced that I believe is part of the solution. It is called the Communities First Act, and it is a compilation of what I would say are commonsense tax and regulatory relief ideas for our nation’s smallest financial institutions.
We hear constantly about Wall Street. I want to worry tonight about Main Street. These banks in communities across Kansas and in States across our country were not the cause of the financial crisis from which we are still struggling to emerge, but unfortunately they have become the victims. They have become casualties of the crisis on Wall Street. Hundreds of community banks have been allowed to fail, and the survivors are left waiting for the next burdensome regulation to come from Washington, DC.
Until banks are willing and able to make prudent loans to creditworthy hometown customers, job creation will remain stifled and our economic recovery will continue to lag.
The evidence seems clear to me that the current regulatory requirements impose a disproportionate burden on community banks because they do not operate on the scale to spread the legal and compliance costs. When a bank with just, say, 40 employees requires 4 compliance experts, I believe something is terribly wrong.
This expensive overregulation diminishes the ability of a community bank to attract capital and to support the credit needs of customers. What that means is that investment in a bank, someone who wants to be a stockholder or the owner of a community bank, because of the cost of capital, the regulatory costs increase the cost of capital, and because of that, they will decide that there is a different way to earn a living, a different place to invest that capital. So, in short, these burdens prevent a community bank from serving the community and they avoid, therefore, the resulting job creation that comes when a community bank invests at home.
All of the regulations being piled on community banks might be justified if the failure of a community bank could pose a serious risk to our Nation’s financial system, but that’s clearly not the case. It was not the failure of several hundred community banks that left our economy in such poor condition; it was the financial condition of a handful of our largest firms in America that grew so large and so complex that their failure or bankruptcy could not be tolerated and the consequences would affect every American. We need a tailored approach to regulation.
Ross Wilson, one of my constituents in LaCrosse, KS, a banker, wrote to me. He says his bank will no longer make home loans, real estate loans. This is his quote:
As a community banker, I really hate this decision, but the complexity of the new regulations have forced us to make this decision. It appears that the powers that be in Washington don’t understand the importance of a small community bank.
When your hometown bank won’t make a home loan to one of its customers not because the loan won’t be repaid but because the regulatory costs are far too significant, our regulations have far exceeded their value.
How does the Communities First Act that I have introduced change this trend and restore some level of sanity to our financial regulations? This bill would strip away outdated and unnecessary regulations, such as the Gramm-Leach-Bliley annual privacy notice requirement. Under current law, every bank and credit union is required to disclose their privacy policies on an annual basis even if that bank’s policy has never changed during the year. So you can have a customer of a bank who has been a customer forever, they have a policy in place that never changes, but every year the bank has to send out a significant mailing to every customer explaining their policy in regard to privacy. While that burden maybe doesn’t sound too significant, it is a costly requirement of questionable benefit.
Blake Heid, who is of the First Option Bank in Paola, KS, told me that, here’s his quote:
Very little of what the regulations have us do is productive or helps us take care of our customers better. Just the privacy notices alone cost our small bank in excess of $13,000 annually. We haven’t changed it—we never sold our customer information, and we still don’t.
The Communities First Act would also address an issue regarding SEC registration by community banks. The number of shareholders which triggers a registration has not been updated in a long time and remains a burden that discourages community bankers from raising capital and making loans.
The Communities First Act would also reform which banks are required to comply with the costly burdens of Sarbanes-Oxley. Current law exempts banks with market capitalizations of $75 million from compliance under section 404. The benefits of that section do not appear to be worth the cost, so my legislation raises that threshold.
Another commonsense provision would encourage Americans to save by reducing the tax on longer term certificates of deposit. It would also allow for individuals under the age of 26 to invest in Roth IRAs without regard to their income level. We desperately need Americans to save money for their long-term retirement benefits.
The Communities First Act would also reform the new Consumer Financial Protection Bureau so that the National Credit Union Administration, the FDIC, the Federal Reserve,
and the other regulators would have a meaningful role in the creation of consumer protection rules. Dodd-Frank provides these regulators insufficient input and review of the CFPB, and the results of poorly written regulations could mean less credit and, again, fewer jobs.
There seems to be some disagreement here in Washington, DC, today about the effects of burdensome regulations on our economic recovery. But, back in Kansas, Jay Kennedy of the First National Bank of Frankfurt indicates that:
Our staff of 7 1/2 people are busy taking care of our customers and serving our communities. The extra burden from things like tracking escrow payments, sending privacy notices, and filing call reports that take a month to complete all create undue stress and busy work for us. Kansans know what the words “busy work” mean.
The relief of those three things alone would allow us time to teach financial literacy that our schools can no longer afford to do and create new products to better serve our customers.
The provisions of the Communities First Act are just a first step in unleashing the ability of small banks to do what they do best—provide capital that results in jobs.
Congress has created a regulatory monster, and I would urge my colleagues to join me in removing unnecessary burdens from our financial system and cosponsor S. 1600, the Communities First Act. While this legislation may directly benefit our Nation’s community banks and financial institutions—our small financial institutions—the real beneficiaries are the entrepreneurs, the Main Street small businessmen and women, and farmers and ranchers who, with access to credit, can help put Americans back to work.