Community bankers are optimistic that regulatory reform legislation will soon clear both chambers of Congress and, importantly, that it will ease what they describe as onerous compliance demands since the financial crisis.
"This could mean a lot fewer hoops to jump through," Laura Lee Stewart, president and CEO of Seattle-based Sound Financial Bancorp Inc., said in an interview. "And I think it will be good for consumers — I really do. With fewer restrictive rules, we could do a lot more to tailor loans to meet specific needs of borrowers."
In interviews, as well as in conversations among colleagues in Las Vegas this week for the Independent Community Bankers of America's annual convention, bankers said the legislation would provide key exemptions to regulations. They said it would set a new playing field, one that treats small banks differently than their larger brethren and reflects the relative simplicity of community lenders' business activities.
The U.S. Senate bill called the "Economic Growth, Regulatory Relief and Consumer Protection Act" — off of which the U.S. House also is working — retools swaths of the 2010 Dodd-Frank Act, the sweeping legislation that enacted reams of new rules aimed at preventing a repeat of the 2008 financial crisis.
Community bankers say that, while several elements of Dodd-Frank were needed to discourage excessive risk-taking on Wall Street, the legislation ultimately applied mounting rules atop small banks that have proven misplaced. They say the regulation targeted products that such lenders do not sell or risks they do not take. The result: costly new compliance work with little benefit for community bank safety.
"Too much was put in place too quickly," without regard for unintended consequences, Stephen Varckette, president and CEO of Andover Bank in Ohio, said in an interview. "The steady stream of mandates has made it very hard to comply."
It is difficult to put a dollar figure on compliance burden, he said, because staffers working in that area often also have other responsibilities. But he said that, since Dodd-Frank, "In every department of the bank, in every way, compliance has been elevated a great deal. We spend significantly more in time, effort and money."
But Varckette this month traveled to the nation's capital with roughly 100 other bankers to meet with lawmakers, and he returned home confident in the likelihood of regulatory relief.
"We are very encouraged that Washington now is understanding that there is a difference between small and big banks," he said. "We're starting to see real common-sense legislation make its way through."
The legislation nearing its final stages in Washington this month would, among other things, exempt banks under $10 billion in assets — regulators' common threshold to be considered a community bank — from the Volcker rule. It also would increase the number of small banks allowed to operate with higher debt levels, providing hundreds of banks more financial flexibility.
Further, the legislation would expand "qualified mortgage" status to most community bank portfolio home loans. QM status is important because it provides safeguards from litigation. Additionally, among other changes, it would simplify capital requirements, ease regulatory treatment of reciprocal deposits, and shorten the call report form for some community banks. It would also allow more small banks to use an 18-month regulatory exam cycle, meaning they would face exams twice every three years instead of annually.
"We are very positive on this consequential legislation," Chris Cole, senior regulatory counsel for the ICBA, said in an interview. "This is really going to help a lot of community banks — thousands overall."
Varckette of Andover Bank said the QM change is vital and would bring rules in line with common sense. Varckette said that by holding loans in its portfolio, a bank already is demonstrating that it has taken steps to prove the mortgage is relatively safe. Why, he asked, would banks hold onto exceptionally risky loans?
He also noted an anticipated change in the steps required to comply with the Home Mortgage Disclosure Act, or HMDA. He said that the current HMDA guide for bankers exceeds 300 pages. That is more than three times as long as previous years and reflects ever-mounting rules, he said. The new legislation is expected to rein in the requirements for some small banks and meaningfully reduce the time they must spend to comply.
"Any relief in that area would be a big deal," he said.
