Dodd-Frank—a complicated set of banking regulations imposed after the 2008 financial crisis—is once again on the chopping block. And rightly so.
This 2,300-page law has been responsible for the slow death of the American community bank—which is the cornerstone of small business growth and local commerce. You see, while these blanket Dodd-Frank regulations are applied to all banks, small ones are most heavily affected because they usually lack the resources to ensure compliance—unlike larger, more established banks that are financially able to hire more staff to help navigate the regulatory waters.
The end result? It’s estimated that the extra cost burden levied onto small, community banks because of government regulations is roughly $4.5 billion per year. And it’s causing many to close their doors. This is especially troublesome for small businesses considering that nearly half of the loans they attain are through these community financial institutions. So when they dry-up, so does the much needed flow of financial capital that is used to start businesses and fuel other entrepreneurial endeavors.
Enter the Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155), which was recently passed by the U.S. Senate and significantly walks back many bank-killing measures. The legislation includes the below changes to Dodd-Frank among others:
1.) Increases the asset threshold for banks required to undergo the Federal Reserve’s stress test from $10 billion to $250 billion.
2.) Exempts small banks with assets of less than $10 billion from the Volker Rule found within Dodd-Frank regulations. The current rule prohibits banks from participating in certain investment opportunities—including being able to reinvest bank profits into stocks and bonds (otherwise known as proprietary trading).
Removing much of the regulatory burden placed onto small, community banks through gutting Dodd-Frank will open up credit lines for small businesses across the country—ensuring that community investment remains vibrant and the entrepreneurial spirit strong. The House of Representatives should pass these exemptions to the bank-killing set of regulations and the president should swiftly sign them into law.