Community banks endorse bill to kill excessive regulations
Leaders in the community bank space encouraged lawmakers during a House Financial Services hearing Wednesday to support the Communities First Act, or H.R. 1697, to derail cumbersome regulations that they say are tripping up community banks.
One of the issues having a disparate impact on community banks is the push for forced escrow accounts on loans issued by smaller banks.
"While escrow accounts make good sense in many cases in order to protect collateral value, they are simply impractical for many low-volume lenders who don't have resources to perform this function in house and for whom outsourcing would be prohibitively expensive," said Salvatore Marranca, president and CEO of Cattaraugus County Bank. Salvatore made his statements before the House Financial Services Committee on behalf of the Independent Community Bankers of America.
"Current law requires creditors to establish escrow accounts for the collection of taxes and insurance in connection with higher-priced mortgage loans," Marranca told the committee. "The Dodd-Frank Act lengthened the period during which such accounts must be maintained."
Marranca views the account requirement as particularly harsh when its applied against community banks.
"Given the low-profit margins of mortgage lending, an escrow requirement could tip a community bank's decision against remaining in this line of business," he explained.
The Communities First Act also would make call reports less burdensome for smaller banks. Call reports are documents banks have to produce for banking regulators each quarter to assess the bank's soundness. But producing a call report is time consuming, with the average report running 70 pages. The act would lesson this burden for community banks, allowing smaller firms to produce less cumbersome reports for at least two nonconsecutive quarters during the 12-month period, according to Marranca.
Arthur Wilmarth, professor of law at George Washington University Law School, testified in front of the committee, saying the financial crisis and new regulations have weighed heavily on community banks, yet the too-big-to-fail banks that caused the crisis are benefiting from the changes in the competitive marketplace.
"The 19 largest U.S. banks each with more than $100 billion of assets received $220 billion of capital assistance from the Troubled Asset Relief Program, and those banks issued $235 billion of FDIC-guaranteed, low-interest debt," Wilmarth said.
"In contrast, banks with assets under $100 billion received only $41 billion of TARP capital assistance and issued only $11 billion of FDIC-guaranteed debt," he explained.
Wilmarth pointed out to the panel that federal regulators gave "white glove treatment" to the 19, ensuring their survival, while community banks ended up facing public enforcement sanctions and hundreds of bank failures.
Wilmarth said of the 350 FDIC-insured depository institutions that failed in the past three years, only one — Washington Mutual — had more than $50 billion in assets.
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