White House in Denial of Dodd-Frank’s Negative Impact on Small Banks

In the six years since Dodd-Frank was implemented, community banks have been choked by overbearing federal regulations, causing many banks to close their doors. The Texas Bankers Association revealed that in Texas alone, 143 banks have closed since 2010 and only three new banks have been chartered – not exactly the sign of a thriving banking community.

In response to these regulations, many community banks and associations (including the Texas Bankers Association) have come out in support of the Representative Jeb Hensarling’s (R-TX) Financial Choice Act. The Financial Choice Act would reform or repeal most of Dodd-Frank, providing much needed regulatory relief to smaller community banks.

But while momentum builds to repeal Dodd-Frank, the White House is in denial. Earlier this week, the White House Council of Economic Advisers released a report that largely rejects evidence linking Dodd-Frank to the struggles and closures of local community banks. The report specifically points out that community banks have slightly increased since the crisis, while blaming “macro-economic conditions” for the dramatic drop in new bank entry for smaller banks (with assets under $100 million).

In a recent interview, chairman of the economic council, Jason Furman, stated, “There’s no evidence at all that Dodd-Frank has had a negative impact on this (banking) sector.” This flies directly in the face of many banking organizations, including the American Bankers Association (ABA) who said the White House report demonstrated a “serious disconnect” from the “daily reality for America’s hometown banks and communities they serve.”

Only three new banks have opened in the U.S. since 2010. William Isaac, former chairman of the Federal Deposit Insurance Corporation (FDIC) responsible for approving new banks, recently told lawmakers, “I would not be surprised to see half of the community banks in this country go out of business if we don’t give some relief from Dodd-Frank for them.”

While it is true that the decline in smaller community banks is the result of a number of factors, most of which have to do with increased financial regulation over the past few decades, absolving Dodd-Frank from any responsibility ignores the facts. Congress should move quickly after August recess to consider and pass the Financial Choice Act. Community banks, consumers, lenders, small businesses, and the economy at large are in desperate need of serious regulatory relief.

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