The new rules and regulations, passed in the aftermath of the
financial crisis, facing large and small banks alike, are posing an increasing
threat to the pace of economic recovery across the country.
As banks scramble to fall in line with new directives from multiple state
and federal agencies, many of them claim that the thousands of pages of new
regulations are sharply curbing their business operations, with smaller
community institutions facing the most pressure from rules designed to control
larger international or multi-state banks with greater assets in multiple
markets.
The effect, in some instances, has led to minimal returns, reduced
earnings and stagnant or decreased lending.
Earlier this week, Warren-based First Place Financial Corp, the parent
company of First Place Bank, was forced to file bankruptcy, mainly as a result
of capital requirements imposed by regulators in 2011.
The Home Savings and Loan Co. of Youngstown has focused more on creating
efficiencies and reducing exposure within its loan portfolio; existing
regulations have led to a reduction in commercial lending at the bank.
In addition to Dodd-Frank, passed in 2010 by the U.S. Congress, which
established the Consumer Financial Protection Bureau and mandated government
regulators to write more than 400 new rules, stringent capital requirements
once again are being proposed by the Federal Reserve to ensure long-term risk
management.
"In our judgement, the increased capital requirements could have a
measurable impact on the recovery," said Mike Van Buskirk, president and chief
executive at the Ohio Bankers League, a trade association representing large
and small banks across the state. "It's a catch-22, more capital means less
loans -- it's that simple."
Essentially, the new capital regulations, known as Basel III will require
banks to set aside more capital, like cash or liquid assets, to protect
against the risks associated with their investing and lending practices.
At the same time, under Dodd-Frank, banks with assets greater than $10
billion are required to conduct annual stress tests, but those requirements
differ from similar expectations at smaller community banks, for which
regulators issued a separate set of standards to assess risk in their loan
portfolios.
Until recently, when the Office of the Comptroller of the Currency issued
a clarification for community banks, the stress tests created nothing but
time-consuming confusion, Van Buskirk said.
Smaller banks are not entirely opposed to minimum capital requirements,
but they contend that regulators have proposed increased capital levels
without considering the impact on communities across the country.
In 2011, the Organization for Economic Cooperation and Development
estimated that Basel III would reduce the Gross Domestic Product at a rate of
between 0.05 percent and 0.15 percent per year. The House Financial Services
Committee also estimates that banks will spend nearly 24.2 million hours
complying with only half the rules enacted since the financial crisis.
Indeed, the FDIC reports that the number of unprofitable banking
institutions has dropped and earnings have increased at banks across the
country this year, but community banks want out from under certain
regulations.
Another trade association, the Independent Community Bankers of America,
reported earlier this week that nearly 15,000 community bankers have signed a
petition calling for regulators to exempt small banks from the proposed
capital requirements.
Distributed by MCT Information Services
