The House of Representatives passed legislation this month aimed at erasing several key provisions of the 2010 Dodd-Frank Act. The Financial Choice Act (the Act), if enacted, would bring vast changes to the financial regulatory system. Proponents of the Act claim it will benefit small businesses, resulting in job growth. On its website, the Financial Services Committee cites President Obama's Small Business Administration Director as stating that Dodd-Frank's regulations hurt small business lending because "[s]mall banks have been laden with excessive costs and confusion from overlapping regulations..."1
The Act seeks to increase lending to small businesses by exempting smaller financial institutions from a number of regulatory requirements. Under one component of the Act, banks with a leverage ratio of 10% or more would be exempt from a number of regulatory requirements. However, critics of the Act are concerned that a 10% leverage ratio may be insufficient to avert another financial crisis.
Critics further point out that much of the regulation targeted by the Act is inapplicable to community banks. Of the 5,000 small banks classified as "community banks" by the FDIC, only six are subject to the Dodd-Frank stress tests that apply to banks with over $10 billion in consolidated assets. As such, the Act may not do enough to alleviate the pressures from regulatory requirements felt by small banks.
Further, Dodd-Frank may have little or nothing to do with the trend of small banks closing or being acquired by larger banks.2 Instead, this is a trend that has been ongoing for decades and is likely the result of broad macroeconomic trends rather than government regulation.
Nonetheless, small banks appear to be strong proponents of the Financial Choice Act. Many have vehemently complained that Dodd-Frank has "strangled their business with needless paperwork and data collection."3 In a New York Times article discussing the impact of the Act, John M. Barrett, Chief Executive Officer of Citrus Bank in Tampa, is quoted as saying that the Dodd-Frank "[r]ules were meant to placate some bureaucrat in an ivory tower in Washington, D.C." The general consensus among small banks, then, is that the Financial Choice Act would provide some relief from the current regulations.
If smaller banks believe that the Financial Choice Act would be beneficial for their business, then perhaps this is the strongest indicator that enactment of the Act would provide benefits to all small business.
Footnotes
1 A small or community bank is generally defined as one with less than $1 billion in total assets.
2 Akshat Tewary, The Choice Act is Not a Community Banking Bill, American Banker, June 15, 2017.
3 Alan Rappeport, Bill to Erase Some Dodd-Frank Banking Rules Passes in House, The New York Times, June 8, 2017.
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