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Posted by
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March 01, 2012
An electric utility in Texas. A housing authority in Connecticut. A water treatment project on the banks of the Potomac River. What do all three have in common? They all could be harmed by the Volcker Rule. While the Volcker Rule is touted as a central part of Washington’s effort to get “tough” on Wall Street, it’s become the latest example of how the Dodd-Frank Act and its 400+ regulations have spawned a multitude of unintended consequences. What kind of unintended consequences? “State and local officials say the new regulation, known as the Volcker Rule, could make it more expensive for them to raise money from investors to pay, for instance, for environmental cleanup and housing assistance,” reports the Washington Post. And when state and local governments say the Volcker Rule could make it more expensive “for them” to raise money, what they mean is it will be more expensive for the taxpayers. How does a measure promoted as “Wall Street reform” end up making it harder for cities and states to afford thing like environmental cleanup projects? The complex Volcker Rule “creates these bifurcations now in the municipal markets where you’re going to have authorities, enterprise funds, and water utilities paying more to issue their bonds simply because of how they’re structured,” says Timothy L. Firestine, the vice chairman of the D.C. Water and Sewer Authority. It’s not only governments here in the United States that have come out against the Volcker Rule. Foreign government have “unleashed a torrent of criticism” against it on the grounds it could make Europe’s debt problems even worse. “European governments warn that the regulation could further aggravate their debt crisis, which is already roiling global financial markets.” This is the same European debt crisis that poses a threat to America’s economic recovery, Federal Reserve Chairman Ben Bernanke recently told Congress.
Posted by
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February 22, 2012
The 2,300-page Dodd-Frank Act is a disastrous piece of legislation that is burdening the economy, increasing the size and scope of the Federal bureaucracy, and making the American financial system less transparent and less functional. That is the conclusion of an in-depth article in The Economist titled “Too Big Not to Fail” that appears in the magazine’s Feb. 18 edition and is part of its cover story “Over-regulated America”.
Echoing the concerns Financial Services Committee Republicans have raised since Congress hastily debated and passed Dodd-Frank in 2010, The Economist article highlights the tragic consequences of the overly complex and burdensome piece of legislation.
At a time when Americans are still suffering under a sluggish economy, the last thing their government should be doing is increasing the costs of doing business in America and killing innovation. Unfortunately, The Economist says this is exactly what Dodd-Frank does. Noting that “the scope and structure” of Dodd-Frank is “fundamentally different” from previous Federal law, the article goes on to explain how the Act expands Federal power in unpredictable ways: “‘Laws classically provide people with rules. Dodd-Frank is not directed The Economist also highlights the impact these new regulatory burdens can have on the country as a whole: “But the really big issue that Dodd-Frank raises isn’t about the institutions it Though The Economist has no objections to addressing the causes of the 2008 financial crisis through legislation, it can find little to praise in the new law:
The article also reminds us that the full extent of the damage is still impossible to determine as “only 93 of the 400 rule-making requirements mandated by Dodd-Frank have been finalized.” The Economist does not need to wait for the additional 307 pieces of red tape to lay judgment on the “Dodd-Frankenstein monster.” “Ambition is often welcome; but in this case it is leaving the roots of the
Posted by
on
February 13, 2012
Posted by
on
February 03, 2012
By Rep. Lynn Westmoreland
On Wednesday, the House Financial Services Committee held a hearing on H.R. 3461, a bill to improve the examination of depository institutions, and featured testimony from representatives from the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board, and the National Credit Union Administration, as well as testimony from several bank executives. I’ve sat in many of these hearings and listened to these Washington regulators claim they are working to resolve their problems or just had them pass the buck over and over again. Not surprisingly, they took the opportunity to do it once again at this hearing. Members of the committee were told this bipartisan legislation could not be supported by the regulators present because it would mess up their regulations that are already in place. And we wouldn’t want to do that, right? I mean those regulations in place have been so successful. I don’t think so. Every week we see new banks failures across the country, and it’s rarely the larger banks who created much of the financial mess of 2008. Instead, it’s the small, community banks that pay the price. Community banks are the economic engine of many small towns, driving growth with investments in small businesses or home loans. When community banks fail, we see that economic growth dry up. That’s why you see a much higher unemployment rate in the states with the highest bank failure rates. In Georgia, we lead the nation with 75 bank failures since the problems started in 2008. That’s not really a statistic where you want to come in at number one. I’m not sure how the FDIC would define the term ‘success,’ but I think even a child can see that this isn’t anywhere close to it. Whether they like it or not, these regulators are going to have to accept that the old way of doing things just doesn’t work anymore. If it did, we wouldn’t still see the same problems we are seeing today. When I talk to my bankers back home in Georgia, they tell me one of the biggest issues they are facing is the inconsistency of what they are being told and what the regulators on the ground are actually doing. That’s why a bipartisan group of members of the Financial Services Committee drafted H.R. 3461: to stop the inconsistencies between what’s being said in Washington and what’s actually happening on the ground. These regulators can tell me the inconsistencies don’t exist, but I believe my constituents because the evidence is on their side and because I’ve never met a bureaucrat who wasn’t fluent in double talk. In fact, I don’t know about you, but I’ve about had it up to here with Washington double talk. And I am sick and tired of these bureaucrats fighting members of the Financial Services Committee tooth and nail for trying to help save our community banks. So, in order to avoid any mixed messages on my part, let me be clear. These Washington regulators either need to help us save these banks or get out of our way.
Posted by
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December 13, 2011
By Paul Sperry, for Investor’s Business Daily Job-killing bank regulations threaten to wipe out all the gains in private-sector employment since the recovery began, the industry warns. Washington, however, is hiring thousands more bureaucrats to enforce the rules.
Signed into law last year, the Dodd-Frank Act is the biggest rewrite of financial regulations since the New Deal. It was intended to rein in Wall Street "excesses." But the banking industry says burdensome red tape is hurting economic growth and jobs in a still-sluggish labor market. "The level of real GDP could be 2.7% less by the year 2015 than would otherwise be the case for the United States," said Stephen Wilson, outgoing chairman of the American Bankers Association. "This could result in 2.9 million fewer jobs being created.” By comparison, the economy has created 1.78 million private jobs since the recovery officially began in June 2009. Wilson says Dodd-Frank has resulted in more than 5,230 pages of proposed and final rules, which laid end-to-end would exceed the height of New York's Empire State Building — five times over. Only a fourth of the rules have gone into effect so far, he says; yet the law in its first year has already imposed almost 20 million hours of paperwork on U.S. businesses. It took an estimated 5.5 million man-hours, in contrast, to build every iPhone sold. Dodd-Frank compliance costs for the financial industry already top $12 billion. That is expected to swell as the remaining 77% of required rules are finalized. Also, price controls imposed by Dodd-Frank will result in a 45% loss in debit card interchange revenue for banks, Wilson pointed out. Banks have laid off workers to raise revenue to meet higher capital reserves mandated under the law. "In the end," he said, "it means fewer loans get made, slower job growth and a weaker economy. Wilson, who also runs a small bank in Ohio, made the remarks last month during a speech on international finance in Tokyo. The new regulatory regime, however, is a boon for lawyers and government workers. A Government Accountability Office study this summer concluded that implementing Dodd-Frank rules would require 2,850 additional federal employees just through fiscal 2012 (which ends Sept. 30) — at a cost to taxpayers of $1.3 billion. The Consumer Financial Protection Bureau will command the bulk of new hires and funding. Created by Dodd-Frank, the watchdog agency started with a staff of 1,225 and a budget of $330 million. Patrice Ficklin, who heads CFPB's Office of Fair Lending, says she's hiring lawyers, statisticians, analysts and enforcement agents. These are high-paying jobs. In fact, the CFPB has hired at least a dozen employees at salaries of more than $225,000 a year. The White House denies the financial regulations it championed are costing companies revenue and slowing hiring. It cites, for example, higher corporate profits. "If you look at corporate profits, it's hard to make the case that regulations have caused companies to be scared about (hiring) or (that they're) hurting their job growth," argued Alan Krueger, President Obama's top economist. "I think the main reason (for weak hiring) is that the companies feel that they could satisfy the demand that they face with the workers that they have," Krueger added in a recent CNBC interview. "Until they are more confident that consumers are coming back at a greater clip — that the demand will be there — I think we'll continue to see job growth at the kind of moderate pace that we've seen. But analysts note that hiring still lags consumer spending. And they say profits are up mainly because businesses have slashed payrolls and other costs. Even Rep. Barney Frank, D-Mass., admits the regulation he co-sponsored has cost jobs in the financial sector. But he says it's a "reasonable price" to pay to bring "greedy" bankers to heel. "If you lock up drug dealers," he said in a recent interview, "you're going to have fewer jobs. U.S. Chamber of Commerce official David Hirschmann says employers remain uneasy about Dodd-Frank. "Instead of creating jobs, the law has created uncertainty for job creators," he said. "The economic statistics bear that out. Hirschmann added: "We are simply not going to see American companies spending capital until they can begin to navigate their way through this tangled web of regulation. Dodd-Frank Hits Small Firms By forcing banks to increase the capital they have on hand to cover losses, Dodd-Frank has reduced capital available for small-business loans. This in turn has slowed hiring. Tom Boyle of State Bank of Countryside in La Grange, Ill., says Dodd-Frank is "handicapping our ability to meet the credit needs" of small firms. "The consequences are real," Boyle said. "It means fewer loans get made. It means slower job growth. Product marketer K&M of VA Inc., for one, wanted to expand this year but for the first time had trouble getting a line of credit. Owner Mike Bucci blames the new bank law. So does American Business Group, an Orlando, Fla.-based company that matches small-business buyers and sellers. If buyers can't access a loan thanks to Dodd-Frank, CEO Jessica Hadler Baines told IBD, "then the other option is to close the business down, putting more workers into unemployment. The credit crunch could worsen if Dodd-Frank drives smaller banks out of business as predicted. "Dodd-Frank and the related burdens are threatening not just our industry but our very banks," ABA's Wilson said. "The most conservative estimates predict that by the end of the decade, there will be 1,000 fewer banks in the United States. That means fewer financial jobs in a sector that has already lost hundreds of thousands of workers.
Posted by
on
December 05, 2011
The Committee on Financial Services held a field hearing on “Regulatory Reform: Examining How New Regulations are Impacting Financial Institutions, Small Businesses and Consumers in Illinois” earlier today.
At this hearing, representatives from community financial institutions and small businesses explained how new financial regulations are affecting the ability of financial institutions to extend credit and stimulate job growth. The Committee also explored the effect of stringent federal bank examinations—examinations that some financial institutions contend may be overzealous—on economic recovery.
The Dodd-Frank Act directed federal financial agencies to promulgate more than 400 new rules. Many financial institutions have expressed concern that the cumulative weight of these new rules— layered upon outdated, unnecessary, and duplicative regulations—will substantially raise compliance costs, thereby forcing financial institutions to curtail lending and investment activities that further economic growth.
As evidence of increased compliance costs resulting from the Dodd-Frank Act, financial institutions point to the 2010-2011 edition of the Bureau of Labor and Statistics’ Occupational Outlook Handbook, which states that “increasing financial regulations will spur employment growth both of financial examiners and of compliance officers” by 31 percent over the years 2008-2018. A recent PricewaterhouseCoopers survey estimated that regulatory changes will likely depress revenues, increase operating costs, and squeeze community bank profits. In that survey, nearly 90 percent of banking industry leaders cited over-regulation as the biggest threat to business.
In light of these findings, critics have called on the Financial Stability Oversight Council (FSOC) to eliminate outdated or duplicative regulations and to perform cost-benefit analyses on new regulations before they are finalized. In an August 2010 speech, Treasury Secretary Tim Geithner agreed that such efforts may be necessary: “[W]e will eliminate rules that did not work. Wherever possible, we will streamline and simplify.” Deputy Treasury Secretary Neal Wolin echoed those sentiments before the Senate Banking Committee, testifying that “over the years, our financial system has accumulated layers upon layers of rules, which can be overwhelming. That is why alongside our efforts to strengthen and improve protections through the system, we seek to avoid duplication and to eliminate rules that do not work.” Despite the Administration’s stated interest in streamlining and simplifying regulations, in testimony before the Committee on October 6, 2011, Secretary Geithner conceded that the FSOC has not yet “made much progress” on this initiative.
In addition to their concern that existing and pending regulations will increase the costs of banking and credit, small business owners and bankers from across the country are also worried that federal financial examinations are inhibiting lending. While some believe that low lending levels result from a lack of demand from creditworthy borrowers, many bankers claim that overly stringent federal examinations have stifled lending to creditworthy borrowers that would have otherwise been able to obtain loans. In particular, bankers have said that the examiners’ application of mark-to-market accounting rules, loan classification guidelines, collateral valuation policies, and loss reserve requirements have contributed to stagnant economic growth. Since the 110th Congress, the Financial Services Committee has held hearings to examine the “mixed messages” that federal regulators are said to be sending financial institutions: while officials in Washington urge banks to “lend more,” field examiners are applying restrictive standards that make lending more difficult. This hearing provided an opportunity to further explore how regulators can balance the competing goals of ensuring that the institutions they oversee are operated in a safe and sound manner while permitting them to fulfill their function as financial intermediaries between savers and borrowers.
Posted by
on
November 17, 2011
Posted by
on
October 27, 2011
With 14 million Americans out of work and the Obama Administration issuing regulations at a rate of one new rule every 2 hours and 20 minutes, it’s a question that must be asked.
For the Obama Administration, the answer to the question is a resounding “No!” Dr. Jan Eberly, Assistant Secretary for Economic Policy at the Treasury Department, writes in a blog post that the massive amounts of red tape raining down from the administration are not hurting the economy. Dr. Eberly cites a survey of economists to back up this claim. One of the biggest failures of the Obama Administration is its determination to rely upon theoretical academics rather than listen to those who deal with the reality of the administration’s actions. After all, how many economists are impacted professionally by all the regulations being issued? When you ask job creators if overregulation is an impediment to job creation, you get a different answer. A Gallup poll released on Tuesday finds that small business owners view government regulations as the biggest economic hurdle they face. This number only increases when one includes those who named Obamacare as their primary concern. If you ask community bankers about the impact regulations have on their ability to lend to local businesses, as the Financial Services Committee has done, you will hear horror stories. The 2,300-page Dodd-Frank Act with its 400 regulations has been called a “full-employment act” for lawyers. But hometown banks describe it as a barrier to helping small businesses get started. “Each new regulation…adds another layer of complexity and cost of doing business. The Dodd-Frank Act will add an additional, enormous burden, has stimulated an environment of uncertainty, and has added new risks that will inevitably translate into fewer loans to small businesses,” said Thomas Boyle, Vice Chairman of State Bank of Countryside in Illinois. Fewer loans to small businesses mean fewer jobs. It’s that simple. With small businesses responsible for 65% of all net new jobs created in the U.S. since 1993, why would government want to make it more difficult – and less likely – for entrepreneurs and small companies to have a shot at success? Of course, community bankers aren’t the only ones speaking out about the burden of overregulation: “In some cases, regulations have gone too far and it really makes it difficult for small businesses. There’s too much bureaucracy and red tape; taxes on business are very high. So we’re not creating the enabling conditions that allow businesses to get started.” - John Mackey, Co-founder and Co-CEO, Whole Foods Market “Government just doesn’t understand how much uncertainty it creates in the economy when it attempts to regulate what the private sector does. And it really doesn’t understand what the private sector does.” - Andrew Puzder, CEO, PKE Restaurants” “Regulations have companies running scared. They are coming at businesses and some new regulations are already taking a toll, while others will soon. This could be a real deterrent to future entrepreneurs.” - David Park, President and CEO, Austin Capital, LLC The new biography on Steve Jobs reveals that one of America’s all-time great entrepreneurs warned President Obama personally about the consequences of government red tape: “[Jobs] described [to Obama] how easy it was to build a factory in China, and said that it was almost impossible to do these days in America, largely because of regulations and unnecessary costs,” writes author Walter Issacson. As officials in the Obama Administration devise new ways for government to spend, tax and regulate while safely ensconced in America’s newly crowned richest city, they may find it useful to listen to Americans on Main Street.
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October 21, 2011
The Consumer Financial Protection Bureau would be strengthened – not weakened – if its leadership structure were changed to a bipartisan commission, argues Roland E. Brandel in the American Banker. Calling the vesting of the bureau’s enormous power in a single person a “serious flaw,” the highly acclaimed consumer financial services lawyer writes:
Making sure proposed rules first benefit from differing points of view is especially important given that “[l]ittle the bureau will do as it fulfills its consumer protection mandate will be free of costs to consumers,” Brandel points out. Republicans on the Financial Services Committee have worked to change the CFPB’s leadership structure so there will be accountability and transparency at this massive and powerful government bureaucracy. Legislation to place the CFPB under the management of a bipartisan commission was introduced by Chairman Spencer Bachus earlier this year and then incorporated into legislation sponsored by Rep. Sean Duffy that passed the House of Representatives 241-173. But Republicans can’t – and don’t – take credit for the idea. Democrats in the House actually sponsored and voted to approve legislation that put the CFPB under the direction of a bipartisan commission back in 2009. Now, they claim a bipartisan commission would be a “knife in the ribs” to the CFPB. Virtually all independent agencies are led by bipartisan panels rather than a single director. This includes the Consumer Product Safety Commission, which was the model Professor Elizabeth Warren used for the creation of the CFPB. These agencies were established with bipartisan commissions to ensure their rules are fair, consistent and balanced, and to promote certainty and continuity. With a single director model, decisions and policies set by the director can be quickly and unilaterally reversed by a new director whenever there is a change in the CFPB’s leadership. A bipartisan commission makes the CFPB more accountable, replicates the structure of other federal agencies charged with consumer or investor protection, and promotes continuity and predictability in rulemaking. The Senate should join the House in this act of common sense.
Posted by
on
October 17, 2011
Obama Administration officials are frantically trying to convince the public that the 400 new regulations tucked inside the 2,300-page Dodd-Frank Act are having absolutely no impact on small town and mid-sized banks. None. Whatsoever. So just move on, OK? Nothing to see here. But, what are community bankers saying? A much different story in congressional testimony and in statements to their local newspapers: One community banker from Illinois said, “The Dodd-Frank Act will add an additional, enormous burden, has stimulated an environment of uncertainty, and has added new risks that will inevitably translate into fewer loans to small businesses.” While Republicans continuously warned of the disproportionate impact these regulations would have on “too small to save” community banks, Democrats relied on illusionary exemptions in the bill. Make no mistake about it: community banks are being placed at a disadvantage due to the 400 new regulations stemming from the Dodd-Frank Act. Michael Martin, CEO of Lordsburg’s Western Bank: “We’re small business people. We have to understand and comply with the regulations just like Wells Fargo. We don’t have 70 attorneys on staff to figure it out.”
Craig Reeves, President of First National Bank of New Mexico in Clayton: “We’re being penalized for things none of us ever thought about doing…I was penalized for not lying” about the credit worthiness of potential borrowers.
Greg Ohlendorf, President of First Community Bank and Trust: “What we have to understand is we’re already overburdened with regulation. We have significant numbers of regs that we need to comply with today, and it seems like just one more isn’t going to change the deck a whole lot, but the consistent piling on of additional regulation is very, very stunning. It’s punishing.”
Albert Kelly, Jr, CEO, SpiritBank: “This new bureaucracy [the Consumer Financial Protection Bureau]--expected to hire over 1,200 new staff--will certainly impose new obligations on community banks--banks that had nothing to do with the financial crisis and already have a long history of serving consumers fairly in a competitive environment. Thus, the new legislation will result in new compliance burdens for community banks and a new regulator looking over their shoulders."
Jim MacPhee, CEO of Kalamazoo County State Bank (Michigan): "We weren't part of the subprime (mortgage) meltdown. Why throw more regulations at us?"
Leslie Andersen, president of Nebraska's Bank of Bennington: “Big banks have whole departments that focus on compliance. Small banks can't afford to do that."
Thomas Boyle, Vice Chairman, State Bank of Countryside (Illinois): “Each new regulation… adds another layer of complexity and cost of doing business. The Dodd-Frank Act will add an additional, enormous burden, has stimulated an environment of uncertainty, and has added new risks that will inevitably translate into fewer loans to small businesses.”
Tommy Whittaker, president of The Farmers Bank (Tennessee): "The cumulative burden of hundreds of new or revised regulations may be a weight too great for many smaller banks to bear.”
Daryl Byrd, president and chief executive, IberiaBank: "I think you're going to see a lot of consolidation.”
Guy Williams, chairman, Gulf Coast Bank & Trust: “There are some banks that don't have enough employees to read the bill. If you assigned everyone a chapter, it would never get read….We want to help local businesses succeed. That's why we're in the business."
Wes Sturges, chief executive, Charlotte's Bank of Commerce: "The other thing we'll have to deal with - and we're not sure how - is the Dodd-Frank bill. For a little bank like ours with 19 people, that could be a full-time job for somebody to make sure we comply with the provisions of the bill.”
Brad Quade, regional president, Johnson Bank (Milwaukee branch): “We are going to have to invest a lot more money into people and resources to manage the heavier compliance load. Right now it’s requiring a great deal of additional resources to get our arms around what the expense will be going forward.”
Steve Steiner, senior vice president, North Shore Bank: “Obviously, the smaller you are, the larger the burden that places on you. We will have to take some combination of actions to compensate for this loss of revenue. It will mean we are losing money on every transaction that a customer of ours does with a debit card. Through some combination of pricing and cost reduction, we will have to offset that somehow.”
Greg Ohlendorf, President and CEO, First Community Bank and Trust (Illinois): “Many community banks complain that the required capital level goalpost is unpredictable and regulators simply keep moving it further, making it nearly impossible to satisfy capital demands in a difficult economy and capital market place. As a result, bankers are forced to pull in their horns and pass up sound loan opportunities in order to preserve capital. This is not helpful for their communities and for overall economic growth.”
Mark Sekula, Executive Vice President, Chief Lending Officer, Randolph-Brooks Federal Credit Union (Texas): “With a slew of new regulation emerging from the Dodd-Frank Act, such relief from unnecessary or outdated regulation is needed now more than ever by credit unions. Further, while we acknowledge that taken on its own, Section 1071 [requiring banks to collect additional data from small business borrowers] is a well-intentioned provision, when added with other laws and regulations, this new compliance burden is just another drop in the new and growing overall cost of compliance bucket emerging for credit unions from Dodd-Frank.”
Thomas Boyle, Vice Chairman, State Bank of Countryside (Illinois): “We strongly believe that our communities cannot reach their full potential without the local presence of a bank – a bank that understands the financial and credit needs of its citizens, business, and government. However, I am deeply concerned that this model will collapse under the massive weight of new rules and regulations…Banks are working every day to make credit and financial services available. Those efforts, however, are made more difficult by regulatory costs and second-guessing by bank examiners. Combined with the hundreds of new regulations expected from the Dodd-Frank Act, these pressures are slowly but surely strangling traditional community banks, handicapping our ability to meet the credit needs of our communities. The consequences are real. Costs are rising, access to capital is limited, and revenue sources have been severely cut. It means that fewer loans get made. It means a weaker economy. It means slower job growth.”
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