Candidly, I am not sure if I am more excited about the possibility of some meaningful regulatory relief at the community bank level recently making it through the Senate last week, or the fact that it garnered true bipartisan support at a time when seemingly intransient political polarization seems to be the order of the day in Washington. Nonetheless, I applaud passage of the Economic Growth, Regulatory Relief, and Consumer Protection Act, or in shorthand, S.2155. The vote tally was 67 – 31, with all 50 Republicans (Sen. John McCain was absent for health reasons) joined in support by 16 Democrats and one Independent. Of note, here in Michigan, Sen. Peters and Sen. Stabenow (both Democrats) voted in favor of the Bill – a testament to the logic and rationale of its content and the educational outreach and lobbying efforts of community bankers across the state (spearheaded by the talented professionals at both the Michigan Bankers Association and Community Bankers of Michigan trade associations). Truly commendable work on all ends, particularly when one recognizes that website GovTrack.us cited that Sen. Stabenow’s support was a “statistically notable vote” in that it was a vote deemed to be “most surprising, or least predictable, given how other members of each voter’s party voted and other factors.”
This proposed regulatory reform now moves to the House for consideration and, ideally, reconciliation with the Senate before a final version can be crafted for the President’s signature. The White House’s stance: “The bill is consistent with the Administration’s core principles for regulating the United States financial system…specifically, the bill would advance the principles of fostering economic growth; making regulation efficient, effective, and appropriately tailored; and, empowering Americans to make independent financial decisions and informed choices in the marketplace. Succinctly, S.2155 incorporates some of the following:
Opponents, amongst other things, are concerned that raising asset thresholds might open the door to Lehman-like failures, while supporters counter that the proposed legislation should ease administrative burdens on the more than 5,000 community banks across the country. For context, as I have noted in past writings, banks with less than $1 billion in consolidated assets represent more than 90% of the charters in the U.S. banking industry, but also only about 10% of its assets. I’m quite confident that the operational complexities and world-wide risk exposures of a Citibank do not exactly mirror the challenges at XYZ Community Bank, yet existing Dodd-Frank legislation by-and-large says they do.
There are a myriad of provisions that largely replicate separate pieces of proposed legislation that over the past year have been proffered in the House (banks larger than $100 billion but below $250 billion would be exempt from enhanced prudential standards 18 months after enactment; adjustments in the Fed’s Small Bank Holding Company Policy Statement to cover banks with up to $3 billion in consolidated assets, an increase from the current $1 billion threshold; established asset parameters for extended Exam cycles and utilizing short-form Call Reports; eliminated DFAST requirements for banks below $10 billion; etc.), so it appears to come down to potential amendments/revisions proposed by the House and then the resultant acceptance level by the senior chamber wherein they believe they can still maintain bipartisan support. And, the ever-present catch-all enabling the Fed to effectively include or exclude an institution from any oversight provision “if the Board determines that such action is warranted for supervisory purposes”, would seem to provide relief to those concerned that Dodd-Frank may be rolled-back a bit too much.
Bottom line, the March 14th vote in the Senate was encouraging.Coming out of the Financial Crisis, smaller banks typically carry approximately 1% – 2% higher tangible capital levels than their larger brethren, while exhibiting risk profiles that dwarf the exposures of our global giants.It is nice to see those realities recognized, and now being acted upon, in Congress. I won’t even address the oft-times exhausting circus-like atmosphere on both sides of the aisle in Washington. Rather, I’ll applaud the demonstration of cooperation and the hope that it may signal a new bipartisan path forward on critical issues facing our nation.
ProBank Austin brings a multitude of experience, expertise and market knowledge to the table for our clients, spanning broad geographic swaths of the banking industry across this country….and the strong desire to continue to deliver that insight and value-add to all of you in the future. Please do not hesitate to reach out to me and/or any of my colleagues if we can ever be of assistance as you take your organizations forward and assess the competitive landscape.
In closing, attached please find our monthly summary of Michigan’s financial institutions. Best wishes for a prosperous and successful 2018!