Arkansas bankers have several suggestions for changes to the 24,000-page Dodd-Frank Act, but they realize any changes will take time.
President Donald Trump issued an executive order on Feb. 3 to study the country's financial system but no specific changes in banking were sought. In the order, Trump asked the Secretary of the Treasury to consult with heads of agencies of the Financial Stability Oversight Council and report to the president within 120 days on actions that need to be taken in the banking and financial sector.
"[But] for any legislation to be enacted, it will need 60 votes in the Senate, meaning that it will need the support of Democrats in addition to Republicans," said Garland Binns, a Little Rock banking lawyer. "Any changes in the Dodd-Frank Act and related banking laws will not occur quickly and may be a drawn out process."
Dodd-Frank was passed in 2010 in response to banking practices that contributed to the recession of 2007-2009.
It is unlikely that the entire act can be overridden, said Bill Holmes, chief executive officer of the Arkansas Bankers Association. Talk of reform in the Dodd-Frank Act and in the Consumer Financial Protection Bureau has united Democrats, Holmes said. The bureau, established by Dodd-Frank, is charged with overseeing federal financial laws that affect consumers.
But Holmes -- and bankers around the state -- are hopeful some changes can be made.
Specifically, Holmes said, bankers would like to see:
• Financial regulations tailored to fit banks' business models and risks.
• Reform in mortgage lending.
• Simplification of the tax code.
• Repeal of the Volcker Rule, part of Dodd-Frank that prohibits large banks from owning or investing in hedge funds or private equity funds.
• Repeal of the Durbin Amendment, part of Dodd-Frank that imposes limits on interchange fees for debit transactions, and
• Establishment of a five-member commission to govern the Consumer Financial Protection Bureau.
Banks with more than $10 billion in assets are subject to more stringent regulation, and the related expenses. Holmes said the $10 billion figure is arbitrary and that the regulation needs to be tailored to fit banks.
Four Arkansas banks are in the $10 billion asset club or soon will be -- Bank of the Ozarks with $18.9 billion in assets, Arvest Bank with more than $17 billion in assets, Simmons Bank with a projected $13.5 billion in assets and Centennial Bank with a projected $10.5 billion in assets.
Why set that level for higher regulation at $10 billion and not $20 billion or $50 billion, Holmes asked.
"We think they ought to raise that limit to $50 billion or higher, where it makes sense, where the model changes," Holmes said. "None of our Arkansas banks are international banks or are going to cause a systemic failure in banking, so why put that burden on them?"
The entire Dodd-Frank Act is too complex and overreaching for what it was intended to do, said Marnie Oldner, chief executive officer of Stone Bank, a $135 million asset bank based in Mountain View.
"We already had plenty of rules and guidelines that, if you applied them prudently, would have precluded the problems," Oldner said.
Dodd-Frank has rules that should apply to large banks but which also cover small banks, she said.
"Particularly for smaller banks in rural markets, when you try to standardize underwriting for all borrowers [it doesn't work]," Oldner said. "All borrowers don't fit in a grid. It takes judgment out and therefore a lot of people can't get credit."
For example, for farmers who have a self-employed component to their income and a lot of expenses, it may appear they don't have the cash flow to repay a loan, Oldner said.
"But you know they do have the [necessary cash flow]," she said. "It just takes the judgment out."
Other regulations made it so costly that some small banks simply stopped making mortgage loans, Oldner said.
The financial meltdown of the recession wasn't caused by banks in Arkansas or other small banks around the country, said Sean Williams, chief executive officer of First National Bank in Wynne, which has about $280 million in assets.
"Our business model is completely different from the banks that caused the financial meltdown," Williams said. "It's not that we don't need regulations. The problem is that the Wall Street regulations really hurt us as community bankers on Main Street."
Consumers have been hurt significantly, Williams said. The intent of Dodd-Frank was to protect the security of the financial system and to protect consumers in the area of credit, Williams said.
"But what they've actually done is restricted credit to consumers," Williams said. "It's made it hard for us to serve our customers."
For various reasons -- not just the added burden of regulations -- hundreds of banks have closed in recent years.
"But I think you could say that compliance with federal regulations such as the Dodd-Frank Act has been a contributing factor in the consolidation of banks," Binns said.
Since December 2007, when the recession began, until September last year, the number of banks based in Arkansas has dropped 31 percent, from 150 to 103. The number of banks with less than $100 million in assets dropped 50 percent, from 48 in 2007 to 24 in September.
Nationally, the number of banks has dropped about 30 percent from more than 8,500 in 2007 to 5,980 in September, the first time since the 1890s the United States has had fewer than 6,000 banks. Banks with less than $100 million in assets nationally fell 54 percent from 3,440 in 2007 to about 1,590 in September.
Included in the list are more than 500 banks that have failed, according to the Federal Deposit Insurance Corp.
SundayMonday Business on 02/12/2017