By Simone Lagomarsino is president and CEO of the California Bankers Association
Now that Congress has returned to the Capitol, there is a critically important opportunity for the Senate to pass legislation with sensible regulatory changes that will help banks of all sizes — in particular, our community and mid-size regional banks — better serve their communities and foster greater economic and job growth.
Current economic conditions reinforce the urgent need for Congress to act. In June, the Treasury Department reported that the U.S. economy’s recovery from the 2008 recession is the slowest of the postwar period. Loan growth, which is up only 25 percent, has been similarly slow, compared to prior recoveries, with home mortgages showing only 10 percent growth since 2010.
While there may be many factors holding back the economy, one is undoubtedly the impact of several hundred new financial regulations that were put in place over the past several years after the passage of the Dodd-Frank Act in 2010. Often these regulations have taken a one-size-fits-all approach, being applied equally across all banks, regardless of their business models or risk profiles.
In fact, a report by Federal Financial Analytics confirms that these one-size-fits-all banking regulations are negatively impacting banks’ abilities to serve their customers, finding that regional banks spend at least $2 billion a year complying with Dodd-Frank, which has the potential impact of reducing lending by $14 billion to $20 billion over five years.
California’s banking community urges the Senate to pass the TAILOR Act (S. 366) now. This measure would require financial regulators to consider bank risk profiles and business models when taking regulatory actions, and take a tailored approach to rulemaking. California bankers believe that if regulations were more tailored, there would likely be more capital to lend, which would foster new business formation and existing business growth, support employment, and encourage the flow of more money into local economies.
We are also in strong support of H.R. 3312, the Systemic Risk Designation Improvement Act of 2017, which addresses the arbitrary asset thresholds put in place by Dodd-Frank. We should not be treating all banks the same way, as all banks do not pose the same risks to the financial system. By determining regulations based upon an arbitrary asset threshold, banks with a lower risk profile are often spending more time complying with regulations than serving their customers. We need a properly calibrated regulatory environment that accounts for differences in banking business models by looking at a number of factors and capturing each institution’s true risk.
Support for a new tailored approach to the current regulatory system has generated broad support from several regulators and policymakers, including former Federal Reserve Board Chairman Ben Bernanke, Treasury Secretary Steve Mnuchin and even Dodd-Frank co-author Barney Frank.
Finally, we urge Congress to pass H.R. 2226, the Portfolio Lending and Mortgage Access Act, which permits the safe expansion of portfolio mortgage lending. Portfolio lending involves making mortgage loans and holding those loans in the bank’s portfolio. It is a banking practice that is among the most traditional and lowest-risk lending in which a bank can engage. Loans held in a bank’s portfolio are well underwritten, as the bank carries all of the credit and interest rate risk of that loan until it is repaid. But, existing mortgage rules are too restrictive, and have made it difficult — and, in some cases, impossible — for creditworthy borrowers to obtain safe and sound loans from portfolio lenders. H.R. 2226 would treat any loan made by an insured depository and held in that lender’s portfolio as compliant with the ability to repay and qualified mortgage requirements in existing law. This measure would provide an important, and much-needed, safe and sound correction to the unnecessarily restrictive standards that currently exist, which will help increase the availability of mortgage loans to consumers.
Across the country, banks employ more than 2 million individuals, with nearly 200,000 of them working here in California. Lending is an integral part of banking, and helps drive our economy forward. Fulfilling that mission has become increasingly difficult in recent years, with ever-increasing compliance burdens placed on banks. We urge the Senate, including California Sens. Dianne Feinstein and Kamala Harris, to support common-sense regulatory relief that maintains the safety and soundness of our banking system, and allows banks to better serve their customers and communities, while encouraging economic growth.