Local bankers say reforms to Dodd-Frank are welcome

By Herald-Whig
Posted: Jun. 5, 2018 8:55 am

QUINCY -- Part of the Dodd-Frank banking regulations was rolled back last month, and several local bankers said the changes will offer relief for small banks.

Joe Thomas, CEO and chairman of the board at Homebank, hopes that easing some regulations will slow the trend of smaller banks merging or getting bought out by big banks. Thomas said new regulations came at a rapid pace under the Obama administration.

"It was continuous. Every agency was on the aggressive side of promoting enhanced regulations. It was moving to a point where it was only going to be big banks," Thomas said.

The law, signed by President Donald Trump on May 24, raises the threshold at which banks are deemed so big and plugged into the financial grid that if one were to fail it would cause major havoc. Those banks are subject to stricter capital and planning requirements.

The reforms are aimed at helping small and medium-sized banks, including community banks and credit unions, that were hurt when Dodd-Frank was enacted in 2010 and some regulations made all banks operate under the rules of the big banks.

Mark Tyrpin, president of Mercantile Bank in Quincy, said Dodd-Frank regulations were generally geared for very large banks, but when it was enacted "the community banks more or less got swept up into that" and faced expensive regulatory hurdles.

"They caused a lot of community banks to seek guidance from third-party sources. They hired consultants in-house or as a third party and that's expensive," Tyrpin said.

Mark Field president and chairman of Liberty Bank, said most of the benefits from the recent reforms will involve mortgages.

Field said under Dodd-Frank if a real estate closing was planned for a specific date and then a lower loan rate was available, the bank couldn't offer the lower rate without restarting another three-day waiting period and redisclosing every detail about the loan.

One of the biggest changes going forward allows banks to give automatic qualified mortgage status to customers they know if the banks are using their own money for loans.

"We don't have to get all the tax returns and pay stubs and total housing debt to income if the bank is lending its own money and knows the people. Character and knowing people counts for something again," Field said.

According to the Independent Community Bankers of America, the law will simplify capital rules, offer relief from red tape on mortgages and offer a short form call report for banks with assets of less than $5 billion.

The Dodd-Frank act, named after its co-authors, Democratic Sen. Christopher Dodd of Connecticut and Democratic Rep. Barney Frank of Massachusetts, boosted government oversight of banks. It was intended to prevent the risky behavior of banks and mortgage giants that led to the 2008 financial crisis that resulted in millions of lost jobs and foreclosed homes.

Some of the changes created by Dodd-Frank were:

º Rules that increased the amount of information banks must report on each home mortgage, adding weeks to the mortgage process.

º Extra disclosures on small business loans.

º High amounts of reserve to protect against losses from bad loans, even in areas and with small banks that avoided the risky behavior.

Supporters of the reform law say Dodd-Frank was too blunt an instrument in response to the financial crisis, hurting smaller lenders that played no role in the debacle. They provide more than half of small business loans and over 80 percent of agricultural loans.

The legislation also exempts certain banks and credit unions from requirements to report some mortgage loan data. The exempted data includes the age of a loan applicant, credit score, total loan costs and interest rate. Critics say that would make it easier for banks to discriminate against minorities seeking home mortgages and go undetected.

In response to the Equifax breach that exposed personal information for more than 145 million Americans, the bill requires free credit freezes for all consumers affected by data breaches. Currently most states allow the credit reporting companies to charge consumers a fee for freezing their credit.

Backers of the legislation note that the Federal Reserve still will have the authority to apply tougher standards for banks with $100 billion to $250 billion in assets.

The Associated Press contributed to this report.

Things to Do