Central Penn Business Journal reporters Jim T. Ryan and Brent Burkey spent about 30 minutes with U.S. Sen. Pat Toomey recently, discussing an array of topics.
One of the questions they asked him dealt specifically with banks lending to businesses. Take a look:
CPBJ: We’ve been talking to a lot of small companies, and they can’t get a loan. They go to multiple banks, but no one is lending. Is there something that should be done at the federal level?
Toomey: Yeah, the government should get its hands off. Seriously.
The reason credit is so hard to obtain right now is the unprecedented avalanche of new government regulation that makes it very, very hard for small and medium-size banks to provide the capital they would like to provide.
I have first-hand experience in this. Back in 2005, I helped launch a community bank in Eastern Pennsylvania and Western New Jersey where we did business. And I was absolutely stunned at the compliance costs. The regulations you had to comply with, the reports you had to file, the nature of the files you had to maintain, and all you had to do to document so many things.
And that was before Dodd-Frank (banking regulations that followed the 2008 financial crisis). Then Dodd-Frank came along and took it to another level entirely.
I hear this every day across Pennsylvania from community banks, small banks, medium-size banks. They’ve been hiring more compliance officers in the last several years than they’ve been hiring loan officers.
It’s not that they don’t want to make loans. I mean, think about it. They get deposits. A lot of banks are deposit rich right now. What are their options for investing that money?
Traditional Treasury (bonds) are a common place for banks to park their money. A two-, three-, five-year Treasury is yielding them 1.5 percent right now. If they make a loan to a good, solid small business, they’ll get 4, 5 or 6 percent. That’s a no-brainer as to which asset you’d like to have on your books.
The problem is, the latter category requires so much hassle and aggravation to satisfy the regulators that it’s just very, very hard for them to get it done.
I think we wildly over-regulate small financial institutions, which had nothing to do with the financial crisis. The local community bank contributed zero to the financial crisis we had. But now the regulators have come down like a ton of bricks on these guys.
It’s absolutely true that credit is hard to get. And I think it’s because the regulators have gone absolutely over the top.
(To read the full interview, click here.)
What do you think? Do you agree with Toomey’s assessment that regulation is simply out of control?