Dodd-Frank: a “legislative Godzilla” on a warpath to destroy community banks through over-regulation.
That is how GOP leaders have described the 2010 law, which stiffened regulations on banks of all sizes. President-elect Donald Trump has repeatedly vowed to dismantle or significantly reform the law throughout his campaign.
“I think absolutely, Dodd-Frank has to be either eliminated or changed greatly,” Trump said in a May interview with CNBC. “I will tell you, I have so many friends who are very good businesspeople, and it’s impossible for them to do business with the banks. The regulators are running the banks.”
Banking regulation did not take the spotlight in most pre-election debates, but it was an area where he and Democratic rival Hillary Clinton posed distinctly opposite opinions. While Clinton vowed to not only uphold Dodd-Frank but veto any legislation that attempts to weaken it, Trump consistently swore that he would dismantle the law or significantly reform it.
Community banks hope that reform includes relief for small institutions, which Trump and other critics say have unfairly suffered the regulatory burden of Dodd-Frank.
“They don’t need burdensome, misguided regulations holding them accountable,” said Nick DiFrancesco, president and CEO of the Pennsylvania Community Bankers Association. “It’s their customers that hold them accountable.”
What does Trump’s plan mean for community banks?
Trump’s economic plan does not explain the exact process by which the president-elect hopes to dismantle Dodd-Frank, nor did he lay out specific plans in his campaign speeches.
The promise to repeal it, however, is in line with other aspects of his plan, which call for government-wide reviews of regulation in every part of the economy.
That could mean good news for community banks, DiFrancesco said.
Dodd-Frank, while well-intentioned, was, at best, inappropriate for small community banks and did little to address the Wall Street practices and attitudes that led to the 2008 recession, DiFrancesco said.
He pointed to the recent Wells Fargo scandal as evidence of that failure. The San Francisco-based bank allegedly opened more than 2 million unauthorized accounts to meet sales goals.
He is far from alone in that belief. While some experts, including Dodd-Frank originators Christopher Dodd and Barney Frank, have praised the increased oversight under the act, members of the banking and investment industry have largely decried the legislation as a misguided overreaction.
The reality of Dodd-Frank, DiFrancesco said, was that it caused hundreds of community banks to scramble for resources to meet federal regulatory demands. Instead of hiring lenders, banks had to hire compliance staff or outsource to other firms to make sure they stayed on the right side of complicated new laws.
His hope, as well as that of other community bankers, is that the Trump administration will, at the very least, do more to differentiate between the big banks that contributed to the recession and the smaller institutions that help small business get loans and neighbors receive mortgages.
“They need to focus their attention on Wall Street and make sure they’re not hurting the community banking industry,” he said.
Leaders at Millersburg-based Mid Penn Bank and York Township-based York Traditions Bank expressed similar sentiments. Although both banks have rolled with the Dodd-Frank punches, the act nonetheless placed additional burdens on their teams.
“We have a community bank with three compliance people,” said John Blecher, York Traditions’ managing director, COO and CFO. “I mean, It’s overwhelming to try to comply.”
Increased workload also means increased costs, Blecher said, which can be tougher for community banks to absorb than they are for big banks.
The rise in regulations and compliance costs that followed Dodd-Frank are an often-unfair reality for community bankers, Mid Penn President and CEO Rory Ritrievi said.
“We didn’t do the things that created a need for the Consumer Finance Protection Bureau,” Ritrievi said. “We’re not predatory lenders. We’re helping people and businesses and governments in our communities to be able to thrive.”
While banks like York Traditions and Mid Penn have adapted, hundreds of others across the country have resorted to mergers in the wake of unmanageable Dodd-Frank-associated expenses, DiFrancesco said.
The number of community banks across the country shrank by 14 percent between 2010 and 2014, according to a study by George Mason University. In the midstate, the number of banks of all sizes dropped from 35 in 2009 to 28 in 2016 — although Dodd-Frank is likely just one of several factors leading to that decrease.
Will these issues continue under the next president?
Trump says not.
DiFrancesco noted, however, that Trump, whom he believes was the best choice for the industry, will only have so much say in what happens to banks locally. He was more closely watching the U.S. Senate race between Pat Toomey and Katie McGinty.
Toomey, he said, a champion for small institutions because he co-founded a community bank in 2005. That bank, Bethlehem Township-based Team Capital Bank, had about $1 billion in assets when Provident Financial Services acquired it in 2014.
Ritrievi and Blecher also believe the new president will have only a limited impact. While both would like to see loosened, or at least not increased, regulations under Trump, they noted they have no objections to reasonable measures that protect consumers.
“We’re fine with regulation,” Ritrievi said. “We’ve been living with it all our life.”
Blecher is optimistic about the future of community banks. He noted several adjustments enacted in recent years that have helped smaller institutions, including a recent change to quarterly call reporting requirements.
The regulation pendulum, he believes, is already swinging back in the industry’s favor.
“I think community banks are important, and that’s shared by Republicans and Democrats alike,” he said.
Get in on the discussion
As Trump prepares for the White House, issues affecting various industries are weighing on business leaders’ minds. What’s to become of health care? How will the president-elect address trade relations?
Those questions are among the topics CPBJ staff will talk about in a free webinar titled, “We have a winner…Now what does it mean?” Set for 10 a.m. Wednesday, the discussion will provide an early forecast on business issues that the new leader of the country will likely impact.
Click here to sign up.