A forthcoming bill aimed at easing regulatory burden on community banks would loosen up examination schedules and eliminate some call reports and schedules for smaller, less complex institutions, Boston’s Rep. Stephen Lynch said yesterday at the Greater Boston Chamber of Commerce’s Government Affairs Forum.
At the chamber’s government affairs forum, Lynch described the regulatory squeeze on community financial institutions as an “unintended consequence” of Congress’ attempt to bring large institutions to heel following 2008’s economic meltdown. He said he and his colleagues in the House Committee on Financial Services, specifically naming Ed Perlmutter (D-Colorado) and Rubén Hinojosa (D-Texas), are working on legislation that seeks to “fine-tune” banking regulations to be fairer to community financial institutions.
The overall cost of compliance burdens small banks disproportionately to large national banks, he said, and negatively affects small businesses’ ability to get loans.
“Our proposal adopts an approach to deregulation of community banks that evaluates the financial institution based on what it does, on its complexity and on the level of risk involved in its activities, rather than simply on size” he said.
If an institution holds no trading assets or derivatives other than interest rates or foreign exchange derivatives, if all its derivatives total less than $3 billion and if it maintains capital levels of at least 10 percent, it would be eligible for relief under the committee’s proposal. Lynch said that about 90 percent of commercial lending institutions in the U.S. meet these criteria.
Those who meet the criteria would be eligible for relief from risk-based capital standards, would be exempt from semi-annual stress tests required under the Dodd-Frank Act, would be examined every 18 months rather than every year and could avoid “call reports and schedules which includes many fields that aren’t really relevant to community banks.”
“It looks like we have at least the rudimentary beginnings of a solid bill,” he said, adding that he is remaining optimistic in general about legislative activity picking up on Capitol Hill.
The committee’s bill draws on an initiative first proposed FDIC Vice Chairman Thomas Hoenig, who Lynch invited to Boston next month for a luncheon with community banking leaders.