Washington, D.C. - U.S. Senator Susan Collins introduced the Community Bank Sensible Regulation Act of 2017, legislation that would allow financial regulators to exempt small community banks from unnecessary and burdensome requirements. Her bill would protect small financial institutions from highly complex regulations that are intended for larger banks whose failure would risk the collapse of the financial system.
“All banks, large and small, should be well-capitalized and properly regulated, but that does not mean that our financial regulators must impose a “one-size-fits-all” regulatory regime across the board,” said Senator Collins. “Community banks play an essential role in meeting the credit needs of their customers, particularly small businesses, homeowners, and farmers. My legislation would allow regulators to exempt community banks from unnecessary and burdensome regulations where it is in the public interest to do so.”
Some regulations that are appropriate or essential for larger banks may make no sense when applied to community banks. For example, current law requires community banks to demonstrate that they are in compliance with the Volcker Rule--which restricts proprietary trading and hedge fund investments by banks--even though community banks rarely engage in such trading. Even so, community banks must shoulder the burden of complying with this complex regulation.
According to the Government Accountability Office, smaller banks are “disproportionately affected by increased regulation because they are less able to absorb additional costs.” These costs are significant and put community banks at a competitive disadvantage since the financial burden of complying with regulations is two-and-a-half times greater for small banks than for large banks.
Over the past two decades, the share of the U.S. banking industry represented by community banks has declined from 40 percent to just 18 percent, which is due in part to the cost of complying with these unnecessary regulations. Despite representing less than one-fifth of banking assets, however, community banks are responsible for half of our nation’s small business loans, which help spur job creation.
By allowing regulators to tailor their regulations to take the distinctive nature of community banks into account, the Community Bank Sensible Regulation Act would help prevent further consolidation of the banking industry, preserve small businesses’ access to credit, and allow community banks to continue to meet the needs of their customers.