21 Hoosier Banker November 2016 FEATURE The president’s Council of Economic Advisers (CEA) seems to have taken to heart Mark Twain’s suggestion to “get your facts first, then you can distort them as you please.” A report from the group released in August first reviews the aggregate performance of community banks, then it boldly and illogically concludes that the Dodd-Frank Act has not harmed that segment. Specifically the report claims that bank branching patterns, lending growth and geographic reach “show that community banks remain strong.” The statement is jaw-dropping in its willful disregard for the true cause and effect of the disappearance of 1,708 banks, or 22 percent of the industry, since the enactment of DoddFrank in 2010. It’s as if the White House is saying, “What does it matter if we are losing a bank a day? There are others around that can lend.” We know how much it matters ‒ to you and to the communities that no longer have their local hometown banks. And we know that it is more than just market forces and macroeconomic conditions that are driving the twin trends of bank consolidation and the dearth of new bank charters. As I wrote in a letter to the CEA respectfully challenging its conclusions, the thousands of pages of new regulations that have been imposed on community banks in recent years is an enormous driver of decisions to sell to larger banks. Those same regulations are restricting product offerings, like mortgages, and discouraging banks from growing for fear of the increased regulation that is triggered by crossing an arbitrary asset threshold. This leaves customers with fewer choices, and communities with less service. Complex, ill-fitting rules ‒ from Dodd-Frank and beyond ‒ also are to blame for the lack of de novos in recent years. The CEA suggests the real reason is low interest rates, but large numbers of new banks have formed in past recessionary times, so that argument just doesn’t wash. The CEA’s conclusions, in short, feel forced and out-of-touch. Had the researchers called real, live bankers who are grappling with how to grow their businesses in the current regulatory environment, they could have gotten right to the heart of the matter. They might have heard something like the following, taken from a note that a member of the American Bankers Association recently sent, explaining his bank’s decision to hang it up: “Unfortunately we became a victim of Dodd-Frank. The effects of Dodd-Frank … plus other regulatory issues … resulted in financial projections showing substantial declines in revenues and increases in compliance costs, reaching the point that, in a few short years, an otherwise healthy community bank with strong capital and satisfactory earnings could no longer meet a number of financial benchmarks set by the regulators. These conclusions forced the bank to sell now, when our shareholders and some of our employees would be less adversely affected.” When this bank merged with a larger one, half of its employees lost their jobs. And that highlights yet another costly toll of government-induced consolidation: the lost contributions of men and women who play leading roles in their communities. John Ikard, last year’s ABA chairman, said it well in his farewell speech at our convention. A community can lose its bar or its grocery store, but it can’t lose its bank, adding that online lenders are no replacement. “You can’t go online to get a leader. Banks don’t just provide money. They provide the people who serve on the school board, United Way, churches.” That kind of involvement, which undoubtedly makes communities richer, is not something any economist can put a value on. t About the Author Robert S. Nichols is president and chief executive officer of the American Bankers Association. He joined the ABA in 2015, following 10 years of service as president and CEO of the Financial Services Forum, a nonpartisan financial and economic policy organization. Prior to joining the forum, Nichols was assistant secretary of the Treasury for Public Affairs, a position requiring confirmation by the U.S. Senate, and he also oversaw the Office of Public Liaison. Nichols is a recipient of the Alexander Hamilton Award, the highest honor of the U.S. Department of the Treasury. Previously Nichols’ career highlights included service as communications director for the Electronic Industries Alliance; as a senior aide on Capitol Hill, where he was communications director to U.S. Sen. Slade Gorton and press secretary to the late Congresswoman Jennifer Dunn; and in the West Wing as an aide in the Office of the Chief of Staff in the George H.W. Bush administration. Nichols serves as a member of the board of trustees of the National Presbyterian School and as vice chair of the board of directors of Food Allergy Research & Education. He is a graduate of The George Washington University. The author can be reached at: nichols@aba.com. Dodd-Frank’s Price Tag
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