The U.S. economy has been in a slow recovery with unimpressive productivity and labor statistics that indicate millions may be locked out of the labor market. One major cause of the lackluster recovery is that our nation is creating start-up businesses in historically low numbers. The lack of new businesses these past few years translates to hundreds of thousands of companies and jobs.
A recent Wall Street Journal article, “Sputtering startups weigh on U.S. economic growth,” quoted someone from a Wall Street firm who essentially said that the cause of the sputtering is the avalanche of new regulations coming from Washington, D.C. I agree and can offer more specific insight. I believe that most of this damage originates from one source: Dodd-Frank.
To know why we are in a weak economic recovery, go to Main Street rather than Wall Street to find the answers. The Dodd-Frank law is killing the community-bank sector. It cripples banks, restricts their ability to serve local communities and has caused restricted customer access to certain bank products. In addition, the implementation of Dodd-Frank has been slow and unpredictable, creating uncertainty and constraining lending. Bankers have faced more than 14,000 pages of new or expanded regulations as a result of Dodd-Frank, and managing the details is a significant and time-consuming challenge.
Community and regional banks play a pivotal role in the state and national economies; in fact, community banks make 50 percent of the small business loans made in America. While the small business sector is the heart and soul of our economy, small business startups have been down the last six years, and many community banks have merged or been acquired.
Between 1995 and 2007, our country averaged 125 startup community banks per year, a period that included both good times and bad. That was before President Obama and the 2010 Congress enacted Dodd-Frank. Since the law’s passage, we have had only three new community banks chartered in the U.S. Fewer community banks may mean fewer small businesses. Is there perhaps correlation? Could it all be related to the avalanche of Dodd-Frank rules?
The banking industry has been advocating for a tailored regulatory banking system for more than five years to help the most significant funding source for small businesses: community and regional banks. However, Congress and President Obama have failed to act on those requests.
Why haven’t President Obama and his allies like Sen. Elizabeth Warren expressed more support for legislation to ease the regulatory burden on community and regional banks?
Legislation, such as the Community Lending Enhancement and Regulatory Relief Act of 2015, authored by Sen. Jerry Moran, R-Kansas, would ease Sarbanes-Oxley requirements on smaller banks, exempt banks with under $10 billion in assets from certain escrow requirements and provide “qualified mortgage” status to more loans community banks keep on their balance sheets. This bill and others would help hard-working Americans on Main Street become homeowners and small business owners.
If the president and Congress decreased unnecessary regulation, community and regional banks could hire more lenders while reducing the number of compliance and legal staff in order to better serve their customers and small businesses on Main Street which would, in turn, strengthen our economy and create jobs.
Alex Sanchez is president and CEO of the Florida Bankers Association.