What happened to one of our local banks is instructive, because the same thing happened to small banks across the country. Those were the small banks that loaned money to small businesses, not the big banks that helped throw our economy into crisis, the “too big to fail” banks and that required taxpayers to bail them out. These small banks were doing fine, did not represent any economic threat, and did not need additional regulation. They often cannot afford to hire all of the additional personnel to keep up with the new regulations. Additional regulations were so complex that many small banks were simply forced to stop making owner-occupied mortgage loans.
My brother, Gordon, interviewed a local small banker several years ago, a banker who agreed to do the interview only if he could remain anonymous. I also know this banker and he is not some fictional composite. He is very much legitimate. The regulators have incredible absolute power and this banker was and is afraid of retribution if his identity were known. At the time of the interview his bank could have been shut down because of loans, solid loans that had nevertheless been made nonconforming by new regulations and could not be renewed. Regulators more numerous than his employees visited his bank and they stayed for weeks. His bank has nearly unlimited access to money, but he was not interested in deposits, even at the 0.3% interest they were paying on those deposits, because the new regulations made it impossible to find qualified people to whom they could loan that money. The operating costs of just this one small bank increased by about two hundred thousand dollars per year as a result of the new regulations. This bank has had an essentially zero default rate on their mortgages, has never been a problem, and has been a top performing private bank. Seventy percent of the people to whom they would have loaned money no longer qualified once the Dodd-Frank Act passed. How could this bank survive with 70% of its potential income removed and a massive increase in overhead? (For additional insight see Community Banks are Struggling Under Dodd-Frank) Somewhere between 40 and 60% of such banks have failed. Those were the neighborhood banks that loaned money to small businesses in our own communities.
In spite of an incredible record of having made good loans, an outside firm now has to independently audit every new loan made by the above referenced bank before that loan can be made. That is just one of the many increased costs to the consumer. Many existing renewable loans, always paid on time, could not be renewed as they came due because they did not meet arbitrary new standards, standards that were constantly being revised and extended. As existing loans can not be renewed, the property that secured those loans is forced on the market at a time when only the big operators with significant cash can buy. They can buy at minimal price because of reduced competition. This was happening in banks and communities across the country. Rather than support the small investor, Dodd-Frank regulations helped concentrate property and wealth in the hands of those who already had the most of both. That may not have been the intent of the bill or what the supporters said it would accomplish, but it was the practical result. How, exactly, did that help solve the much decried wealth disparity in our country? This is not hypothetical. I personally know small investors who were given a final one-year renewal that forced them to sell property that was paying its own way and on which all payments had been made on time; they didn’t meet the global standards of the new regulations. They had to sell for whatever they could get to avoid foreclosure.
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www.politico.com
Yes, community banks are struggling under Dodd-Frank. The banking lobby responds to a recent assertion in POLITICO that community banks have proven amazingly …
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*** Gary A. Howie MSc, PhD *** is business owner/rancher and a Life & Liberty News contributor
