Louisiana Bankers Notes Blog


A Plan to Give Community Banks Relief From Dodd-Frank

Smaller institutions didn’t cause the financial crisis, but are drowning in compliance costs.

The following was written by U.S. Senator John Kennedy from Louisiana and I felt it was worth passing along.

Every politician says he is for jobs. But you can’t be for jobs if you are against business. And you can’t be for business if you are against giving job creators access to capital. Yet that is exactly the conundrum Congress legislated when, in 2010, it made the Dodd-Frank Wall Street and Consumer Protection Act applicable to small banks and credit unions. Dodd-Frank has been a loan-killing, anti-job disaster for these vital institutions. 

Dodd-Frank was supposed to prevent another 2008-like banking crisis by strengthening federal government regulation of finance. Maybe the law makes sense for too-big-to-fail banks. Maybe not. What surely doesn’t make sense is to cripple America’s smaller community banks, which did nothing to bring about the 2008 meltdown. 

When Federal Reserve Chair Janet Yellen appeared before the Senate Banking Committee on Feb. 14, I asked her the following question: “What did the community banks do wrong in 2008?” Her response: “Well, community banks were not the reason for the financial crisis.” 

Yet smaller banks are being smothered under the weight of Dodd-Frank. The Federal Reserve Act of 1913 is 32 pages. The Glass-Stegall Act was 37 pages. Dodd-Frank is 2,300 pages, with an astounding 22,000-plus pages of rules and more on the way. That’s why so many community banks no longer exist, and those that have survived have seen their costs go up, their profits go down, and their ability to make small-business and consumer loans curtailed. It’s all because of the heavy hand of government. 

Main Street lending institutions should not have to keep paying for the sins of others. So I am introducing a bill, the Reforming Finance for Local Economies Act, that would exempt community banks and credit unions with assets of less than $10 billion from Dodd-Frank. Community financial institutions could get back to doing what they do best, which is helping local economies grow. 

These institutions desperately need regulatory relief. In 2015, the St. Louis Fed estimated that community banks take an annual $4.5 billion punch to the gut in the form of compliance costs. Alan Novotny, CEO of New Orleans-based Eustis Mortgage Co., said that before Dodd-Frank “it cost $2,000 to produce a loan. Now it costs $4,000.” 

More than 1,700 U.S. banks have disappeared since Dodd-Frank. The cost of Dodd-Frank regulation has driven small banks to sell to or merge with larger banks. That eliminates jobs at the community institutions. It reduces lending to Main Street, given that community banks with less than $10 billion in assets provide 48% of small-business loans, 16% of residential mortgages, 44% of loans to purchase farmland, 43% of farm-operations lending, and 35% of commercial real-estate loans. 

Forced consolidation in the community-bank sector has caused greater concentration of assets on the books of larger banks. This, in part, is what caused the 2008 debacle that Dodd-Frank is supposed to prevent from happening again. 

My bill would help the 5,785 credit unions and the 5,461 community banks in our country survive. They would no longer have to reduce products and services and divert resources to compliance. Their skill in evaluating risk would no longer be reduced to a mathematical exercise. They would be free to concentrate on providing traditional banking services to the customers they know by taking in local deposits and making loans to local borrowers, whose creditworthiness is closely monitored. 

Community bankers are relationship bankers. They don’t do widespread subprime lending or use derivatives to speculate. Most have fewer than 100 employees. The type of regulation they need, and the risks they take, are different from those of a $700 billion bank. 

Community institutions need some regulation to ensure their stability and security. But even after my bill becomes law, community banks will still be subject to a strict regulatory scheme established by dozens of applicable federal statutes—the Banking Secrecy Act, the Electronic Fund Transfer Act, the Truth in Lending Act, and the Equal Credit Opportunity Act, and more. They will remain under the supervision of the Federal Reserve, the Comptroller of the Currency, the Federal Deposit Insurance Corp., and National Credit Union Administration.

But America’s smaller lending institutions need relief from the destabilizing consequences of Dodd-Frank. The Reforming Finance for Local Economies Act is a step in that direction.


ABA Banking Journal Article Focuses on How to Operationalize Ethics in a Bank

The latest free article from the ABA Banking Journal focuses on what bank leaders can do to inculcate ethical cultures and practices in their banks. Several industry leaders were interviewed for the article, including Louisiana banker Drake Mills of Origin Bank in Monroe and LBA Chief Executive Officer Robert Taylor. Check out the key practices identified from those interviews, including: 

  • Get total buy-in from directors and top officers
  • Lead by example
  • Communicate expectations clearly and in writing
  • Engage employees in discussions about ethics

Click here to read the article.


LBA Board Knows Our Operations

Each one of the 13 members of LBA’s Board of Directors is selected by Louisiana bankers and serves according to the LBA bylaws that were drafted by a committee of Louisiana bankers. That formula isn’t infallible, but we try our best to execute our mission and be accountable to the Board and to the bankers in the state. I invite Louisiana bankers to talk to any current or former LBA board members about their experience on the LBA Board. 

I thought it would be helpful to review the LBA Board agenda for the upcoming May 10 meeting to provide some insight into our work. LBA Chairman Tom Martin of Gibsland Bank and Trust Company will chair his last meeting, and I am so appreciative of Tom for his support and his interest in keeping LBA on track with our work. The first item on the Board agenda is our 2016 audit report presentation from LaPorte CPA’s. LBA staff does a terrific job working with our auditor, and I look forward to the report and board questions. The second item is a presentation of the LBA financials through March 31 by Treasurer Pat Biglane of Concordia Bank and Trust. How LBA is performing overall and on each budget item is provided to the Board at each meeting, and the Treasurer or LBA staff address all questions from the Board. We are very close to budget and are confident we will be at year-end. 

With this board meeting held at the 2017 LBA convention, there are agenda items about the next LBA treasurer and the three new regional board members. Every year the board has new board members as the three-year regional board terms are staggered. At every board meeting, the board receives reports on state legislative/regulatory issues, the two LBA political action committees, our efforts to generate increased activity among bankers to enhance our grassroots participation, federal issues and any specific issue that needs board attention relating to our government relations work. We do not have an item this meeting on an amicus request, but the LBA will file a brief in court to voice the industries position on cases that affect banking. All action such as this requires Board approval. 

In August, the Board will meet in Natchitoches for our annual strategic planning session. Later this year, incoming Chairman Ken Hale of BOM in Montgomery will appoint a budget committee to work through each budget item and develop a budget which will then be presented to the Board at their December meeting. 

Serving on the LBA Board takes time and energy and we all, those of us at LBA and bankers across the state, appreciate and value their service. 



Financial Literacy Update

LBA recently meet with the leadership of the Louisiana Workforce Commission suggesting that the work they do in training and placing workers could include a financial education component to help them manage their money when in the workforce.  They were very positive about implementing this component and LBA will help them get underway.  The LBA is also working with the Jump$tart coalition in working on curriculums that will assist teachers as they implement the new requirement that public schools include financial education in their curriculum.