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Republicans Plan To Roll Back Dodd-Frank Financial Regulations

Pablo Martinez Monsivais
President Donald Trump holds up an executive order after his signing it in the Oval Office of the White House in Washington in February. The executive order directs the Treasury secretary to review the 2010 Dodd-Frank financial oversight law.

Republicans in Congress plan to roll back parts of Dodd-Frank, the legislation Congress passed after the financial crisis. They say doing so would ease regulatory burdens on small banks. But the plan also eases rules on big banks — the ones that caused the financial crisis.

John Buhrmaster is a fourth generation banker and president at the First National Bank of Scotia in upstate New York. His great-grandfather was a coal and milk merchant who helped form it.

“This was originally my great-grandfather's office. Yeah, that's his picture right there,” Buhrmaster says.

“The big bank in Schenectady didn't understand the community of Scotia, so they formed a bank. And we're still here 93 years later.”

Scattered around the country in small, often agricultural towns, there are some 3,000 banks with less than $300 million in assets. That's a tiny fraction of the assets of a Wells Fargo or Bank of America, and yet these small banks face many of the same regulatory requirements as the big banks. Buhrmaster says he is drowning in paperwork.

“Ten years ago, I had a half a person and an Excel spreadsheet. Today I have two full-time people plus and a $22,000-a-year software program that has to handle it.”

Community bankers complain that loans now take three times as long to close because of all the documentation required. Quarterly reports to regulators have some 2,400 questions on them. And Buhrmaster and others say that visits by regulators have turned into high-pressure gotcha sessions.

“I'm here to support this community, to build my community and to help them thrive and prosper. And if I'm spending my time and my customers' and my shareholders' money paying for new software, it is a complete waste of time and money.”

There's actually consensus among regulators and lawmakers that some rules should be eased for small banks. Republicans in Congress, however, want to go further. Their plan, the CHOICE Act, has a long list of changes. Some of them would help small banks, but a lot would help big banks.

Kim Schoenholtz, a banking scholar at NYU's Stern School of Business, says, “It reduces the necessary oversight over the riskiest large financial institutions in the U.S. financial system.”

The CHOICE Act would exempt banks from annual stress tests if they meet certain capital requirements. That means regulators wouldn't know how banks could damage the system in another crisis.

“If we really wanted to ease the regulatory burden on small banks, we could do it, but it wouldn't contain the features that the CHOICE Act has for the large banks.”

Shoenholtz says President Trump could simply appoint different regulators that would ease the rules for small banks without scrapping the rules for big banks.

Matthew Dykman, a banking lawyer at Goodwin Procter, says it's true. The CHOICE Act will help big banks. But he says that's not a bad thing. For instance, if a bank isn't selling mortgages to investors, why should they fill out the paperwork as if they were?

“I think that there's an unwillingness to even look at what can be improved in Dodd-Frank on the part of the Democrats. And there's – you know, to be fair, there's a unwillingness on the side of the Republican Party in many instances to consider why a particular regulation might be prudent."

Back in Scotia, N.Y., John Buhrmaster can only watch this battle play out. He has little love for the large banks that nearly brought down the financial system and then got bailed out, but he remains focused on the parts of the CHOICE Act that help his customers.

“I have the ultimate faith in both parties that they will do the right thing and not continue to subsidize and grant favors to businesses that already have an unfair advantage.”

But he says if the cost of compliance doesn't come down for small banks, it will be small bank customers who suffer. 

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