Say Goodbye to 1,000 Small Banks, Thanks To Dodd-Frank
The American Bankers Associations (ABA) has predicted that the 2,319 page Dodd-Frank Act – which creates a massive new federal bureaucracy to rewrite and enforce rules and regulations for the entire financial sector – will cause over 1,000 small banks to go out of business by 2020.
“We will build a strong enforcement arm,” said interim Consumer Financial Protection Bureau (CFPB) chief Elizabeth Warren in March. “More than half our budget will be committed to establishing supervision and meaningful enforcement”
That’s Washington-speak for loads more paperwork and filing. Banks are already going to be subject to 20 new reporting mandates under the Home Mortgage Disclosure Act, including regulations to help police “predatory lending.” Banks will also have to collect and report data on credit applications made by minority-owned businesses, according to a report by Investor’s Business Daily. “CFPB will analyze the data for discrimination, in consultation with an advisory board including inner-city activists,” the report claims.
We know what this means. We’re about to start the housing crisis all over again. Politicians in Washington cannot force banks to give loans to people who can’t simply cannot afford them. The housing market still hasn’t recovered from the last time it was meddled with by Congressman Barney Frank (D-MA).
Smaller banks already suffer a disproportionately higher cost for compliance than do the larger corporations. With this new law, banks will be spending more time filing paperwork and spending more money filing reports and trying to comply with regulations than actually doing business.
This law will also increase litigation risk. Small banks can’t afford the necessary lawyers to counteract claims of redlining and consumer lawsuits. The Dodd-Frank Act “makes it easier for borrowers to sue lenders to get out of mortgages that contain ‘abusive’ features,” the IBD report claims.
A main cause for concern is appointing one person, Elizabeth Warren, to oversee the entire organization. House Republicans want to replace her position with a five-member commission, instead of one, un-elected official who only reports to the President.
With regulators rushing to write rules, a cloud of uncertainty for small banks has formed. Many believe this bill will just lead to an even bigger housing and loan crisis, like the one seen in 2005, with Fannie Mae and Freddie Mac, both heavily supported by Dodd and Frank
The moral of the story: don’t let Chris Dodd or Barney Frank anywhere NEAR the financial sector.