Tuesday, November 15, 2011

Is Dodd Frank a Killer for Small Banks?

Yielding to the Law of Threes, Republican presidential candidates have settled on three convenient products of the current administration to highlight the differences in governing philosophy with the Democrats: the stimulus package of '09, the Affordable Care Act, and the Dodd Frank Wall Street Reform and Consumer Protection Act.  In their debate road show over the last year Dodd Frank has been a convenient target for pointing out how the unintended consequences of legislation can harm consumers. 

One of the charges leveled against Dodd Frank is that small banks are harmed by the bill to the advantage of larger ones. Here's GOP candidate Mitt Romney at the October 11 debate in New Hampshire: 

"Because what [bill sponsors Barney Frank and Chris Dodd] did with this new bill is usher in what will be thousands of pages of new regulations. The big banks, the big money center banks in Wall Street, they can deal with that...For community banks that provide loans to business like yours, they can't possibly deal with a regulatory burden like that...It's a killer for the small banks. And those small banks loaning to small businesses and entrepreneurs are what have typically gotten our economy out of recession."

In last week's Michigan debate  front-runners Herman Cain and Newt Gingrich picket up the ball and ran with it. But is that the case? The Independent Community Bankers of America, a trade group that represents mostly smaller institutions actually had some nice things to say about Dodd Frank, as well as some criticism. 

It's probably to early to pick the Dodd Frank winners and losers. What does seem clear, however, is that this sweeping piece of legislation has the potential to change the competitive environment for financial institutions, large and small. And whether it's banking or horseshoes, changing the rules rarely works out well for the little guys. 

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