By David Lawder and Amanda Becker
WASHINGTON (Reuters) – President Donald Trump promised in a meeting with community bankers on Thursday to remove some Dodd-Frank financial regulations and ensure they can continue to give small businesses access to capital.
Trump, along with National Economic Council Director Gary Cohn and Treasury Secretary Steve Mnuchin, said that community banks play a “vital role” in the US economy.
“Nearly half of all private sector workers are employed by small businesses. We must ensure access to capital for small businesses and for small businesses to grow. Community banks are the backbone of small businesses in America.” Trump said at the beginning of the meeting.
Representing the industry were the CEOs of nine community banks with assets of about $ 1 billion or less and the directors of the Association of American Bankers and the Independent Community Bankers of America (ICBA).
Bankers who attended the 45-minute meeting said they discussed the role community banks play in rural areas and provided real-world examples of the difficulties faced by smaller banking institutions.
The bankers stressed the need to “tailor regulations to suit the size and complexity of the banks,” said Chesapeake Financial Shares Inc Chairman and CEO Jeffrey Szyperski, one of the bankers at the meeting.
Chesapeake is a regional bank based in Kilmarnock, Virginia, with 14 branches and a separate wealth management division.
“Our message was very focused on how to create a tiered and proportionate regulatory environment for community banks,” said Rebeca Romero Rainey, director of Centinel Bank of Taos, a community bank in New Mexico.
The idea seemed to resonate with Trump, who asked questions and showed a pre-existing understanding of the community banking landscape, according to attendees.
ICBA, one of the industry groups at the meeting, has advocated for a system of tiered regulations that tailor regulations to a bank’s size, business model, complexity and risk.
“The kind of regulation that is needed for a $ 700 million bank and the risks they present are very different from a $ 200 billion bank or a $ 1 trillion bank,” a White House official said earlier. of the meeting.
Larger banks can spread their higher compliance costs across much larger employee and asset bases, while smaller banks struggle with high costs and workloads.
One of the participating institutions, Standard Financial Corp of Monroeville, Pennsylvania, has just nine branches with $ 488 million in assets and earnings of $ 559,000 in the quarter ended December 31, 2016. It plans to merge with a rival in Southwest Pennsylvania in a deal. which will roughly double in size.
Trump officials cited a dearth of applications to form new community banks and a drop of around 30 percent in the number of small American banks since 2008 as a boost for the meeting. A smaller bank has gone bankrupt every day for the past seven years, Szyperski said, citing the Dodd-Frank financial reform law enacted after the 2007-2008 financial crisis as a reason they had not formed. new banks in place.
Trump promised bankers his February executive order on reducing regulation was “very powerful” and would apply to the community banking sector.
Mnuchin, a former CEO of OneWest Bank, a regional lender in Southern California, said at his confirmation hearing in January that onerous regulations are “killing community banks.” He promised to ease those burdens while maintaining “adequate” regulation, “so that we don’t end a world in which we only have four big banks in this country.”
Also discussed at the meeting were the compliance costs associated with the Consumer Financial Protection Bureau (CFPB), a new regulator created under Dodd-Frank.
The CFPB is a perennial target for Republicans, who want to shift their funding from the Federal Reserve to annual Congressional appropriations and shift their tenure, now focused on a powerful president, to a multi-person committee structure.
Separately Thursday, when asked during a briefing with reporters whether Trump still backs his campaign promise to restore the Glass-Steagall Act, White House spokesman Sean Spicer said yes. The law, which separated commercial and investment banking activities, was repealed in 1999 and, if reinstated, would apply primarily to the largest banks.
The Trump administration has made no move so far to split up the big banks. Investors have rallied bank shares since Trump’s election in the expectation that they would get regulatory relief but not be forced to divest. There is little indication that such legislation is an imminent priority that will be taken up by the US administration or Congress.