Growing regulatory burden threatens small financial institutions

BY ROBBIE THOMPSON AND MARK CUMMINS

Over the last few years, credit unions and community banks have faced a common and growing concern: the crisis of creeping complexity with respect to the regulatory burden. Our communities, our customers, and our members need the smaller, community-focused financial institutions like credit unions and community banks to work together in the best interest of our communities to stem the swell of regulations. Otherwise small financial institutions like community banks and credit unions face the threat of being regulated out of existence. And if this happens, the real losers will be our communities, small businesses and consumers that will lose the hometown type of financial institutions that make decisions locally.

Small financial institutions like credit unions and community banks are the lifeblood of our communities. They provide local decisions and are active strong civic participants. They did not cause the financial crisis and generally did not engage in the type of practices that caused the mortgage meltdown, but sadly, they are both collateral damage. Each new regulation, while intended to right the past wrongs of others, makes it continually more difficult for small financial institutions to operate.

It is not just one or two new regulations that are making it more difficult for small financial institutions to operate, but the cumulative effect of having multiple federal regulators issuing numerous and complicated new rules. Since 2008, credit unions have been subject to 181 new rules — many of which are hundreds or even thousands of pages in length. In January 2013 alone, the Consumer Financial Protection Bureau issued over

3,000 pages of new mortgage rules required by the Dodd-Frank Act. Many of these new rules involve costly changes to processes, computer systems and job responsibilities. Again, the impact on smaller financial institutions from all of these new rules is amplified as they have fewer resources to track and keep up with the constant flood of new regulations.

Undoubtedly the intent of Congress and regulatory agencies in issuing many of these new rules is to protect consumers, but the unintended consequence is that it is making it more and more difficult for small community financial institutions to operate and serve consumers and small businesses. It is creating a problem of almost “too small to succeed” when the intent, at least in part, was to reduce the problem of “too big to fail.” The biggest banks are bigger today than they were before the financial crisis. Since 1997, the largest 100 banks have increased their market share from around 40 percent to over 70 percent. This is due, in part, to the increased challenge smaller financial institutions have in coping with the creeping complexity of regulations. In order to stem the tide of over-regulation and ensure continued access to local credit decisions by local financial institutions, community banks and credit unions must enlist the support of small business and work together. PB

Robbie Thompson President/CEO Credit Union Association of the Dakotas rthompson@cuad.coop

Mark Cummins President/CEO Minnesota Credit Union Network mcummins@mncun.org

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