Statements
Statement of Rep. Velázquez on Regulations and Community Banks and Credit Unions
Washington, DC,
February 27, 2018
STATEMENT Thank you, Mr. Chairman. A decade ago, our nation faced one of the greatest economic downturns in history – and stared into the abyss of another Great Depression. Countless Americans lost their homes. Credit markets – including small business lending – seized up. And, millions of jobs evaporated. After taking extraordinary steps to stem the losses and stabilize the economy, Congress enacted the Dodd-Frank Act in July 2010 to address the loopholes that caused the collapse. The law established strong new standards for the regulation of large, leveraged financial institutions. It also made the protection of consumers seeking mortgages and credit products a top priority. While the new safeguards were directed primarily at the largest financial services firms, we often hear that small banks were indirectly affected by higher compliance costs. It is also undeniable that small lenders bear less responsibility for the financial crisis and, therefore, should not carry the brunt of new regulations. For these reasons, significant efforts were made to mitigate any new regulatory burden on small banks. First, many Dodd-Frank provisions apply only to institutions with over $10 billion in assets, exempting over 98 percent of all banks in the U.S. Second, regulations created by the Consumer Financial Protection Bureau -- that do apply to small financial institutions -- are subject to the Regulatory Flexibility Act and the Small Business Regulatory Enforcement Fairness Act. Together, Dodd-Frank and the creation of the CFPB have put us on a path to restored accountability and stability in our financial system, given regulators the tools to prevent harmful bailouts, and established new rules to protect consumers from abusive financial practices. Data from federal regulators also points to a vigorous small business lending market. The Federal Reserve has found lending standards for small firms have eased considerably since the recession, while loan balances at community banks have increased over 7 percent in the past year alone. Credit unions have also been thriving. Loan portfolios grew nearly 3 percent in the third quarter of 2017, resulting in year-over-year growth of 10.5 percent. While the small business lending environment appears to be robust, critics of Dodd-Frank continue to point to compliance costs as proof of onerous regulation. But, as the GAO concluded, much of these costs stem from a misunderstanding of the rules – not the rules themselves. Equally important, the GAO found in its survey that the regulations serve important public benefits – such as enhancing transparency and preventing discrimination. While regulations implemented under the Act will ultimately impact many facets of the financial industry, the economy has been improving at a greater pace since its passage. Private employers have created 12 million jobs and unemployment has been greatly reduced. The housing market is also recovering and small business credit has returned to pre-recession levels in many sectors. As both lenders and borrowers, small businesses have much at stake when it comes to financial regulatory reform. The Dodd-Frank Act touches on all aspects of the financial industry and has the potential to make the entire system more stable and safer for small firms in the real economy to grow and create jobs. While we must always be aware of how new regulations impacted small firms, under no circumstances can we return to the conditions that led to the 2008 crisis. In that regard, I look forward to hearing the recommendations of GAO and having a full discussion about small lenders’ experiences – and how we can ensure the law works to protect and preserve our small business sector. |
