In Case You Missed It: Neugebauer Lubbock A-J Op-Ed on Dodd-Frank and Community Financial Institutions

Neugebauer: Overregulation harmed America’s financial sector

By Rep. Randy Neugebauer | Sunday, February 22, 2015

In 2008, our country began a roller coaster ride of epic proportions. We saw the collapse and taxpayer-backed bailouts of some of our nation’s largest financial institutions.

Foreclosures increased. Retirement savings evaporated. Unemployment skyrocketed. American consumers experienced a credit freeze. Main Street businesses closed.

Today, we are slowly climbing toward recovery, but too many of our fellow Americans continue to struggle to make ends meet. We must do better.

In the midst of the financial crisis, the Democrat-controlled Congress did not do the responsible thing. Instead of comprehensively studying the crisis, Democrats in Washington threw a blanket over the financial sector in the form of the Dodd-Frank Act.

Many of its prescriptions written to heal the financial sector, which include more than 400 new regulations, have created new conditions and problems. Dodd-Frank has brought bank consolidation, trimmed product lines and created the culture of “too small to succeed.”

For West Texas, Abilene’s Big Country region and our entire nation, this is a problematic trend.

After graduating from Texas Tech, I started my career as a community banker here in Lubbock. At the bank, I originated and sold mortgages and other loans to individuals and families. Those receiving these loans made up the fabric of our community, and this was truly community banking.

For many, these financial products helped them reach their goals and brought them one step closer to the American dream.

After working at the bank, I ventured off and became a small business owner. I got my start because the bank took a risk on me and gave me a loan to get my operations running. These financial products provided me the tools necessary to grow, it helped me hire more workers, and as I became more successful, it opened up the doors for greater opportunity to others in the area.

Today, as I look back on that business model and my own experiences, I see a very different landscape for community financial institutions and the health of our overall economy.

Across the 19th District, I meet with community bankers who can’t make loans they once did, and speak with those dreaming of owning their own business, who now can’t access the financial products that helped others get their start. A recent Harvard University study appropriately described what I once knew as community banking by stating, “Their competitive advantage is a knowledge and history of their customers and a willingness to be flexible.”

Dodd-Frank has disrupted that. Some in Washington have forgotten Main Street in their quest to take down Wall Street.

Last week, Massachusetts Democratic Senator Elizabeth Warren spoke at a Senate Banking Committee hearing on regulatory burdens facing community financial institutions. She said community financial institutions are “doing better than ever after the regulations went into effect.”

As chairman of the subcommittee on financial institutions and consumer credit, I see a very different landscape facing our Main Street financial institutions.

Data from the Federal Deposit Insurance Corp. shows that we lost nearly 1,000 community banks nationally between 2010 and 2014. Similarly, credit unions lost close to 1,000 institutions during the same time frame.

As FDIC Vice Chairman Thomas Hoenig stated last year, “There should be little doubt that regulatory burden contributes to the trend toward consolidation as smaller banks work to control costs and to survive within a highly regulated industry.”

Losing our community banks and credit unions is a long term threat to communities across the country — especially rural and semi-urban areas such as the Texas 19th Congressional district.

Data shows more than 70 percent of agricultural loans and over 50 percent of small business loans are made by community banks. I worry without the regulatory flexibility to serve local needs, banks and credit unions will stop offering products or consolidate.

A Mercatus Center study found because of the Dodd-Frank Act, some banks have already stopped offering residential mortgages, home equity lines of credit, overdraft protection and credit cards to their customers. Other banks expect to stop offering these services in the future. This would be devastating for individuals and families in the 19th District

When I look at these trends, I think about those folks barely making ends meet. I worry regulations, often advertised as consumer protections, are actually choices coming from regulators in Washington that will limit the choices and opportunity of those on Main Street. Consumer protection is important in the financial marketplace, but we must ensure product choice, credit availability and cost of credit are considered before rushing to regulate.

We have already seen a direct result of Dodd-Frank’s unintended consequences on our fellow West Texans that required commonsense reform. Included in my legislation to reform the Terrorism Risk Insurance Act — the first bill signed into law this Congress — was a provision to provide some initial relief from Dodd-Frank for our farmers, ranchers, and small business owners.

Dodd-Frank made it difficult for these “end users” to manage their business risk and protect their companies from market fluctuations. Individuals on Main Street did not cause the financial crisis, but they are certainly feeling these unintended consequences.

On the Financial Services Committee, my top priority is regulatory relief for our Main Street institutions and to spur the engines of economic growth. We must do this from Main Street up, not with more regulation and failed policies from Washington.

RANDY NEUGEBAUER IS THE U.S. REPRESENTATIVE FOR TEXAS’ 19TH CONGRESSIONAL DISTRICT, WHICH INCLUDES LUBBOCK.

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