Over-regulation a barrier for Iowa's banks

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By Al Tubbs


For bankers, the holidays offer a time to reflect on how our institutions have served our communities. We like to measure our work — as lenders and as stewards of the economy — and its impact. Even more important, we are in the business of helping people — and the numbers help tell that story.

We have a good story to tell. According to the latest annual report from the Iowa Bankers Association, Iowa’s banks helped keep the state’s economy humming by, among other things, safeguarding $56 billion in deposits and using those funds to lend nearly $42 billion to help Iowa residents and businesses. Iowa banks also paid $158 million in taxes, made $39 million in community donations, and sponsored financial education programs in more than 129 schools.

These data reflect the important role banks play in communities across Iowa and the country every day. Unfortunately, that role is increasingly being compromised by edicts from Washington.

Specifically, community banks like the ones most Iowans rely on every day have become subject to provisions of federal legislation called the Dodd-Frank Act. Unfortunately, many of the new regulations are a reaction to poor lending practices outside of Iowa, outside of community banking, and on Wall Street, yet Dodd-Frank mandates more than 400 new rules and requirements that apply to all insured financial institutions. Keeping up with those rules has become a significant challenge for small banks.

By Nov. 1, 224 of those 400 new rules had been written. The more time and resources banks must devote to analyzing and complying with this new wave of rules, the less time and fewer resources they have to do what banks are in business to do — whether it’s developing a new product to help consumers save or making a loan to support the expansion of a local business, hospital or other job provider.

Our bank created a list of the rules, regulations, acts and reporting requirements that apply to our bank and our customers. Just the names of these rules and regulations takes eight pages, single spaced — and that was before federal regulators issued any Dodd-Frank Act rules.

This expanding multitude of rules is why consumers have to sign so many documents when opening an account or applying for a loan. It is also why some banks have decided not to offer certain types of consumer loans and more accommodating repayment terms. A recent survey of Iowa bankers reveals that 89 percent of respondents say the regulatory environment has impacted their ability to provide credit; 81 percent say it has hurt their customers’ ability to understand financial products; and 68 percent say it has caused them to consider eliminating financial products.

Banks are rightly examined for safety and soundness. But in recent years, banks have been subject to more onerous compliance exams that are more about draining bank resources than measuring how well a bank treats its customers. For example, an area community bank recently had an Iowa Department of Banking safety and soundness exam and a federal compliance exam begin on the same day. The state exam was done by six examiners on site for a week. The federal compliance exam required eight examiners for two weeks.

A regulatory system that forces banks to funnel too many resources inward, instead of encouraging helpful innovation and wise growth, is counterproductive. What we need are clear standards that allow banks to provide loans to qualified customers, that promote transparency and that enable banks to serve their communities and grow the economy.

Whatever the future holds, banks will always remain committed to do all that they can to make a positive difference in the financial lives of all Iowans.

Al Tubbs, chairman and CEO, Ohnward Bancshares Inc., Maquoketa, is former president of the American Bankers Association and Iowa Bankers Association. Comments: c/o Ohnward Bancshares, Inc., 107 E. Quarry, Maquoketa, IA 52060.

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