The “Small Bank” Bill That Big Banks Love

S. 2155, the “Crapo” bill more accurately referred to as the Bank Lobbyist Act, garnered bipartisan support among members of Congress touting the supposed benefits for small community banks back home. But at its heart this bill will only benefit “stadium banks,” banks large enough to have professional sports stadiums bear their names. Stadium banks love the bill.

After the 2008 financial crisis, Congress passed the Dodd-Frank Act to require “too big to fail” banks with over $50 billion in assets to be subject to extra safeguards to make certain they don’t fail and require taxpayer bailouts. S. 2155, which passed the Senate and the House which voted 258–159, exempts many large banks from the enhanced oversight implemented under Dodd-Frank, even though the bill itself purports to provide relief for small community banks.

Proponents argue that raising the asset threshold at which banks are subject to enhanced regulatory standards, including stress tests that gauge a bank’s ability to withstand economic conditions like those that led to the 2008 financial crisis, would help small and regional banks. But the bill actually helps very large banks with up to $250 billion in assets. This is not a consumer friendly bill. The Center for Responsible Lending, a nonpartisan, nonprofit organization opposed the bill argues that, “Instead of threatening the American economy with one gallon of poison or two, Congress should choose neither.” In a HousingWire report CRL Senior Legislative Counsel Yana Miles said, “Our elected representatives should listen to the American people and make another crisis less, not more, likely.”

Barney Frank, co-author of the Dodd-Frank Wall Street Reform Act, calls exemptions for banks with up to $250 billion in assets a “major mistake.”

This bill will immediately raise the threshold for souped-up risk management to $100 billion, and then bump it up again to $250 billion within 18 months. This increased threshold puts 25 of the 38 largest domestic banks in the country outside of the purview of enhanced supervision. Banks like Citizens, Comerica, M&T Bank, SunTrust, and KeyBank would all benefit from a bill masquerading as a small bank regulatory relief measure. But fans of the Philadelphia Phillies, Detroit Tigers, Baltimore Ravens, Atlanta Braves, and Buffalo Sabres know these aren’t small banks — their names sit atop their stadiums.

In crafting a bill that was driven by lobbyists for big banks, lawmakers steered so far off course that many small banks don’t believe the bill will provide them with relief. Jay Davidson, chief executive of Colorado-based First American Bancorp told the Wall Street Journal, “This bill helps the larger regional banks, but doesn’t do much [for] small community banks.” Similarly, Mary Ann Scully, chief executive of Baltimore-based Howard Bank said of the bill, “It does next to nothing for my bank.”

The bill also jeopardizes the safety and soundness of smaller banks (and the protection of consumers) by weakening the rules requiring that mortgage lenders ensure borrowers’ ability to repay their loans. As Georgetown Law professor and former CFPB adviser Adam Levitin writes in his blog, if a local economic downturn hits, “the result will be a bunch of rapidly decapitalized community banks that will fail. If they were dry cleaners or sandwich shops, this would just be the market at work — businesses that make bad decisions fail. But when banks fail there are serious collateral consequences.”

But it gets worse. S. 2155 will bury information on racial discrimination in home lending, loosen protections against volatile adjustable interest rate loans, and expose manufactured home borrowers to overpriced loans. At a time when interest rates are rising and bank regulators are pulling back from protecting the public, Congress should be ensuring that consumers can get a fair deal, not opening loopholes for reckless lenders.

The House has passed a bill that whiffs on its promises to alleviate the concerns of small community banks and instead rolls back regulations on all but the largest of banks — exposing consumers and the economy to the same risk factors that led to the Great Recession. Memories can’t be that short.

Congress should have seen through to the black soul of S. 2155 lurking within the sheep’s clothing of community bank relief. Community banks have been left out in the freezing cold.