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Small bankers fear Dodd-Frank rules
Community bankers worried about regulation burden despite exemptions.
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Jeremy Hobson: One of the first items on the agenda for Congressional Republicans, when they get back from their Fourth of July break, will be to shine a spotlight on what they call the "onerous burdens" of Wall Street reform -- as in the Dodd Frank regulatory overhaul of the financial sector. The law was meant to correct problems that led to the 2008 financial meltdown. But House Republicans say the new regulations are hurting small community banks far from Wall Street.
Marketplace's Shereen Marisol Meraji has more.
Shereen Marisol Meraji: David Schweikert is on the House Financial Services Committee. The Arizona Republican says Dodd-Frank's new rules are scaring community bankers in his district.
David Schweikert: They're hedging, they're holding back capital.
Frank Sorrentino, chairman and CEO of North Jersey Community Bank, says that's true.
Frank Sorrentino: Of course we want to lend, but the issue is we may have our hands somewhat tied for fear of where these regulations are going.
He's worried rules meant to rein in big banks could hurt small banks like his.
Robert Jackson: Like any members of an industry that's about to endure new regulations they're skeptical and nervous and that's very understandable.
Robert Jackson helped the Obama administration draft some of the provisions that eventually became Dodd-Frank. He says the act was written with small banks in mind.
Jackson: And so they exempted small banks from many of the most important provisions of Dodd-Frank, but, the bottom line is it's far too soon to tell.
This month marks Dodd-Frank's second anniversary and many of the regulations have yet to be enacted.
I'm Shereen Marisol Meraji for Marketplace.
I certainly understand the concerns of small banks, but there is a problem for them, and that is they have "bank" is in their name. "Bank" is almost as toxic these days as "offshore" for what it conjures in the mind of an uninformed listener. Even with Dodd-Frank exemptions they still get lumped together with the practices of the "Too Big to Fail Banks, and so in a largely uneducated listeners mind, (Market Place listeners excepted) they should be regulated more.
The problem with all BIG regulator statutes is where do you draw the line on what is the small exemption? I empathize with their predicament, as they did not create the conditions that lead to the market melt down, and they rightly fear the expensive and onerous regulations that may descend on them as Dodd-Frank paints with a roller, and not an artist's brush.
I would have also been interested in their view of the other BIG new regulation which has been placed upon them without much discussion in the media. I know it also has additional and serious consequences for them both in terms of regulator compliance cost and impacts on their capital base. What is this you ask? This is the recent IRS requirement for them to discover all non resident depositor interest (IE foreigners not living in America) and report it to the IRS.
If you are unfamiliar with this regulation, google this Accounting Today story: IRS Issues FATCA Guidance on Reporting Interest Paid to non resident Aliens www.accountingtoday.com/news/IRS-Issues-FATCA-Guidance-Reporting-Interes...
In the way of back ground, this is a reciprocal IRS regulation that many in Congress oppose which rose out of FATCA legislation in the HIRE Act of 2010. In FATCA, Congress is requiring all Foreign Financial Institutions (FFIs) in the world to search out and report directly to the IRS the account data on all U.S. persons anywhere in the world regardless of their residency.
FFIs are basically required to do this, or be subject to some very significant 30% withholding penalties. So, inspite of a BIG expense and new regulatory burden this has placed upon them, they are supposed to start signing up by January 1, 2013 as compliant FFI following the very detailed and onerous 388 pages of draft regulations. These requirements have been strongly opposed around the world, and widely reported in the world's media but not much in America. If you are not familiar with this major world wide effort, I would encourage you to google FATCA.
Also Pri's The World had a recent story on July 3rd entitled: What FATCA Did to American Bank Customers in Switzerland www.theworld.org/2012/07/fatca-banks-switzerland/
As a carrot to overcome FATCA opposition with governments, the IRS has offered up a reciprocal trade of non resident interest in U.S. Banks to the world's governments as a bargaining chit to overcome opposition of recalcitrant institutions. You could call this the domestic version of FATCA, or DATCA.
As a result of this unilateral regulation, small banks are naturally worried about capital flows out of their banks from foreigners world wide, and the impact this will have on their capital reserves and ability to make new loans to businesses and families. You add this on top of Dodd Frank, and you have some serious regulator burden facing small banks with many negative consequences.
If this subject is of any interest to you, you might google up these two op-ed pieces in the Miami Herald in the past months. Also view some of the knowledgeable comments there.
This is the Oped by Senator Marco Rubio: A Destructive IRS Mandate www.miamiherald.com/2012/03/07/2681514/a-destructive-irs-mandate.html
And this Oped by Florida Bankers Association : New IRS Rule Scares Foreign Depositors
www.miamiherald.com/2012/05/24/2816082/new-irs-rule-scares-foreign-depos...
I understand the concern expressed, but surprised that they have not drawn the connection to the FATCA regulation. In a certain irony, the entire Florida Congressional Delegation wrote Obama asking that this regulation be stopped, was signed by some of the very Congressman that voted for FATCA in the first place. You could call it FATCA Blowback.
Google this story from Tampa: Florida delegation implores Obama: Hands off foreign deposits in U.S. banks www.tampabay.com/blogs/the-buzz-florida-politics/content/florida-delegat...
