When Congress gave final approval almost a year ago to The Dodd-Frank Wall Street Reform and Consumer Protection Act, President Barack Obama said that the bill, a sweeping overhaul of financial regulation, “will protect consumers and lay the foundation for a stronger and safer financial system, one that is innovative, creative, competitive, and far less prone to panic and collapse.”
The bill was named for Democratic Sen. Christopher Dodd, who shepherded the bill through the Senate, and Democratic Rep. Barney Frank, who ushered it through the House. The 2,300-page bill established an independent consumer bureau within the Federal Reserve to protect borrowers against mortgage, credit card, and other lending abuses. It made derivatives, the complex financial instruments that helped fuel the 2008 economic collapse, subject to government oversight. It also gave regulators substantially more authority.
Critics of the bill contend that it adds to intrusive government bureaucracy and saddles banks and businesses with more burdensome regulations. The House Committee on Small Business Subcommittee on Economic Growth, Tax and Capital Access held a hearing last week to hear testimony on the “Impact on Small Businesses Lending.”
Small community banks and credit unions are traditionally the number one lenders to small businesses. For them to succeed, stated Committee Chairperson Joe Walsh in his opening remarks, “they need to have faith that their financing options will continue to be available when they need them and their money is secure. Customers also need financial products to purchase the goods and services that sustain small business.”
“On the other hand,” he continued, “a regulation that chokes off all economic activity is not meeting its purpose. We cannot afford a system where banks are afraid to take risks on small business for fear of regulatory reprisal.”
Thomas P. Boyle, Vice Chairman of the State Bank of Countryside in Illinois, testified on behalf of the American Bankers Association, that he feared “the massive weight of new rules and regulations” will threaten community institutions that “had nothing to do with the events that led to the financial crisis and are as much victims of the devastation as the rest of the economy. We are the survivors of the problems, yet we are the ones that pay the price for the mess that others created.”
New regulations increase the costs of doing business, reduce income and limit potential growth, he said. “The government should not be in the business of micro-managing private industry,” he testified.
William Daley, the Legislative and Policy director for the Main Street Alliance, a national network of small business owners, acknowledged the “serious toll” on America’s small businesses due to the financial crisis. Banks slashed their small business lending by $59 billion between June 2008 and June 2010, he noted. “But to blame the Dodd-Frank law makes little sense,” he said, “Credit dried up because of the financial crisis itself, which could have been averted or at least mitigated had the stabilizing measures contained in Dodd-Frank been in effect before the crisis.”
Daley cited high unemployment, sluggish demand and “the lingering foreclosure crisis” as the reasons why small institutions and businesses are having credit and lending difficulties.