Editorial Board
Roanoke Times

To understand the current congressional debate over banking regulations, we turn to some of our favorite political commentators, the Southern rock band the Drive-By Truckers.

They may not be talking heads on your favorite cable propaganda channel of choice, but they get to the heart of the matter with their song about American politics, “What It Means.” Specifically the lines:

We want our truths all fair and balanced

As long as our notions lie within it

That’s a pretty good all-purpose set of lines to explain that we want things simple and predictable — which makes it hard to have a conversation about anything complicated that might challenge political orthodoxy on either side.

Such as, say, banking regulations.

After the financial collapse of 2008, Congress responded in 2010 by passing The Dodd–Frank Wall Street Reform and Consumer Protection Act, named after its two sponsors, then-Sen. Chris Dodd, D-Connecticut, and then-Rep. Barney Frank, D-Massachusetts.

The law, which runs 2,300 pages, sets up 243 different rules to regulate the banking industry and guard against the problem of banks being “too big to fail.” Good news: We won’t be dealing with all of those 2,300 pages today. But we will be citing the Drive-By Truckers again.

Consumer groups thought the Dodd-Frank law was a much-need reform; banks not so much, and ever since they have pushed to have the act repealed or at least revised.

A bill to do just that — the revision part — is now moving through Congress. Last week, it cleared a procedural vote in the Senate and seems set for passage later this week. Then it moves on to the House of Representatives. The bill has prompted a lot of teeth-gnashing among some of those left of center, who wonder why so many Democrats are backing this bill.

“Why Are Democrats Helping Trump Dismantle Dodd-Frank?” asked an opinion piece in The New York Times.

The website Vox was more blunt: “The 17 Democrats selling out on bank regulation is worse than it looks.” To accompany the story, it ran a photo of one of those 17 Democrats — Virginia’s Tim Kaine. Both he and Virginia’s other U.S. senator — fellow Democrat Mark Warner — are among the co-sponsors.

To some, this is — or ought to be — a clear-cut liberal versus conservative, Democrat versus Republican, consumers versus big banks sort of issue.

So why isn’t it?

First of all, the bill runs 68 pages and we can’t begin to vouch for everything in it. Like many bills, there probably are things in here that aren’t so great. We’d be naïve to think otherwise. The bill would, for instance, reduce the number of banks subject to the toughest regulations. That’s why Sen. Elizabeth Warren, D-Massachusetts, tweeted out the names of the Democrats backing a revision and complained that thanks to them, “the Senate just voted to increase the chances your money will be used to bail out big banks again.” However, the main reason so many Democrats — including Kaine and Warner — have signed onto the revisions is their concern about small banks, what we often call “community banks.”

It’s a fine, fine thing to rail against the big banks. But it’s no accident that the 17 Democrats backing the bill all come from states with a lot of rural areas — which is where community banks tend to be. There are unintended consequences for these small banks under one-size-fits-all regulations that are aimed at making sure the big banks don’t collapse in a heap so that taxpayers have to them bail out.

“Virginia only lost one community bank during the financial crisis,” Warner says. “We’ve lost 21 since Dodd-Frank passed. Regulations should keep Wall Street in check, not run small community banks out of business.” Nationwide, about one-fourth of community banks have disappeared. “I think a primary reason for that is regulatory fatigue,” says Lyn Hayth, president and CEO of the Bank of Botetourt.

So why should we care about community banks? If they can’t keep up with all the regulations, maybe their disappearance is really a good thing?

Here’s why we should care: Rural areas have a unique interest in community banks for one simple reason. The big banks often don’t have much presence in rural communities. They’re simply too small to make a difference to the global bottom line. If we want to build a new economy in rural America, that means – well, lots of things. But surely one thing is to encourage small business, particularly those that might grow into bigger businesses. Those are often the entrepreneurs who turn to community banks. Their proposals may not fit into whatever lending formula a big bank might use. A community banker, though, might actually know the applicant, and have a better understanding of whether their business is likely to succeed or fail in that community’s market.

However, between 2008 and 2016, small business lending has declined 13 percent while lending to large firms has increased 49 percent, according to Sen. Jeanne Shaheen, D-New Hampshire. The demise of community banks probably has something to do with that. Sen. Jon Tester, D-Montana, has explained his support for the Dodd-Frank revisions this way: “This has everything to do with access to capital in rural America.”

The New York Times disputes that community banks are in trouble, pointing out that their profits in 2017 were up 9.4 percent over the year before. That may be so, but some of that profit has been achieved by small banks merging — which means that post-merger, they are less of a community bank than before. And the number of new community banks formed in Virginia is zero — not exactly a sign of economic growth in rural areas.

We hate to make this political, but any proposed piece of legislation is inherently political. Part of the problem here is a lot of Democrats simply don’t understand rural America, and this debate provides a good example. Warren doesn’t have many rural localities in Massachusetts to look out for; Warner and Kaine have vast swaths of Southwest and Southside Virginia. Those places may not count for many votes anymore (especially for Democrats) yet they’re there, nonetheless. And if we’re going to build a new economy there, we need community banks. Is this bill perfect? Likely not. But can the Democrats voting against it tell us how we keep those remaining community banks — plus grow new ones? Or, to paraphrase the Drive-By Truckers, is that a notion that doesn’t fit within their truth?

The Northern Virginia Daily
LETTERS TO THE EDITOR
MAR 7, 2018

Editor:

Communities across Virginia are strengthened when Main Street banks provide capital for building homes, businesses, and schools. These banks are catalysts for economic vitality and serve as community bedrocks by investing in financial education, community revitalization, and charitable organizations.

Our community bank has provided financial services to local consumers and small businesses for over a century. However, the growth in regulation from Washington hampers the ability of local banks to help local businesses expand and create jobs. Thousands of pages of rules create a bureaucratic maze, making community banks operate more like big impersonal megabanks. The pendulum has swung too far and it’s time to right size federal regulation.

The Senate will soon debate the Economic Growth, Regulatory Relief and Consumer Protection Act, S. 2155, a bipartisan bill that makes reasonable reforms to regulation. It strikes a commonsense balance between necessary oversight and banks’ flexibility to meet Virginians’ financial needs.

I was pleased that both of our U. S. senators were willing to work across the aisle and cosponsor S. 2155, recognizing the need to reverse the regulatory over-reach and let local community banks serve our communities the way we have for over 100 years.

The number of banks in Virginia has declined over the last decade, in many cases due to the weight and expense of regulations. Let’s lift the burden on our local banks and our communities.

Scott C. Harvard, chief executive officer, First Bank

WASHINGTON—Consumers are on track to get one thing from Congress in response to last year’s massive Equifax Inc. hack: free freezes of their data held by the credit-reporting companies.

The bipartisan agreement, set to be approved in the Senate by next week as part of a broader banking bill, would require credit-reporting companies to let consumers block access to their credit reports to potential lenders without paying a fee. Freezing access to credit data is a crucial measure consumers can take if they want to protect themselves from identity theft.

Credit-reporting firms are mixed about the measure, which would erode a source of revenue, while consumer advocates worry it doesn’t go far enough to give people more control over their data.

The provision would set a single national standard for credit freezes. Currently, 42 states allow credit-reporting firms to charge for the service unless an individual was a victim of identity theft. Eight states and the District of Columbia mandate waiver of the fees under all circumstances.

The U.S. has three main reporting companies—Equifax, Experian and TransUnion—that typically charge $10 or less each to freeze or reinstate credit-data access, depending on a patchwork of state laws. The measure bars fees for both.

Under the provision, credit-reporting firms would have to place the freeze within one to three days after receiving a consumer’s request. Consumers would also be able to unfreeze their credit within an hour, if the process is requested electronically, or three days if requested by mail.

Consumer groups are concerned the measure would override future efforts by states to implement stricter freeze requirements on credit-reporting firms—for instance, making credit freezes a default setting for credit reports, essentially requiring consumers to approve any credit inquiry from potential lenders.

“It’s stopping the states from doing anything better in the future, and that’s a problem,” said Mike Litt, a director at U.S. PIRG, a consumer-rights group. 

Sen. Mark Warner (D., Va.), one of the chief sponsors of the broader Senate bill, said he regretted the legislation—the result of a compromise between the political parties—doesn’t do more to rein in credit-reporting companies.

“They have all of our personal information,” Mr. Warner said. “And there are not clear standards and clear penalties.”

The credit-reporting firms have accepted the change is coming. “This is likely to be Congress’s opportunity to address the credit-reporting industry,” said Francis Creighton, head of the Consumer Data Industry Association, a trade group that represents credit-reporting companies.

“We think it’s fair that we’re able to charge a fee on a freeze,” Mr. Creighton, said. But, “given that [policy makers] don’t agree with us, this bill is perfectly reasonable,” he added.

“We are not upset with the provision of the proposed law. We support a federal security freeze statute that simplifies the process for consumers,” Experian said.

The provision likely will result in credit-reporting firms pitching credit-monitoring and other subscription-based services, according to a person familiar with the matter. People who contact the firms to sign up for the freeze will likely be marketed services that have a monthly fee attached to them, the person said. 

Credit-reporting firms don’t break out what share of their revenue comes from credit freezes, though an industry executive says it is much smaller than other services they sell consumers, such as credit monitoring and identity-theft protection. But removing freeze fees would eliminate funds some of the companies say they use to help cover the costs associated with the freezes, including maintaining call centers. In some cases, the companies incur losses from the service. 

The provision’s impact likely extends to lenders who receive loan applications from consumers with frozen reports. In some cases, lenders that contact the firms for the applicant’s credit reports and receive a notice that the report is frozen will still pay for that service. The lenders in most cases wouldn’t move forward with the loan application without a credit report.

Some firms are letting consumers place limits on their credit reports at no cost. Equifax and TransUnion offer a free service that allows consumers to lock and unlock their credit reports, while Experian charges for it. Locks are similar to credit freezes in helping to block identity thieves from obtaining financing in another person’s name. While they offer more convenience, such as control of data via an app, locks also give consumers less legal protection, consumer advocates say.

The credit-freeze provision is one of several proposals circulating in Congress since last year’s disclosure of the massive Equifax hack, which compromised the personal information of 147.9 million people. Many of the proposals go further than this bipartisan deal, with provisions to impose stricter regulatory oversight on the credit bureaus, charge penalties in the event of further breaches, or establish credit freezes as the default option for consumers. 

Equifax itself hasn’t been able to shake off condemnation from policy makers and is the subject of several government probes. It also has upset its competitors. Experian and TransUnion believe the freeze legislation wouldn’t have materialized without the Equifax breach, according to the person familiar with the matter.

Bloomberg News
By Elizabeth Dexheimer and Jesse Hamilton
March 7, 2018

Late Wednesday, Senate Banking Chairman Mike Crapo, an Idaho Republican, proposed some last-minute changes to his overhaul of the Dodd-Frank Act. He specified that foreign banks such as Deutsche Bank AG and Barclays Plc won’t benefit from a reprieve in his legislation that’s intended to help regional U.S. lenders.

Crapo’s revisions -- filed in an amendment -- also make clear that only custody banks, including State Street Corp. and Bank of New York Mellon Corp., will win relief from a key post-crisis capital requirement. Citigroup Inc. and other lenders had been pushing lawmakers to expand a provision in the original bill so they would also get a break.

And Crapo declined to make changes to the Volcker Rule that firms such as Goldman Sachs Group Inc. had been pressing for.

Another recipient of bad news is Equifax Inc., the credit company whose 2017 hack put millions of consumers at risk of identity theft. Crapo’s amendment would require it and competitors to provide free credit monitoring to some consumers after a breach.

But Equifax and its competitors could benefit from a separate section Crapo added to his bill. The provision affects Fair Isaac Corp., the creator the FICO credit score that is crucial to consumers getting a mortgage. Crapo’s revision would direct mortgage-finance giants Fannie Mae and Freddie Mac to use credit scores offered by other companies, instead of exclusively relying on FICO assessments. Equifax and other credit-reporting companies own VantageScore Solutions LLC, a potential rival to Fair Isaac.

Massive Overhaul
The bill broadly marks the Senate’s biggest overhaul of Dodd-Frank since it became law eight years ago. Crapo’s legislation is largely aimed at giving small and regional banks a reprieve from regulations put in place after the 2008 financial crisis, including raising the threshold for banks subject to aggressive oversight because they’re considered “too-big-to-fail.” To be sure, it does include some goodies for Wall Street.

Read More: Is Too-Big-to-Fail Over? Markets Don’t Buy It, NY Fed Says

The legislation’s backers -- including at least a dozen Senate Democrats -- say smaller firms didn’t cause the meltdown and that burdensome rules are preventing them from making loans that would spur economic growth. But progressives, including Massachusetts Democrat Elizabeth Warren, have repeatedly framed the bill as an assault on consumers that will undermine crucial reforms.

The Senate is expected to vote on Crapo’s bill as soon as this week, with lawmakers beginning the process of considering amendments Thursday. While dozens of amendments have already been offered, Crapo’s proposed revisions are by far the most important. His legislation is a compromise, not rolling rules back as much as the finance industry would like and doing little to help Wall Street.

House Headwinds?
It remains to be seen whether Crapo’s efforts will win the backing of House Republicans, who must also approve the bill for it to reach President Donald Trump’s desk. Last year, the House passed much more sweeping legislation that would rip up much of Dodd-Frank. If some House GOP members demand a more aggressive rollback, Senate Democrats could walk away, causing the legislation to fail.

In a sign that there still could be issues that need to be ironed out, House Financial Services Committee Chairman Jeb Hensarling, a Texas Republican, said in a Wednesday interview that there are about four dozen bills that the House has already passed that he would like to see added to Crapo’s legislation.

The version Crapo released Wednesday puts to rest questions about whether the biggest foreign banks doing business in the U.S. -- such as Deutsche Bank, Barclays and HSBC Holdings Plc -- would piggyback on the major break mid-sized lenders are poised to get from post-crisis oversight.

Foreign Banks
It clarified that foreign banks with more than $100 billion in consolidated U.S. assets will still be subject to aggressive monitoring by the Federal Reserve, echoing what Fed officials including Vice Chairman Randal Quarles have said in recent public remarks.

The move follows criticism from some Democrats that Crapo’s legislation could free non-U.S. banks from stress testing and other burdens -- leaving them “mostly deregulated,” according to Senator Sherrod Brown of Ohio. One of the key requirements for the largest foreign banks was to set up “intermediate holding companies” in the U.S., and the latest version of the bill keeps such a requirement in place.

Leverage Ratio
Industry groups have been lobbying right up to an expected Senate vote to persuade lawmakers to expand a provision in the initial Crapo bill on what’s known as the supplemental leverage ratio, which forces Wall Street banks to maintain billions of dollars of capital to protect against losses.

The amendment Crapo released Wednesday indicates the campaign failed, as he left the language on the leverage ratio unchanged. That means custody banks such as Bank of New York Mellon and State Street that safeguard assets for the customers remain the only firms getting relief.

Still, the Fed is separately working to relax the capital requirement in a way that would benefit more lenders. The Congressional Budget Office estimated in a report earlier this week that there’s a 50 percent chance that the Fed will relax the rule for Citigroup and JPMorgan Chase & Co. should Congress pass Crapo’s bill.

For years, big banks like Goldman Sachs have been trying to relax the Volcker Rule’s ban on proprietary trading. While most of their focus has been on regulators, one change they’ve sought from lawmakers is reducing the number of agencies with authority over the rule. That, in turn, could make it easier to soften its impact. Crapo has declined to provide such relief in his legislation.

Bloomberg News
By Elizabeth Dexheimer
March 5, 2018

The U.S. Senate is expected to approve a sweeping revamp of financial rules this week.

Of all the surprises that entails -- about a dozen Democrats signing on, Republicans leaving a lot of the much-maligned Dodd-Frank legislation intact -- the biggest is the lack of goodies for Wall Street.

Some big banks are lobbying right up to the vote in hopes of salvaging a victory because the legislation probably marks the last time lawmakers with full plates will take up financial regulations before November’s crucial midterm elections. After that, it’s anyone’s guess when the industry will get another chance at relief.

“Is there something more that is going to happen this Congress? You can make the case that it is hard to see,” said Ken Bentsen, chief executive officer of the Securities Industry and Financial Markets Association, a Wall Street lobbying group.

The bill has a good chance of becoming law. The U.S. House and President Donald Trump are eager to pass legislation reforming the 2010 Dodd-Frank Act, and White House staff have been making calls to lawmakers to build support.

Sponsored by Senate Banking Committee Chairman Mike Crapo of Idaho, the Republican’s bill seems intent on not helping the giant financial institutions that fueled populist anger in the lead-up to the 2008 crisis, and other firms that have continued to trigger criticism.

Megabanks like JPMorgan Chase & Co. and Bank of America Corp. could walk away almost empty-handed. And Equifax Inc. -- the credit company that left millions of consumers vulnerable to identify theft after being hacked last year -- might even be punished with tougher rules.

Regulators More Friendly
Wall Street has been more successful in getting changes it wants from regulators. With agencies like the Consumer Financial Protection Bureau and Office of the Comptroller of the Currency overseen by industry-friendly officials, among the regulations expected to be relaxed are the Volcker Rule, which prohibits banks from trading with their own cash, and lending rules that put brakes on predatory loans.

A core component of Crapo’s bill is giving small banks relief from a key provision in Dodd-Frank that they’ve been fighting to change for years. It would raise to $250 billion from $50 billion the asset threshold for banks to be subject to stricter Federal Reserve oversight, freeing firms like American Express Co. and SunTrust Banks Inc. from higher compliance costs associated with being considered “systemically important financial institutions,” or SIFIs.

Among the bill’s biggest losers are large regional firms like Capital One Financial Corp. and PNC Financial Services Group Inc., whose SIFI designations would remain.

Municipal Bonds
The legislation does allow big banks to include municipal bonds in required stockpiles of assets that could be sold to provide funding in a crisis. It’s a modification JPMorgan and Citigroup Inc., especially, have pushed for years.

Wall Street is still lobbying for changes to the bill, including making one regulator responsible for the Volcker Rule, instead of the five agencies that now have a role in its implementation. The tweak, which is being sought by big banks such as Goldman Sachs Group Inc., could make it easier to relax the rule in the future.

The big banks also lobbied for relief in some capital requirements, but lost out. Instead, custodial banks such as State Street Corp. and Bank of New York Mellon Corp. are likely to see relief. Giant asset managers have been pushing to prevent the government from ever classifying firms such as BlackRock Inc. and Fidelity Investments as SIFIs.

Another last-minute tweak under consideration could benefit private-equity titans including Apollo Global Management LLC by removing regulatory burdens for entities known as business development companies. Business development companies, many of which are controlled by private-equity firms, invest in small businesses.

Capitol Hill staffers and lobbyists said they are skeptical that any changes helping Wall Street will make it into the legislation under the wire.

Forever Enshrine
The measure must still pass the House, where some Republicans are likely to agitate for stripping away more regulation.

In many ways, Crapo’s bill forever enshrines the framework for post-2008 rules despite years of Republicans’ promises to gut Dodd-Frank and Trump’s pledge to do a “big number” on it about 14 months ago.

“Dodd Frank is still left in much of its form,” says Jim Nussle, president of the lobbying group Credit Union National Association. “That doesn’t change.”

The support of some Senate Democrats has been key to advancing the bill. Particularly supportive are Heidi Heitkamp of North Dakota and Indiana’s Joe Donnelly, who are up for re-election in states that Trump won in 2016.

The bill has divided Democrats, magnifying the party’s divisions on financial issues. On one side are progressives like Senator Elizabeth Warren of Massachusetts, who have attacked fellow Democrats for supporting a measure that she says is a handout to Wall Street and puts consumers at risk. While the fighting isn’t expected to dim the bill’s chances of passing, it does create a wedge that could have implications in this year’s midterm elections as Democrats try to take back control of the House and Senate.

Crapo may consider a package of legislation later this year addressing the securities and trading industries, according to lobbyists and Capitol Hill staffers. That would give Wall Street another shot at lobbying Congress to make changes.

Editor:

Banks provide capital for community development initiatives, work with nonprofits on financial literacy efforts and donate millions of dollars to charities. In fact, a recent survey of 43 Virginia banks showed that $13.7 million was donated to different charities in 2016 by just those banks. Additionally, $627,678 was provided by those banks to provide scholarships to students in 2016.

Since the passage of the Dodd-Frank Act in 2010 and the thousands of pages of ensuing regulations, community banks’ ability to contribute to their local communities has been hindered. Providing financial services that individuals and small businesses need to succeed has become harder and harder each year, as these new laws and regulations continue to make it more difficult for community banks like mine to do business. In turn, this affects our abilities to be able to give back to the communities it is our mission to serve. The one-size-fits-all regulation we have encountered has negative economic consequences and is burdensome, unsuitable and inefficient not only for banks but for our customers.

We appreciate the fact that Virginia Senators Mark Warner and Tim Kaine seem ready to work together in a bipartisan manner to address this issue, signing on as co-sponsors of S.2155, the Economic Growth, Regulatory Relief and Consumer Protection Act. This bill is a bipartisan piece of legislation that includes commonsense improvements in the nation’s financial rules, which will allow banks to better serve their communities and foster greater economic and job growth. It will make it easier for the banking industry to expand mortgage offerings for consumers and expand the availability of capital and other resources for increased lending.

We continue to ask Senators Mark Warner and Tim Kaine for their support of S.2155 by voting yes when the bill is soon considered on the Senate floor. This bill is an important first step in right-sizing the rules for America’s banks. This is an opportunity for legislators to put in place a more effective and efficient set of policies that will allow banks to do what they do best — serve their customers and help America’s economy grow.

J. Peter Clements

Chairman, president and CEO

Bank of Southside Virginia

Carson