10 June 2018

Financial Times: Small US banks are winners from deregulation, now they want more

Small banks in the US are among the beneficiaries of the deregulatory wave in Washington. President Donald Trump last month signed a new law aimed at lightening the load on thousands of small and mid-sized banks that were swept up in the crackdown on huge lenders in the wake of the financial crisis.

Shares in smaller banks have been boosted as a result, with the Russell 2000 banks index outperforming the S&P banks by about 10 percentage points since the turn of the year.

But Doug Kennedy, president and chief executive of Peapack-Gladstone Bank, says he wants to see lawmakers go further in providing more targeted relief for smaller banks like his.

The new law, he says, “is a good first step: it acknowledges that community banks actually fulfil a very meaningful role in communities, and that not all banks are created equally”.

The Economic Growth, Regulatory Relief, and Consumer Protection Act contains a number of provisions related to capital, mortgage lending and data collection, mostly targeted at banks deemed too small to present a serious risk to America’s financial system. Mr Trump said it was high time to give a break to “neighbourhood banks” trying to navigate “Dodd-Frank’s brutal maze of costly regulations”.

The chances of further legislative concessions seem slim, for now. House conservatives were forced to ditch their hopes of giving the recent bill a more pro-bank slant, recognising that shifting it to the right would immediately jeopardise its chances of passing the Senate. This November’s midterm congressional elections could kill off any chance of further deregulation if Democrats seize control of one or both chambers.

But even without action by Congress, regulators have enough power to make life easier for banks big and small. The US’s three federal bank regulators, which are led by the Federal Reserve and boast a growing contingent of Trump appointees, are exploring ways to loosen some rules they wrote to flesh out Dodd-Frank. Bankers say they are also taking a softer approach in their day-to-day supervision.

Ed Mills, Washington-based policy analyst at Raymond James, the financial services firm, says it is already a stark change from the Fed leadership of Janet Yellen and the central bank’s former regulatory chief Daniel Tarullo. “We’re taking a big step back from where we were under Yellen and Tarullo, when the US was the leader in establishing bank rules,” he said. “Now we’ll be the leader in walking them back.”

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