The Mythical Community Bank

Mehrsa Baradaran — 

It’s not particularly surprising that ten years after the financial crisis, the Senate is poised to pass a deregulatory banking bill. In the world of banking regulation, memories are remarkably short. In fact, armies of lobbyists have been slowly chipping away at Dodd- Frank since its passage. But there is something sinister in the way Democrat and Republican supporters of this bill characterize what they are doing: supporting community banks so that they can serve their communities. They conjure images of George Bailey banks across the country, just waiting to be free of onerous and expensive government regulation in order to help disadvantaged and undeserved communities.

“Main Street businesses and lenders tell me that they need some regulatory relief if we want jobs in rural America,” Democratic Senator Jon Tester of Montana said during a hearing to vet the bill in November. “These folks are not wearing slick suits in downtown New York or Boston. They are farmers, they are small business owners, they are first-time homebuyers.”

But what is it that these “Main Street lenders,” fighting the Henry Potters of the world, want? The bill would exclude from Federal Reserve risk oversight banks with assets between $50 to $250 billion. There is a glaringly obvious problem with this: banks with those kinds of assets are hardly small community banks. In fact, the bill is a Trojan horse, using community banks as cover to deregulate some pretty large regional banks. Many banks that fell into trouble during the last financial crisis are within the proposed size range. This simply isn’t about harmless small banks that are just trying to help the downtrodden mom and pop store or the marginalized borrower seeking a mortgage so she can live the American dream. It’s just another sop to the big banks.

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