Senate Proposal to Target 'Duplicative' Regulation

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U.S. Senator Dan Coats is set to propose legislation Thursday designed to reduce some federal supervision of the financial industry. The act would limit the Consumer Financial Protection Bureau's oversight of some smaller banks. April 9, 2014

Summary of Senator Coats' Proposal

The Community Financial Protection Act limits direct supervision by the Consumer Financial Protection Bureau (CFPB) to financial institutions over $10 billion in assets. Supported by the Indiana Bankers Association and the Indiana Credit Union League, the legislation instructs that report and information requests directed to financial institutions with less than $10 billion in assets is limited to FDIC, OCC or CUNA examiners through their traditional oversight actions.

Since the 2008 financial crisis, the banking industry has undergone a period of consolidation, reducing the number of U.S. commercial banks has by nearly 20 percent. Indiana community bankers came to Washington in September 2013 to tell their story of how a duplicative, one-size-fits-all regulation regime is threatening their survival. The latest industry data confirms what they said:

-During the first quarter of 2013, community banks spent more than $250 million to comply with new regulations coming from Washington.[1]

-The number of hours and the amount of money these small banks dedicate to compliance has more than doubled in a year.[2]

-FDIC 2012 data show that while community banks have high quality loans, they also have the highest cost of funds, and face a competitive disadvantage in managing the cost of complying with the requests from a growing number of regulatory officials they must answer to.[3]

-Consumer-centered credit unions are also bearing the cost of over-regulation, with 94 percent seeing an increase in compliance cost in the past two years.[4]

Section 1026 of Dodd-Frank addresses what the CFPB can ask of financial institutions with less than $10 billion in assets. The Community Financial Protection Act seeks to establish the prudential regulator of community and independent depository institutions as the conduit and arbiter of all Federal financial oversight, examination, and reporting. Specifically:

-The CFPB must use current and existing publicly available information and data prior to requesting any information from the prudential regulator;

-If the CFPB does request information that is not currently publicly available, they must provide justification to the regulator as to why they need/want that information;

-The prudential regulator has the authority to deny any request for information from the CFPB;

-The CFPB can only request institution-specific information rather than industry-wide information.

[1] http://blogs.wsj.com/riskandcompliance/2013/04/12/index-shows-heavy-regulatory-burden-on-community-banks/.

[2] https://continuity-assets.s3.amazonaws.com/assets/marketing/BankingComplianceIndex_Q1_2013_web.jpg.

[3] http://www.bloomberg.com/news/2013-05-07/new-regulations-are-strangling-community-banks.html.

[4] http://financialservices.house.gov/uploadedfiles/hhrg-113-ba15-wstate-lsmith-20131029.pdf; see page 4

Source: The Office of Senator Dan Coats