Could regulatory red tape be dragging out the recession?
A growing number of small and medium-sized banks are saying they're taking the brunt of the banking reform bill known as the Dodd-Frank Wall Street Reform and Consumer Protection Act.
As a result, they are finding it tougher to do business.
Red Tape Galore
For mortgage lender Robin Auchey, the new regulations mean more time for every loan she closes.
"It has added, at a minimum, 20-25 pages for every file that's done," she said.
Seton Motley, president of Less Government, shared his thoughts on whether the Dodd-Frank Act will hurt the economy, on CBN News Channel Morning News, Sept. 27.
Auchey said the extra paperwork translates into an extra hour for every loan, time and money lost for her small bank.
Her counterpart, commercial lender Derek Tinsley, told CBN News the business owners he works with are not happy with the extra work they now have to do in order to get a loan.
"The consumer, they get upset because they have to jump through every single hoop," he explained.
Congress passed the Dodd-Frank Act after some of the world's largest financial firms collapsed or came close to collapsing in 2008 and 2009.
Lawmakers had hoped to reform the financial regulations. But in doing so they created a mountain of new regulatory burdens. Imagine having to decipher more than 4,800 pages of proposed rules and regulations.
"When you have 37 employees and 4,000 pages to read and you have to run a bank -- how are you going to do that?" asked Frank Keating, president and CEO of the American Bankers Association.
Susan Ralston, president of Bank Atlantec, said she had to hire an outside firm just to help keep her bank on top of all the new rules.
Even so, she said the new rules are not only affecting her lenders, they're also affecting her ability to launch new types of loans.
"It will take more time to bring a product to market, and that will affect the consumer because certain products are rate-driven or just a cyclical product that needs to be out there and you might miss the beat," she explained.
Dodd-Frank in 2012
There's so much concern over banking regulation that it's already become a 2012 presidential platform issue. All the GOP candidates have said they'll repeal the Dodd-Frank Act if elected.
"They have been hearing on the campaign trail from people in the financial services industry that this law is very destructive," said Peter Wallison, co-director of the American Enterprise Institute.
Wallison helped oversee banking deregulation while part of the Reagan administration. He said presidential politics could make all the difference for this latest regulatory round.
GOP lawmakers are already working to delay implementation of the Dodd-Frank Act. Should a Republican make it to the White House in 2012, that could spell the end of the regulations.
"The presidential election is the most important thing that will happen on the question of whether Dodd-Frank survives," Wallison told CBN News.
In the meantime, banks across the country must contend not only with regulatory overload, but an economy that's sputtering at best.
"When you go into a meeting with a bunch of bank presidents it's very depressing," Ralston said. "It's like everyone needs Prozac because we don't see a big turnaround in our economy yet. We're not feeling it."
There is also concern about the unintended consequences of Dodd-Frank.
Bankers say the measure could promote the growth of large banks able to absorb all the red tape -- and lead to the end of many small hometown banks as Americans have known them.
"I think you're going to have a lot of small banks say, 'I can't do this. I've had enough. There's no way I can survive,'" Keating predicted.