Tahlequah Daily Press

December 30, 2013

New banking regulations may affect loans, credit

Staff Writer

TAHLEQUAH — With new banking regulations looming, some Oklahoma bankers and state officials are warning that consumers may find it more difficult to obtain credit, and that approved loans will cost more.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in 2010, becomes fully effective Jan. 10. Passed in response to the “Great Recession” of 2007-09, the act is intended to enhance the transparency and oversight of financial institutions and prevent “predatory” lending.

“There were pieces of Dodd-Frank that went into effect three years ago,” said Susan Plumb, vice president of Bank of Cherokee County. “It is a really challenging regulatory environment. The bank adheres to a lot more bureaucracy that has increased costs.”

Dodd-Frank is perhaps the most sweeping attempt at reform since the Great Depression. Some claim the act doesn’t do enough. However, the sentiment in Oklahoma’s banking industry is that the 3,000 pages of required reports, studies and more than 200 rules is overly intrusive.

“We know that because of Dodd-Frank, banks are having to spend more money on regulatory compliance than in the past,” said Oklahoma Attorney General Scott Pruitt in a press release. “It is already affecting people’s ability to access money to buy things in their hometowns.”

Plumb said BoCC will try not to pass expenses related to Frank-Dodd regulation and enforcement to the customers.

“We have to absorb the cost,” she said. “We believe it is the only way to remain competitive.”

The economic downturn of the late 2000s was blamed on a global liquidity crisis precipitated by the collapse of U.S. real estate values, followed by losses on sub-prime loans. Much debt was bundled into intricate financial instruments and sold globally to spread the risk, but the wave of devaluation and defaults threatened banks worldwide.

The initial response of the federal government was to use taxpayer funds to bail out banks deemed “too big to fail.” After much government criticism of banks for their lending practices, more taxpayer money was paradoxically given and loaned to the bailout institutions for the purposes of lending.

As might be anticipated during a financial crisis, little of the money was lent. However, many of the biggest bailout banks paid back the U.S. Treasury. JP Morgan Chase and Co. paid off its $25 billion bailout, while Morgan Stanley and Goldman Sachs Group Inc. each returned $10 billion.

Local banks must adhere to same regulations

The Oklahoma banking industry had virtually nothing to do with the financial crisis. Five state banks were awarded bailout funds: AmeriBank Holding Company of Collinsville, Grand Capital Corporation of Tulsa, Regent Capital Corporation of Nowata, Spirit BankCorp, Inc. of Bristow and Southwest Bancorp, Inc. of Stillwater. Southwest and Spirit received $70 million and $30 million, respectively. The other banks were given less than $12 million combined.

Nonetheless, small community banks must adhere to the same regulations as the Wall Street leviathans.

“I believe the status of community banks in 2014 will be about the same as it is now,” Pruitt said in the release. “They’re unsure about the regulatory climate, what their future holds and their ability to do business and do what they’ve always done, which is to provide money to the community.”

Pruitt believes Dodd-Frank is unconstitutional, citing excess power awarded to the president and secretary of the treasury.

He was among a number of state attorneys general who pressed a 2012 lawsuit first filed by a Big Spring, Texas, bank in 2012. The case was dismissed on Aug. 2, but a notice of appeal was immediately filed.

Plumb believes a distinction between banks which usually hold their loans, against those which usually sell them, would make Dodd-Frank more practical.

“I think if the lender’s incentive is to collect closing costs and fees then sell the mortgage, that should be addressed,” she said. “It opens the door to practices which are not good for the consumer. We keep our loans. You might say we make money the old fashioned way - we charge interest.”

Though some community banks may suffer or merge with other banks under Dodd-Frank, Plumb said she is completely optimistic about BoCC’s future.

“We have a very positive outlook,” she said.

“We are a family owned bank. Our board lives in the community and we plan on keeping it that way for another hundred years.”