WASHINGTON – A new study released today by Federal Financial Analytics, Inc. has found that the systemic regulation of regional banks costs those banks $2 billion a year and reduces regional bank lending to consumers and businesses by 5.7 to 8 percent, for a five-year total of approximately $14 to $20 billion.
The study also finds that the additional systemic regulations imposed on regional banks will accelerate the shift in banking services to “shadow” banks, which could create new risks to consumers and increase financial instability.
“The Treasury Department has already concluded in its research that regional banks are not systemically risky,” said William Moore, executive director of the Regional Bank Coalition. “Now we know that regulating main street banks like the Wall Street behemoths is costing the economy billions of dollars. Regulations that cost billions without improving the safety of the financial system don’t make sense for anyone and deserve to be changed.”
The Federal Financial Analytics study is the first to analyze the direct and indirect costs of the regulations imposed on regional banks by the Dodd-Frank Act. In addition to considering costs, the study also examined claims that regional banks warrant systemic regulation because several of them could fail at the same time. The study finds that scenario to be unrealistic and concludes that regional banks are already under new prudential, risk-management, stress-test and resolution-planning requirements that significantly increase their stability.
In its estimate of costs to regional banks, the study notably does not include the cost of compliance (increasing staff, retaining attorneys and accountants, etc.), which regional bank executives have estimated to be billions of dollars collectively. Members of the Regional Bank Coalition have long noted that if Congress changes the law to base regulation on risk, they will respond by increasing loans to businesses and consumers around the country.
“Regional banks share none of the characteristics of the big Wall Street banks, yet they continue to be regulated like them – at substantial cost to the economy and small businesses,” Moore said. “We hope Congress will act to give regulators flexibility to protect the financial system from systemic threats, while allowing those banks who pose no systemic risk to increase their support for the economy.”
The full study can be read here.
About the Regional Bank Coalition: The Regional Bank Coalition is a group of regional banks that support regulation based on risk and business model to ensure safety and soundness. For more information, visit www.regionalbanks.org or follow on Twitter @rgnlbanks.