Don’t Punish Community Banks

As the House of Representatives considers banking legislation, I find myself thinking about the legacy of Maggie Walker, a great success story from the annals of Virginia.

Walker was born in Richmond in 1864 to a former slave who, after the War Between the States, worked as a laundress. She helped her mother with this task as she grew up, then became a teacher, and eventually devoted herself to the Independent Order of St. Luke (IOSL), an African-American fraternal society.

One of her ideas for supporting its members was starting a bank. As she told the IOSL’s convention in 1901:

“First we need a savings bank. Let us put our moneys together; let us use our moneys; let us put our money out at usury among ourselves, and reap the benefit ourselves. Let us have a bank that will take the nickels and turn them into dollars.”

Her idea came to fruition in 1903, when the St. Luke Penny Savings Bank was chartered and opened for business. With this success, Maggie Walker became the first African-American woman in the United States to found a bank. She stayed active in its management through the rest of her life, serving as Chairman of the Board after it merged with two other banks during the Great Depression to become Consolidated Bank and Trust.

But if today’s regulations were in place when Maggie Walker started her bank, her idea may never have survived, because she would have needed to comply with the same regulations as Citibank. That’s right, the Citibank, which had been founded as City Bank of New York in 1812 and was already among the country’s biggest banks during her life. It’s hard to imagine someone new to banking and trying to start one having the resources to ensure compliance with all the rules put in place for the industry’s biggest, established players.

This state of affairs arose after the financial crisis of the late 2000s. Certainly, there were bad actors on Wall Street who behaved irresponsibly. But the Obama Administration and the Democrat-controlled Congress reacted by cracking down on banking operations large and small. Laws like the Dodd-Frank Act imposed onerous rules not just on big operations in financial centers but on community banks with no culpability in the financial crisis.

Big banks have the resources to withstand the added burdens of new rules. They can hire the lawyers and accountants required to navigate the byzantine world of banking regulation. Community banks often can’t, but they must comply just the same.

As a result, they may have to limit the services they provide or even shut down, a hardship not just to the employees of the banks but the people in their communities. In Virginia alone, there have been 32 community bank mergers in the past five years, according to the Virginia Association of Community Banks. These mergers take away options from consumers, especially in rural and underserved areas. How does closing them teach Wall Street a lesson?

The people who run community banks aren’t the fat cats that Elizabeth Warren likes to talk about. They are invested in their community, looking to help local businesses and their neighbors. They are people like Maggie Walker.

“One size fits all” is a poor fit for banking regulation. It advantages nobody but bureaucrats and big banks. The House of Representatives has been working on legislation to ease the burdens on community banks.

For example, the Taking Account of Institutions with Low Operation Risk (TAILOR) Act would require regulators to consider factors such as risk profile and the potential unintended consequences of rules. The Financial Institutions Examination Fairness and Reform Act demands more transparency and responsiveness from regulators, so financial institutions can understand the rules they are expected to follow.

The Senate has also passed legislation that would provide relief for community banks. It is my hope that as the Senate and the House confer on the language, the banking bills can be made better. It is my hope that some of these ideas will reach President Trump’s desk soon.

Regulatory relief for community banks is fair to them and good for the economy. By releasing the choking grip of bureaucracy on community banks, future Maggie Walkers may be able to flourish.

If you have questions, concerns, or comments, feel free to contact my office. You can call my Abingdon office at 276-525-1405 or my Christiansburg office at 540-381-5671. To reach my office via email, please visit my website at www.morgangriffith.house.gov. Also on my website is the latest material from my office, including information on votes recently taken on the floor of the House of Representatives.