Chairman Spencer Bachus

The bipartisan JOBS Act arrives just in time to help small, community banks as they are “struggling to stay profitable in a period of low interest rates, stagnant lending and rising compliance costs from other new regulations,” the Wall Street Journal reports.

The JOBS (Jumpstart Our Business Startups) Act originated in the Financial Services Committee and is the culmination of an initiative started by Chairman Spencer Bachus last year to promote small business capital formation.

The Wall Street Journal article takes particular note of one provision of the JOBS Act that raises the number of shareholders at which small banks must register with the SEC from 500 shareholders to 2,000.

The change frees up small banks to raise capital by attracting new investors without taking on the red tape burdens that come with mandatory SEC registration and reporting.  Filing quarterly and annual financial reports alone with the SEC can cost small banks as much as $200,000 a year.

This Wall Street Journal report follows:

Small Banks Get a Freer Hand
April 23, 2012

By ROBIN SIDEL

Jim Stein no longer has to worry when one of his shareholders dies or gets divorced.

As chief executive of Bank of Houston, Mr. Stein used to fret about tripping a regulation that required the community bank to register with the Securities and Exchange Commission if it has more than 500 shareholders. The bank, a unit of BOH Holdings Inc., carefully maintained its shareholder count at 350 because it wanted to avoid the cost and hassle of registering. But the level was always at risk of rising.

"One shareholder could turn into four through unexpected consequences," Mr. Stein said.

Now, Mr. Stein and other small-bank CEOs can stop counting shareholders as closely and turning potential investors away at the door. The JOBS Act signed into law this month includes a provision that raises the number of shareholders at which small banks must register with the SEC to 2,000. The JOBS Act aims to increase jobs by reducing regulations on companies.

The change means that small banks are free to raise capital by attracting new investors without taking on regulatory burdens that are associated with the SEC filings. It also could breathe some new life into bank mergers and acquisitions, which last year stood at the second-lowest level since 1980.

"This will create opportunities for us that didn't exist before," said Mr. Stein. The 7-year-old bank, which has six branches, wants to expand in the Houston area and potentially find a merger partner.

The new rule comes at a time when community institutions are struggling to stay profitable in a period of low interest rates, stagnant lending and rising compliance costs from other new regulations. Returns on assets at institutions with $1 billion or less in assets was a third less than the industry average in 2011, according to the Federal Deposit Insurance Corp.

The move potentially could affect hundreds of community banks around the country. Just 16% of the nation's roughly 7,400 banks and thrifts are publicly traded, according to research firm SNL Financial. Many of those are thinly traded, but most are required to file quarterly and annual financial reports with the securities agency.

The JOBS Act also makes it easier for small banks to deregister with the SEC, permitting them to do so with 1,200 shareholders, compared with the current threshold of 300.

Many banks aren't likely to raise their shareholder base; community banks are often closely held among a small group, especially those that are family-run institutions. Some, however, are eager to attract more capital and investors, especially if they can now avoid the expense, which could be as much as $200,000 a year, of filing quarterly and annual financial reports with the SEC.

Maintaining the shareholder numbers game has been tough for Roland Williams, who monitors the 492 holders at Post Oak Bank in Houston. As chief executive of the seven-branch bank, a unit of Post Oak Bancshares Inc., he already had resigned himself to breaking through 500 shareholders this year because the bank is planning to raise up to $20 million of capital.

"You just can't have enough capital," he said.

The new rule isn't expected to threaten the safety and soundness of the community-bank industry; banks of all sizes must regularly file financial data with the FDIC and submit to examinations from national and state regulators.

Industry consultants say the raising of the 500-shareholder rule could fuel new life in the strapped sector by giving banks flexibility to build new branches or pursue growth through mergers and acquisitions. Some industry observers have long said that the U.S. banking system would be more efficient with fewer institutions even though the number of commercial banks and thrifts already has dropped 60% since 1985.

Several bank executives said the 500-shareholder barrier prevented them from pursuing mergers because they didn't want to issue new shares.

The 500-shareholder bar "has been something on the mind of every board in every merger discussion," said Curtis Carpenter, managing director at Sheshunoff & Co., an Austin, Texas, investment firm that focuses on the banking industry.

The new threshold also is likely to trigger a wave of community-bank stock offerings, according to Mindi McClure, managing principal at Bear Cos., an investment firm in Arlington, Va., that specializes in community banks.

"Having an additional way for banks to get more shareholders is a real positive," she said.

Jack Hartings, chief executive at Peoples Bank Co. in Coldwater, Ohio, already had warned his 465 shareholders that the bank might have to pursue a reverse stock split in order to avoid tripping the 500-shareholder barrier. Mr. Hartings, whose bank is a unit of Peoples Holding Co., also dissuaded potential investors from buying stock, telling them, "We appreciate your confidence in the bank, but right now we are not seeking new shareholders."

Mr. Hartings said the bank has no immediate plans to expand its shareholder base as a result of the law even though "everyone likes to own a piece of a company that they see in town."

"We have willing buyers, but not many willing sellers," he said.

Not to be missed is Wednesday’s Chicago Tribune editorial on the JOBS Act, a package of six bills from the Financial Services Committee that will promote innovation, economic growth and jobs.

The JOBS Act – short for Jumpstart Our Business Startups – is a “rare example of bipartisanship” in today’s Washington, the newspaper writes, that would cut red tape for small businesses and emerging growth companies. 

Even though the JOBS Act passed the House of Representatives on March 8 by a vote of 390-23 and has the backing of President Obama, some Democrats in the Senate are intent on delaying action or killing it outright.

The Tribune asks:  “Would the Senate really bury a jobs-creation bill that had such broad support in the House? We sure hope not.”

Small business owners, entrepreneurs – and millions of out-of-work Americans – hope not, too.

The editorial comes just two days after more than 5,000 entrepreneurs, investors and job-creators publicly called on the Senate to pass the JOBS Act without delay and without weakening amendments.

“Kauffman Foundation studies show that all net new job growth in the past decade has come from companies that are less than 5 years old. This act will encourage the creation and growth of these young companies by providing them with new sources of capital.”

Their letter continues:  “These measures will also ease some of the regulations that slow the growth of these young companies and impede them from creating new jobs in the U.S.”

The six bills that make up the JOBS Act originated and were first considered and approved by the Financial Services Committee over the course of the past year.  The measures include strong investor protections while removing unnecessary and outdated government barriers that hinder the ability of small companies to access the financing they need to start up, expand and create jobs.

Instead of trying to throw up roadblocks to passage of this much-needed bill, the Senate should listen to these 5,000+ job-creators and pass the JOBS Act immediately.

What happens when you don’t pay your mortgage? Apparently, nothing for a long time due, in part, to government programs and policies that can drag out the foreclosure process for years.  The result is a growing backlog of foreclosures and a weak-to-nonexistent recovery in home prices.

That’s what readers of the Washington Post learned over the weekend in a story about a Maryland couple who have lived in a $1.3 million dollar mansion for five years but have never once made a mortgage payment on the custom-built, 4,900 square foot, five bedroom “manse along the Potomac River” described in the story as “a showstopper”.  The owners have been able to keep it for so long by repeatedly filing for bankruptcy and by “exploiting changes” in laws designed to help delinquent homeowners avoid foreclosure, according to the Post.

While no one would defend the practices of some lenders, this story is an example of how the foreclosure process has become broken and is sometimes abused by those who are determined to drag out the process.  And the Administration’s ever-shifting strategies and massive spending of taxpayer dollars on foreclosure mitigation programs have impeded, rather than promoted, a housing recovery.

This custom-built, “showstopper” $1.3 million mansion features 5 BRs, incredible views of the Potomac River, Palladian windows, “magnificent sunroom” and a dining room chandelier from Europe.  And you can live in it for FREE for at least 5 years thanks to the broken foreclosure process! Read the Washington Post for details.

An electric utility in Texas.

A housing authority in Connecticut.

A water treatment project on the banks of the Potomac River.

What do all three have in common?

They all could be harmed by the Volcker Rule. 

While the Volcker Rule is touted as a central part of Washington’s effort to get “tough” on Wall Street, it’s become the latest example of how the Dodd-Frank Act and its 400+ regulations have spawned a multitude of unintended consequences.

What kind of unintended consequences?

“State and local officials say the new regulation, known as the Volcker Rule, could make it more expensive for them to raise money from investors to pay, for instance, for environmental cleanup and housing assistance,” reports the Washington Post.

And when state and local governments say the Volcker Rule could make it more expensive “for them” to raise money, what they mean is it will be more expensive for the taxpayers.

How does a measure promoted as “Wall Street reform” end up making it harder for cities and states to afford thing like environmental cleanup projects?

The complex Volcker Rule “creates these bifurcations now in the municipal markets where you’re going to have authorities, enterprise funds, and water utilities paying more to issue their bonds simply because of how they’re structured,” says Timothy L. Firestine, the vice chairman of the D.C. Water and Sewer Authority.

It’s not only governments here in the United States that have come out against the Volcker Rule.  Foreign government have “unleashed a torrent of criticism” against it on the grounds it could make Europe’s debt problems even worse.

“European governments warn that the regulation could further aggravate their debt crisis, which is already roiling global financial markets.”

This is the same European debt crisis that poses a threat to America’s economic recovery, Federal Reserve Chairman Ben Bernanke recently told Congress.

The 2,300-page Dodd-Frank Act is a disastrous piece of legislation that is burdening the economy, increasing the size and scope of the Federal bureaucracy, and making the American financial system less transparent and less functional.

That is the conclusion of an in-depth article in The Economist titled “Too Big Not to Fail” that appears in the magazine’s Feb. 18 edition and is part of its cover story “Over-regulated America”.

At a time when Americans are still suffering under a sluggish economy, the last thing their government should be doing is increasing the costs of doing business in America and killing innovation. Unfortunately, The Economist says this is exactly what Dodd-Frank does.

Noting that “the scope and structure” of Dodd-Frank is “fundamentally different” from previous Federal law, the article goes on to explain how the Act expands Federal power in unpredictable ways:

“‘Laws classically provide people with rules. Dodd-Frank is not directed
at people. It is an outline directed at bureaucrats and it instructs them to
make still more regulations and to create more bureaucracies.’ Like the
Hydra of Greek myth, Dodd-Frank can grow new heads as needed.”

The Economist also highlights the impact these new regulatory burdens can have on the country as a whole:

“But the really big issue that Dodd-Frank raises isn’t about the institutions it
creates, how they operate, how much they cost or how they are funded. It is
the risk that they and other parts of the Dodd-Frank apparatus will
smother financial institutions in so much red tape that innovation is stifled
and America’s economy suffers…

Though The Economist has no objections to addressing the causes of the 2008 financial crisis through legislation, it can find little to praise in the new law:

“All of which leads to the question of what Dodd-Frank has actually achieved. More information on America’s derivatives markets will be available to regulators than was previously the case, though how much will be useful is debatable. A new (untested) insolvency procedure is now in place for firms like AIG, which lacked an alternative to bankruptcy or bail-out before the crisis. But the heavy lifting on higher capital requirements for banks is being done internationally via the Basel 3 process. And Dodd-Frank has hardly touched Fannie Mae and Freddie Mac, the two big government-sponsored lending entities that received the largest bail-outs in 2008, and which are more important in the housing markets than ever.”

The article also reminds us that the full extent of the damage is still impossible to determine as “only 93 of the 400 rule-making requirements mandated by Dodd-Frank have been finalized.” The Economist does not need to wait for the additional 307 pieces of red tape to lay judgment on the “Dodd-Frankenstein monster.”

“Ambition is often welcome; but in this case it is leaving the roots of the
financial crisis under-addressed—and more or less everything else in
finance overwhelmed.”

On Wednesday, the House Financial Services Committee held a hearing on H.R. 3461, a bill to improve the examination of depository institutions, and featured testimony from representatives from the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board, and the National Credit Union Administration, as well as testimony from several bank executives.

I’ve sat in many of these hearings and listened to these Washington regulators claim they are working to resolve their problems or just had them pass the buck over and over again.  Not surprisingly, they took the opportunity to do it once again at this hearing.  Members of the committee were told this bipartisan legislation could not be supported by the regulators present because it would mess up their regulations that are already in place.  And we wouldn’t want to do that, right?  I mean those regulations in place have been so successful. 

I don’t think so.

Every week we see new banks failures across the country, and it’s rarely the larger banks who created much of the financial mess of 2008.  Instead, it’s the small, community banks that pay the price.  Community banks are the economic engine of many small towns, driving growth with investments in small businesses or home loans.  When community banks fail, we see that economic growth dry up.  That’s why you see a much higher unemployment rate in the states with the highest bank failure rates. 

In Georgia, we lead the nation with 75 bank failures since the problems started in 2008.  That’s not really a statistic where you want to come in at number one.  I’m not sure how the FDIC would define the term ‘success,’ but I think even a child can see that this isn’t anywhere close to it.

Whether they like it or not, these regulators are going to have to accept that the old way of doing things just doesn’t work anymore.  If it did, we wouldn’t still see the same problems we are seeing today. 

When I talk to my bankers back home in Georgia, they tell me one of the biggest issues they are facing is the inconsistency of what they are being told and what the regulators on the ground are actually doing.  That’s why a bipartisan group of members of the Financial Services Committee drafted H.R. 3461: to stop the inconsistencies between what’s being said in Washington and what’s actually happening on the ground.  These regulators can tell me the inconsistencies don’t exist, but I believe my constituents because the evidence is on their side and because I’ve never met a bureaucrat who wasn’t fluent in double talk. 

In fact, I don’t know about you, but I’ve about had it up to here with Washington double talk.  And I am sick and tired of these bureaucrats fighting members of the Financial Services Committee tooth and nail for trying to help save our community banks.  So, in order to avoid any mixed messages on my part, let me be clear.  These Washington regulators either need to help us save these banks or get out of our way. 

VIDEO: Congressman Westmoreland’s Opening Statement
VIDEO: Congressman Westmoreland’s Question and Answer Time with Witnesses

By Paul Sperry, for Investor’s Business Daily
http://news.investors.com/ArticlePrint.aspx?id=593669

Job-killing bank regulations threaten to wipe out all the gains in private-sector employment since the recovery began, the industry warns. Washington, however, is hiring thousands more bureaucrats to enforce the rules.

Signed into law last year, the Dodd-Frank Act is the biggest rewrite of financial regulations since the New Deal. It was intended to rein in Wall Street "excesses." But the banking industry says burdensome red tape is hurting economic growth and jobs in a still-sluggish labor market.

"The level of real GDP could be 2.7% less by the year 2015 than would otherwise be the case for the United States," said Stephen Wilson, outgoing chairman of the American Bankers Association. "This could result in 2.9 million fewer jobs being created.”

By comparison, the economy has created 1.78 million private jobs since the recovery officially began in June 2009.

Wilson says Dodd-Frank has resulted in more than 5,230 pages of proposed and final rules, which laid end-to-end would exceed the height of New York's Empire State Building — five times over.

Only a fourth of the rules have gone into effect so far, he says; yet the law in its first year has already imposed almost 20 million hours of paperwork on U.S. businesses. It took an estimated 5.5 million man-hours, in contrast, to build every iPhone sold.

Dodd-Frank compliance costs for the financial industry already top $12 billion. That is expected to swell as the remaining 77% of required rules are finalized.

Also, price controls imposed by Dodd-Frank will result in a 45% loss in debit card interchange revenue for banks, Wilson pointed out. Banks have laid off workers to raise revenue to meet higher capital reserves mandated under the law.

"In the end," he said, "it means fewer loans get made, slower job growth and a weaker economy.

Wilson, who also runs a small bank in Ohio, made the remarks last month during a speech on international finance in Tokyo.

The new regulatory regime, however, is a boon for lawyers and government workers.

A Government Accountability Office study this summer concluded that implementing Dodd-Frank rules would require 2,850 additional federal employees just through fiscal 2012 (which ends Sept. 30) — at a cost to taxpayers of $1.3 billion.

The Consumer Financial Protection Bureau will command the bulk of new hires and funding. Created by Dodd-Frank, the watchdog agency started with a staff of 1,225 and a budget of $330 million.

Patrice Ficklin, who heads CFPB's Office of Fair Lending, says she's hiring lawyers, statisticians, analysts and enforcement agents. These are high-paying jobs. In fact, the CFPB has hired at least a dozen employees at salaries of more than $225,000 a year.

The White House denies the financial regulations it championed are costing companies revenue and slowing hiring. It cites, for example, higher corporate profits.

"If you look at corporate profits, it's hard to make the case that regulations have caused companies to be scared about (hiring) or (that they're) hurting their job growth," argued Alan Krueger, President Obama's top economist.

"I think the main reason (for weak hiring) is that the companies feel that they could satisfy the demand that they face with the workers that they have," Krueger added in a recent CNBC interview. "Until they are more confident that consumers are coming back at a greater clip — that the demand will be there — I think we'll continue to see job growth at the kind of moderate pace that we've seen.

But analysts note that hiring still lags consumer spending. And they say profits are up mainly because businesses have slashed payrolls and other costs.

Even Rep. Barney Frank, D-Mass., admits the regulation he co-sponsored has cost jobs in the financial sector. But he says it's a "reasonable price" to pay to bring "greedy" bankers to heel. "If you lock up drug dealers," he said in a recent interview, "you're going to have fewer jobs.

U.S. Chamber of Commerce official David Hirschmann says employers remain uneasy about Dodd-Frank.

"Instead of creating jobs, the law has created uncertainty for job creators," he said. "The economic statistics bear that out.

Hirschmann added: "We are simply not going to see American companies spending capital until they can begin to navigate their way through this tangled web of regulation.

Dodd-Frank Hits Small Firms By forcing banks to increase the capital they have on hand to cover losses, Dodd-Frank has reduced capital available for small-business loans. This in turn has slowed hiring.

Tom Boyle of State Bank of Countryside in La Grange, Ill., says Dodd-Frank is "handicapping our ability to meet the credit needs" of small firms. "The consequences are real," Boyle said. "It means fewer loans get made. It means slower job growth.

Product marketer K&M of VA Inc., for one, wanted to expand this year but for the first time had trouble getting a line of credit. Owner Mike Bucci blames the new bank law. So does American Business Group, an Orlando, Fla.-based company that matches small-business buyers and sellers. If buyers can't access a loan thanks to Dodd-Frank, CEO Jessica Hadler Baines told IBD, "then the other option is to close the business down, putting more workers into unemployment.

The credit crunch could worsen if Dodd-Frank drives smaller banks out of business as predicted.

"Dodd-Frank and the related burdens are threatening not just our industry but our very banks," ABA's Wilson said. "The most conservative estimates predict that by the end of the decade, there will be 1,000 fewer banks in the United States.

That means fewer financial jobs in a sector that has already lost hundreds of thousands of workers.

The Committee on Financial Services held a field hearing on “Regulatory Reform: Examining How New Regulations are Impacting Financial Institutions, Small Businesses and Consumers in Illinois” earlier today.

At this hearing, representatives from community financial institutions and small businesses explained how new financial regulations are affecting the ability of financial institutions to extend credit and stimulate job growth.  The Committee also explored the effect of stringent federal bank examinations—examinations that some financial institutions contend may be overzealous—on economic recovery.  

The Dodd-Frank Act directed federal financial agencies to promulgate more than 400 new rules.  Many financial institutions have expressed concern that the cumulative weight of these new rules— layered upon outdated, unnecessary, and duplicative regulations—will substantially raise compliance costs, thereby forcing financial institutions to curtail lending and investment activities that further economic growth. 

As evidence of increased compliance costs resulting from the Dodd-Frank Act, financial institutions point to the 2010-2011 edition of the Bureau of Labor and Statistics’ Occupational Outlook Handbook, which states that “increasing financial regulations will spur employment growth both of financial examiners and of compliance officers” by 31 percent over the years 2008-2018.  A recent PricewaterhouseCoopers survey estimated that regulatory changes will likely depress revenues, increase operating costs, and squeeze community bank profits.  In that survey, nearly 90 percent of banking industry leaders cited over-regulation as the biggest threat to business.

In light of these findings, critics have called on the Financial Stability Oversight Council (FSOC) to eliminate outdated or duplicative regulations and to perform cost-benefit analyses on new regulations before they are finalized.  In an August 2010 speech, Treasury Secretary Tim Geithner agreed that such efforts may be necessary:  “[W]e will eliminate rules that did not work.  Wherever possible, we will streamline and simplify.”  Deputy Treasury Secretary Neal Wolin echoed those sentiments before the Senate Banking Committee, testifying that “over the years, our financial system has accumulated layers upon layers of rules, which can be overwhelming.  That is why alongside our efforts to strengthen and improve protections through the system, we seek to avoid duplication and to eliminate rules that do not work.”  Despite the Administration’s stated interest in streamlining and simplifying regulations, in testimony before the Committee on October 6, 2011, Secretary Geithner conceded that the FSOC has not yet “made much progress” on this initiative.

In addition to their concern that existing and pending regulations will increase the costs of banking and credit, small business owners and bankers from across the country are also worried that federal financial examinations are inhibiting lending.  While some believe that low lending levels result from a lack of demand from creditworthy borrowers, many bankers claim that overly stringent federal examinations have stifled lending to creditworthy borrowers that would have otherwise been able to obtain loans.  In particular, bankers have said that the examiners’ application of mark-to-market accounting rules, loan classification guidelines, collateral valuation policies, and loss reserve requirements have contributed to stagnant economic growth.  Since the 110^th Congress, the Financial Services Committee has held hearings to examine the “mixed messages” that federal regulators are said to be sending financial institutions:  while officials in Washington urge banks to “lend more,” field examiners are applying restrictive standards that make lending more difficult.  This hearing provided an opportunity to further explore how regulators can balance the competing goals of ensuring that the institutions they oversee are operated in a safe and sound manner while permitting them to fulfill their function as financial intermediaries between savers and borrowers.