The Independent Community Bankers of America and American Bankers Association recently called on Congress to reject recent proposals to establish postal banking and waive requirements that a borrower personally guarantee 7(a) loans during House testimony.
Colorado community banker Jim Reuter testified Wednesday on behalf of ABA before the House Committee on Financial Services. Alice Frazier, president and CEO of the West Virginia-based Bank of Charles Town, testified the following day before the House Committee on Small Business on behalf of the ICBA.
Frazier noted ICBA “opposes any broad waiver of the requirement that a borrower personally guarantee a 7(a) loan. Such a broad-based waiver would increase the risk for the lender and for taxpayers. A loan without a personal guarantee from someone might as well be an unsecured loan. While we are willing to discuss alternative solutions to better accommodate co-ops and employee-owned firms, a full waiver is unacceptable and would reduce access to capital for these firms.”
She called direct SBA lending “a threat to capital for these businesses because it would sideline community banks and the partnership they bring to the lending experience.” The SBA can make direct loans, but, with the exception of disaster loans and loans to microloan program intermediaries, has not used that authority since 1998. “The SBA retreated from direct lending as an ill-conceived experiment,” Frazier said. “Congress must not repeat this mistake.”
“Community bankers know their customers,” she added. “They know the difference between a legitimate business and a fake business set up to perpetrate fraud because they meet with business owners, visit their businesses, and see their operations. The SBA is not on the ground in local markets and cannot assess borrowers firsthand. This distance from the borrower makes direct lending vulnerable to fraud.”
Reuter, president and CEO of the $26 billion Lakewood, Colo-based FirstBank, is opposed to creating direct consumer accounts at the Federal Reserve, or to revamp the U.S. Postal Service to become a consumer bank.
“There is no reason to expect that either FedAccounts or postal banking would accelerate innovation, and many believe they would ultimately inhibit innovation,” Reuter said. “The last time I checked, the Federal Reserve already has significant responsibilities overseeing the nation’s economy and regulating the banking sector. Asking it also to manage every American’s bank account — effectively destroying the banking system that has served the nation well for so long — would be a tragic mistake that could do real damage to the U.S. economy.”
He described to Congress the challenges community banks have faced — consolidations, competitors emerging outside regulated space and banker efforts to invest in the latest technology — all while handling record deposits.The rate of those without a bank account fell to approximately 5 percent before the pandemic, according to the FDIC.
The number of banks has significantly declined over the previous few decades. Reuter attributed that decrease to regulation and the tax-exempt status credit unions use to pay above market for banks. He expects bank consolidations will only continue.
“It’s important to note that these deals are essentially subsidized by taxpayers,” Reuter said. “We urge lawmakers to examine this troubling trend and carefully consider whether Congress really intended for credit unions to use their federal tax exemption to buy up tax paying banks.”
To the ABA, “there should be a high bar for access to the payments system.” Though cryptocurrencies are being set up to disrupt the traditional banking business model, Reuter said consumers ironically trust banks so much that they would rather access crypto through their banks. He expressed his support for a bill requiring federal banking regulators to conduct a study on the challenges faced by proposed depository institutions seeking de novo depository charters.
“We believe that the future calls for banks of all sizes to remain at the center of consumers’ and businesses’ financial lives and to continue to provide the lifeblood of the U.S. economy,” Reuter said. “Despite challenges, we believe the future of banking is bright, provided the policy environment continues to support growth and closes gaps that promote regulatory arbitrage and put the financial system and consumers at risk.”