Republicans and Democrats on the House Financial Services Committee were united in their support of community banking during a Feb. 4 hearing. However, the two parties offered different answers on how to provide that support and possible solutions to grow the industry.
The hearing was the first since the Jan. 20 inauguration of President Donald Trump to his second, non-consecutive term in office. The GOP holds a 218-215 majority in the House. Republicans on the committee emphasized the easing regulatory burden following four years of excessive regulations under former President Joe Biden. Committee member Andy Barr (R-Ky.) described his support for bills that would ease capital requirements for de novo banks, repealing Section 1071 and implementing an independent appeals process.
Also on Feb. 4, House Small Business Committee Chair Roger Williams (R-Texas) introduced a bill that would repeal Section 1071. Established by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, Section 1071 would require lenders to collect and report information on the race, sex and ethnicity of the principal owners of the small business applicant as well as the company’s gross annual revenue.
Rep. Bill Foster (D-Ill.) said community banks don’t have the scale to compete with their larger peers in some ways, and often lack the technology and access to consumer data to compete with online lenders for smaller accounts. Foster said those problems are compounded by profitable loans being nearly impossible in dying rural communities.
“If we need to subsidize the existence of small banks, we may need to do it explicitly,” Foster added.
The number of banks has dropped to less than 4,500 from 6,300 in 2017, said Patrick Kennedy Jr., founder and principal shareholder of West Texas-based TransPecos Financial Corp. Nearly 2,000 community banks have been lost in the past decade, added Susannah Marshall, commissioner of the Arkansas State Banking Department. Marshall said the concentration of power in federal banking agencies should be reversed to regional offices with a better handle of local conditions.
There were 200 new charters issued on an annual basis before 2008, Kennedy Jr. said. That number has since dwindled to less than 10. He said BASEL capital standards initially designed for the largest banks have since trickled down to community financial institutions.
“I fear that community banking has never been more difficult than it is today,” said Cathy Owen, chair of Little Rock, Ark.-based Eagle Bank & Trust Co. “And just as so many community bankers are striving to serve their customers and communities, many are struggling to survive.”
Current BSA/AML requirements are burdensome, unfair and harm community banks, Marshall said. Rules should instead focus on the relative complexity of the bank and its business model/risk profile, she added.
Independent Community Bankers of America President and CEO Rebeca Romero Rainey expressed support for the FDIC waiving its least-cost resolution when mergers would facilitate more competition.
During the four-hour hearing, House Financial Services Democrats criticized Elon Musk’s role in the Trump administration, frequently alleging that he is accessing the payments system to violate the rights of Americans. They derided the Trump administration for its tariff policy, saying it would harm small businesses and community banks.
Democrats also criticized the Trump administration for reducing the number of FDIC employees, after understaffing at the agency was cited as a factor in the spring 2023 collapses of Silicon Valley Bank and Signature Bank.
The two parties also expressed different views on the future of the Consumer Financial Protection Bureau. Democrats also called for the CFPB to be protected against elimination. Rep. Ralph Norman (R-S.C.) called for the abolition of the CFPB.
The hearing was held less than a week before the Trump administration ordered the CFPB to stop nearly all its work. Owen supports placing the bureau under a Congressional appropriations process. She said asset thresholds should be indexed for inflation to avoid a ‘one-size-fits-all’ approach.
Congress can help level the playing field between banking depository institutions and nonbanks by increasing the funding to community development financial institutions, said Mitria Spotser, vice president and federal policy director at consumer protection nonprofit Center for Responsible Lending. Spotser also supports raising the deposit insurance limit.