From The Intercept
REPUBLICAN LAWMAKERS and finance industry lobbyists are using the coronavirus pandemic to press regulators into rapidly waiving financial safeguards for community banks.
And so far, banking regulators have obliged, lifting rules imposed after the 2008 crisis that limit risk-taking and require banks to undergo more strenuous audits.
But experts are warning that the deregulatory blitz, sold as a fix to stimulate business by encouraging more lending, raises the potential for a flood of small bank failures, potentially lengthening economic woes and risking the need for future bank bailouts.
The flurry of advocacy began in March just as the imminent threat of the pandemic seized headlines. That month, several GOP lawmakers contacted regulators at the Federal Reserve and the Federal Deposit Insurance Corporation to urge officials to adjust the threshold at which community banks may qualify for exemption from all risk-based capital requirements.
"We strongly urge you to use the full measure of discretion afforded by Congress to maximize capital simplification and regulatory relief for the greatest number of community banks," wrote Rep. Denver Riggleman, R-Va., in a letter signed by eight other House Republicans, obtained via a Freedom of Information Act request by The Intercept. In addition to Riggleman, the letter was signed by Reps. Scott Tipton, R-Colo.; Bill Huizenga, R-Mich.; Ann Wagner, R-Mo.; Frank Lucas, R-Okla.; David Kustoff, R-Tenn.; Barry Loudermilk, R-Ga.; John Rose, R-Tenn.; and Blaine Luetkemeyer, R-Mo.
The letter asked that the Federal Reserve and FDIC lower the Community Bank Leverage Ratio from 9 percent to 8 percent, a move that would qualify about 400 banks for special exemption from scrutiny over the level of risk taken on by a bank. The lower leverage ratio, the lawmakers argued, would "support credit in thousands more communities across the country."
Ordinarily, a complete revision of federal regulation would require months of deliberation, an open comment period, and an agency justification backed by evidence. But the Covid-19 emergency short circuited the process, and within weeks, the leverage ratio was lowered.