If you can’t compete…attack the rules of the game

If you can’t compete…attack the rules of the game

This week the U.S. House is expected to start voting on legislation to turn back regulations and make it nearly impossible for federal agencies to develop new regulations in the future. If that happens, Congress might as well just stop passing any new laws because the rules for implementing them will never be developed. 
One of the big targets for the anti-regulation crowd is Dodd-Frank, the financial reform that passed last year to try to put regulations of big financial institutions in place so we won’t repeat this great recession.
The majority party in the House, spurred on by the big banks, blame Dodd-Frank for stopping loans to small businesses.  But apparently what the real problem for these banks is that Dodd-Frank has fostered greater competition for the commercial and industrial (C&I) loan business and smaller banks are winning.
According to Jeff Harding, writing in the Daily Capitalist:

What we see is that C&I loans took off starting in the first quarter of 2011. While the data for large domestic banks shows steady C&I loan growth since the fourth quarter of 2009, small domestic bank C&I lending shot up in the first quarter of 2011, from zero base to $20 billion.  Even more surprising is that average loan size for small banks increased from about $100,000 to almost $650,000….The main reason for this sudden increase in loan activity is competition. Ever since Dodd-Frank, banks have been scrambling to figure out how to make more money, as many credit card and other account fees were prohibited in an attempt to protect consumers. One way to offset that loss is to gain more business customers, and there has been a scramble by both large and small banks for SME customers….Small banks have the most to gain or lose in this competition because SMEs are their territory. So they are pursuing customers. Many also believe that there is a window of opportunity with favorable spreads and thus the timing is critical to expand business before that window closes. The initial beneficiaries seem to be the banks in the $5 billion to $10 billion asset range, which are classified as small banks.
No wonder the big banks want to repeal Dodd-Frank with its unintended consequence of fostering loan competition.  They’re not doing so well in the “small-business friendly” department.
Unfortunately this new competition isn’t leading to more smaller loans in the $50,000 and under range that so many microenterprises need.  But still, Dodd-Frank is working so obviously it MUST die.