Emmer aims for Dodd-Frank, says reforms hurt small banks

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U.S. Rep. Tom Emmer is the latest Minnesota official to speak out against a suite of federal reforms designed to rein in the nation’s largest banks and prevent another financial crisis.

The Republican, who is pushing greater Congressional oversight of new financial industry regulators formed in recent years, said Wednesday that the federal framework for governing banks squeezes out the smaller lenders that drive Minnesota’s economic success.

Speaking to several dozen attendees at a downtown Minneapolis discussion hosted by the Center of the American Experiment, a conservative think tank, Emmer blamed agencies that sprouted from big banks’ collapse in 2008 for unfairly imposing stringent new standards on community banks.

Those smaller lenders, relied upon by small and mid-size businesses throughout the state, face tougher compliance requirements and other limitations after getting roped into the Dodd-Frank Act, sweeping federal legislation aimed at preventing larger lenders from feeding into future financial crises.

“These are the backbone of our small communities,” said Emmer, who represents the 6th Congressional District. “This is where the farmer goes to finance his small business that isn’t so small anymore. It’s where the next creator of Amazon or Medtronic goes.”

Because of the added regulation, more risk-averse banks are lending less, said Peter Wallison, a former adviser to the late President Ronald Reagan who also spoke at Wednesday’s event. Tougher conditions for small banks have slowed down the nation’s overall recovery, he said.

“If the small bank sector is not lending, then small business is not getting the credit it needs,” said Wallison, pinning the financial crisis largely on government overreach. A tougher climate for small banks has especially stung capital-hungry startups, he said.

Wallison recently wrote “Hidden in Plain Sight: What Really Caused the World’s Worst Financial Crisis and Why It Could Happen Again,” published by Encounter Books.

Years after Congress greenlighted controversial reforms, Dodd-Frank is under a bright spotlight again. Most notably, the Federal Reserve Bank of Minneapolis announced a buzzed-about campaign this year to bolster regulations for U.S. banks.

Minneapolis Fed President Neel Kashkari insists the nation’s biggest banks remain too big to fail, even after Dodd-Frank. Kashkari oversaw the U.S. Treasury’s Troubled Asset Relief Program – a key piece of the government’s multibillion-dollar bank bailout in 2008.

Kashkari conceded at a Minnesota Chamber of Commerce event last month that small and mid-size banks have suffered after getting roped into existing reforms. But he said more aggressive and specific limitations for big banks could allow policymakers to relax restrictions on smaller lenders.

Still, Kashkari told business leaders last month, that won’t happen until federal policymakers iron out the details of prospective new rules — and that’s a tall order.

“I struggle to see us relaxing pressure on small and mid-size banks until we, as a country, are satisfied that we’ve dealt with the biggest banks,” he said.

Related content:

• Buzzed-about bank reforms expected to affect Twin Cities
• Minneapolis Fed chief says banks ‘still too big to fail’