Arkansas Bank Commissioner Testifies To U.S. Senate On Community Banking

State Banking Commissioner Candace Franks, who also leads the Conference of State Bank Supervisors, testified before the Senate Committee on Banking, Housing, and Urban Affairs Tuesday morning (Feb. 10).

Franks’ testimony centered on the need for banking reforms to community banks, often described as under $10 billion in assets, which have complained about overly cumbersome regulations under the post financial meltdown Dodd-Frank Act.

Franks said regulators must redefine community banks without the asset threshold that has distinguished many of the new requirements for standards.

“State regulators are concerned that an approach to regulatory relief that relies solely or primarily on asset thresholds falls short in granting small community banks real relief from regulations designed for their larger competitors,” she said.

She added that community banks should be identified by “a set of principles that can be applied on a case-by-case basis, not by simple line drawing.”

Some examples would include:

• They operate primarily in local markets;
• They derive funding primarily from a local market, specifically through deposits of members where they operate;
• Their primary business is lending out the deposits it collects to the community in which it predominately operates;
• Their lending model is based on relationships and detailed knowledge of the community and its members, not volume-driven or automated; and
• They have locally based corporate governance.

Franks told the Senate panel that local banks have a much better knowledge of the markets they serve and are the more reliable avenue for funding banking products in those communities.

“A community banker knows the entrepreneur opening a new business around the corner. A community banker also knows the local real estate market and the homebuyer seeking a mortgage loan,” she said. “These relationships allow community bankers to offer personalized solutions designed to meet the specific financial needs of the borrower.”

She also outlined some detailed suggestions for altering Dodd-Frank that included changes to risk-based capital standards, mortgage rules, fair lending supervision, and more.

Read Franks’ full testimony here.