Removing Barriers Blog

House Asks Financial Regulators to Tailor Regulations Around Smaller Institutions
Posted March 29, 2016 by CUNA Advocacy

Yesterday, Representatives Scott Tipton (R-CO) and David Scott (D-GA), along with 129 other members of the House, sent a letter to the heads of the Federal Reserve, FDIC, CFPB, NCUA, and OCC, requesting information on how their agencies tailor regulations for specific institutions based on business model and risk.

Credit unions are precisely the type of institutions that would benefit from tailored regulations, since they are well-capitalized, with a low risk profile and a long history of meeting their members’ credit needs in good times and bad. Such tailoring would decrease regulatory burden on credit unions and community banks with lower risk profiles relative to the large, systemically significant institutions.

Constant regulatory changes present a challenge for small depository institutions because the fixed costs of compliance are proportionately higher for smaller-sized credit unions and banks than for large institutions. Regulators ask a lot of small, not-for-profit, financial institutions when they tell them to comply with the same rules as J.P. Morgan, Bank of America and Citibank.

When there are fewer credit unions for Americans to turn to for safe and affordable financial services, consumers are increasingly forced to turn to other providers who are more concerned with their bottom line than the borrower’s needs. Needless to say, this outcome is the opposite of what post-financial crisis legislation intended.

As the letter states, "When regulators fail to fully grasp the compliance burdens of the many new mortgage rules to the point that financial institutions exit the mortgage business, it is abundantly clear that tailoring efforts have fallen short."