As GOP seeks looser financial rules, Emmer focuses on small banks

WASHINGTON – The community bank was once as much a staple of small-town Minnesota as the grain elevator.

But the number of banks in Minnesota dropped from 420 in 2007 to 298 last year, largely the result of mergers. The Federal Deposit Insurance Corp. says 21 of those closures involved bank failures.

"If you drive through the entire state of Minnesota … you come to realize that these small financial institutions, these small family-owned community banks and credit unions, these are what drive our small communities," said U.S. Rep. Tom Emmer.

The Minnesota Republican has been touting measures that he says would ease the regulatory burden on small banks while also pursuing additional changes he believes would make it easier for them to stay in business.

In June, the U.S. House passed the Financial Choice Act on a near party-line vote to roll back banking regulations passed under the Dodd-Frank Act in the wake of the 2008 financial meltdown. The GOP legislation faces dimmer prospects in the Senate, where Democrats wield more power; U.S. Sen. Al Franken, D-Minn., lambasted it as a giveaway to Wall Street bigwigs.

Jim Amundson, CEO of the Independent Community Bankers of Minnesota, said there's concern particularly among Democrats that "larger banks are going to ride our coattails to regulatory relief. If we can get some of these bills that are a little less comprehensive and more focused on community banks, I think we're going to find some pretty broad bipartisan support."

Amundson's organization is advocating for the Clear Relief Act, which would do just that. Emmer and Rep. Erik Paulsen, another Minnesota Republican, are cosponsors in the House. Sen. Amy Klobuchar is a cosponsor in the Senate. Amundson's group has about 225 member banks. He said that's about three-quarters of the community banks in Minnesota.

Emmer in late June reintroduced a separate but related measure to exempt small banks and credit unions from a Dodd-Frank requirement, scheduled to take effect next January, that they collect 48 categories of data on home loan applications — more than double what they currently do — to report to the Consumer Financial Protection Bureau. Small banking advocates in Minnesota say that would add to an already growing volume of bureaucracy that isn't necessary, particularly for institutions that primarily do business in their own communities.

A spokeswoman for Emmer noted that language in that bill parallels a provision in the Clear Relief Act, which Emmer plans to continue working on with sponsor Rep. Blaine Luetkemeyer, R-Mo., in coming months.

In Annandale, Lake Central Bank is hardly Goldman Sachs. The longtime institution in the central Minnesota town of 3,300 has 35 employees and $150 million in assets. It's woven into the community, its lenders attending the same churches and shopping at the same grocery store as their customers.

Bryan Bruns, the bank's president and CEO, doesn't believe Lake Central should be subject to many of the tougher regulations imposed from Washington after the financial crisis. He thinks smaller institutions should be exempt from having to submit substantially more data on mortgages to the federal government, calling it extremely time-consuming and subject to errors for banks that lack the technology to easily comply. Bruns is also an advocate of a provision in the Financial Choice Act that requires regulators to adjust their supervision based on a bank's size and the types of risks it takes on.

"If I'm a banker that happens to be doing investing in some really complicated loans … then I should be held to a higher standard just like the big banks," Bruns said. "But if most of my loans are in the community and are pretty simple, we [shouldn't] have to go through the exact same regulatory scrutiny."

Emmer said the Dodd-Frank Act, signed into law in 2010, put excessive, cumbersome regulations on small banks that had nothing to do with the global financial meltdown. Emmer and other Republicans tout the Financial Choice Act's creation of an "off ramp" from tougher regulations for banks that maintain a 10 percent ratio of liabilities to assets.

Dodd-Frank "created a one-size-fits-all, top-heavy regulatory structure that is frankly suffocating the bottom end of the food chain," Emmer said.

Emmer's office said it's heard from a variety of financial institutions in his congressional district, which runs from the northern Twin Cities suburbs to the St. Cloud area, that favor efforts to reduce burdens imposed by Dodd-Frank. One small bank with three locations had to hire a full-time compliance director in addition to two outside compliance firms, costing $100,000 annually, according to Emmer.

"Community banking is much more a part of life here than it is in a lot of other states," said Mark Bragelman, CEO of Liberty Savings Bank in St. Cloud. He attended several meetings that Emmer held after Trump's election to discuss community banking regulations, and he noted that small banks now have to contract out more compliance and auditing work and are trying to understand regulations that are anything but clear-cut.

"It's been a heyday for attorneys and accountants," Bragelman said.

Like Emmer, U.S. Rep. Keith Ellison of Minneapolis is a member of the House Financial Services Committee. He and other Democrats argue that the Financial Choice Act repeals crucial oversight by the Consumer Financial Protection Bureau, a creation of Dodd-Frank, and puts the economy at risk of another financial collapse.

"This is what the Financial Choice Act will bring: higher fees, hidden commissions and less oversight," Ellison wrote in the Guardian this spring. "Our economy does best when financial markets are well regulated and we focus on increasing innovation, investment and productivity. It's a lie to say those two things are mutually exclusive."

Maya Rao • 202-662-7433