Banking Overhaul will Hurt Small Business

In their rush to control everything they can get their arms around in our economy, legislators in Washington may be moving toward a banking overhaul bill that will throw even more cold water on an entrepreneurial recovery for the economy.

The bill paints with a broad legislative brush, punishing small community banks for the sins of a few of the biggest national banks.  At the point when small businesses would be starting to grow in a recovery, provisions in this bill would render community banks would be much less able to help with financing.  Since community banks are the lifeline of small businesses, this does not bode well for any possible recovery anytime soon. 

From the Seattle Times:

Although small banks would be exempt from much of the overhaul, the provisions that would apply would make it harder for community bankers to serve their customers and to expand lending, financial-industry groups say.

The proposed rules could overload many community and independent banks, said Nancy Sheppard, chief executive of Western Independent Bankers, a trade group in San Francisco.

As a result, she said, the massive overhaul would create difficulties for two segments of the banking industry: the "too big to fail" and the "too small to comply."

The Fort Worth Business Press offers one example:

For example, the legislation will impose unlimited assessments on all financial companies, including home and auto insurers and property and casualty and life insurers. Even dentists and other healthcare providers, could fall under the bill because they often allow their patients to pay in installments. Rep. Nydia Velazquez, D - N.Y., chairwoman of the House Small Business Committee, has gone on record as saying that it is "more than likely" that small health care practices, such as dentists and physicians, would fall under the scope of the new regulator. She quoted from a recent Federal Trade Commission decision that said dental and law practices are considered creditors.

So, then, are plumbers, butchers, grocers, to name a few. And, one of the industries hardest hit in the economic downturn--construction--is very concerned about the bill. The Associated Builders and Contractors believes that another federal bureaucracy will lead to additional paperwork and record-keeping requirements for small businesses.

Here is an ABA summary of all of the potential detrimental impacts on community banks from this bill.