As banking deregulation bill rolls through the Senate, we must not undermine our economy once again
We are concerned by efforts in the House and most recently the Senate to deregulate the banking system and roll back Dodd-Frank protections for consumers, homebuyers and the market at large. Only a mere ten years ago these safeguards were put in place to protect consumers from a crisis like the one we saw in 2008. Nearly five million Americans lost their homes, and the resulting loss of wealth vastly and disproportionately affected Black and Latinx individuals and families, due to reckless lending, lax banking practices, and weakened regulations. American taxpayers came to the rescue of the supposedly “too big to fail” banks, bailing them out for a whopping $700 billion, which does not include the incalculable indirect costs to the rest of the economy and society. We must not undermine our economy once again.
The rationale for rolling back these protections is baseless. The economy overall has been doing well post-recession and there is no evidence that Dodd-Frank has been a hindrance. As a bank (Beneficial State Bank) and bank investor (Beneficial State Foundation), we believe removing protections for consumers and relaxing regulations for banks — both of which the latest Senate “Economic Growth” bill will do in a variety of ways — will not foster economic growth. These changes include exempting smaller banks from demographic reporting requirements, the Volcker Rule (which bars banks from risky bets), and stress tests overseen by the Federal Reserve (by increasing the current $50Bn asset threshold to $250Bn, noting that banks with assets in that range total $3.5Tn and comprise one sixth of the entire banking system).
When rules are weakened, communities of color and poor communities get hit the hardest and we risk the exploitation of these communities all over again.
To achieve real reform, we seek to align the regulatory framework to reward banks that outperform in their internal risk management, service, and accountability to communities — and discourage banks that underperform in those categories. There are already such incentives in place, such as Treasury’s CDFI certification, to encourage banks to invest in and stay accountable to their communities.
We have been chronically asked by this Administration to give back to corporations, including banks, arguably to stimulate amorphous and unforeseeable jobs — but not one of the recommended actions to date has produced such a result. The tax cut simply resulted, as warned, in massive stock buybacks by the largest companies with one-time bonuses given to employees to reinforce the myth that corporate tax breaks “trickle down” in a significant way to working people. Unprotecting federal lands for oil and gas exploration props up an industry with very few jobs left and a track record of catastrophic climate risk. Corporations throughout the land pay so little to workers that we might succumb faster to underemployment than unemployment. Deregulated banks don’t have to adhere to new living wage standards either (one third of bank tellers rely on some form of public assistance) and could threaten existing jobs if another deep recession is triggered by the banks’ recklessness.
Let’s align the regulatory framework to reward banks that outperform in their internal risk management, service, and accountability to communities.
When rules are weakened, communities of color and poor communities get hit the hardest and here we go risking the exploitation of these communities all over again. To engender economic growth that builds prosperity for all people, it’s our duty to hold banks accountable to the communities they are supposed to — but do not — serve, given the enormous prerogatives we the people give them daily. Where would their ability to collect deposits and leverage their shrinking equity capital be but for FDIC insurance? Their duty as a quasi-public system is to serve society, not to menace the most marginalized among us. Demographic data collection, lending rules, and checks within the banking system are essential to a fully functioning economy and society. All of these we stand to lose with the passing of the Senate bill.
A recent study from The Center for Investigative Reporting analyzing 31 million mortgage records shows that African American and Latinx homebuyers continue to be routinely denied mortgage loans at rates far higher than their white counterparts — even with CRA and fair lending rules in place to mitigate discriminatory lending. This is just one example of what happens when we let banks “self-regulate” and then lack the enforcement capacity and information needed to hold them accountable. What worse fate will befall us if we willingly eliminate the rules that we currently have, instead of figuring out ways to better enforce them?
Our government should not weaken rules at the expense of the people, and we urge our Senators to consider the implications of this bill for our communities, especially underserved communities who continue to bear the brunt of persistent predatory bank practices, even before the loss of these minimum protections.
Co-authored by Emma Guttman-Slater, Strategic Communications Director at Beneficial State Foundation.