House Approves Relaxed Regulations for Community Banks

The U.S. House has approved a bill designed to support America’s smaller banks.

The Main Street Capital Access Act, adopted Tuesday (July 21), is designed to lessen or modify banking regulations, including those dealing with federal regulation, merger requirements, and the formation of new banks.

“Under the bill, new banks have a three-year phase-in period to meet certain capital requirements,” a summary of the act reads. “The bill also reduces the leverage ratio for certain rural community banks.”

The legislation also requires financial regulators to tailor actions to limit burdens on financial institutions and consider the institutions’ risk profiles and business models. Regulators must also review their rules more often and expand the scope of these reviews.

In terms of bank mergers, the bill allows regulators to approve certain bank mergers without determining if the merger is noncompetitive or monopolistic. The bill also raises the dollar asset thresholds for various fees, reporting requirements, and other regulatory requirements so that more financial companies and banks are exempt from these standards.

“For example, the bill increases the total asset threshold above which financial holding companies need Federal Reserve Board approval to acquire a company, thereby allowing for more acquisitions without board approval,” the summary said. “The bill also raises certain asset thresholds so as to allow additional small bank holding companies to operate with higher debt levels and additional small banks to qualify for a longer examination cycle.”

The new legislation comes as community banks are shrinking, in terms of both assets and numbers, according to recent Federal Reserve Data. These banks’ share of U.S. banking assets dropped from 28.3% in 2000 to 13.5% in 2020, while the number of these banks dropped by nearly 70% between 1984 and 2020.

The bill, which passed by a vote of 270-155, now heads to the Senate. It had been backed by industry groups such as the Bank Policy Institute.

In a statement in support of the bill, the group said the legislation would “help ensure that the banking agencies can direct regulatory efforts where they are needed most and unleash banks to better serve their communities and Main Street businesses nationwide.”

Meanwhile, a group of 28 labor, community, consumer, and public interest advocacy organizations sent a letter to lawmakers this week urging them to oppose the bill.

In that letter, the group said the legislation “treats bank rules as burdens to be minimized rather than what they are: essential safeguards that reduce the likelihood and severity of systemic risk, bank failures, and publicly financed bailouts, while protecting consumers from predatory practices, redlining, and other forms of racial discrimination in lending.”