Could the small bank revival really be in the works during a Trump presidency? And along with a small bank renaissance, will loans to SMBs see a honeymoon period, too?
Politics ain’t beanbag, the saying goes. And when campaign promises get the test of real-world debate and compromise, all sorts of things can happen. Yet some initial tells may come with answering the traditional questions of who, what, where and when.
Steve Mnuchin, of course, is the who and the Trump pick for secretary of the Treasury. And he has made no bones about his aim to strip away parts of Dodd-Frank, as the legislation enacted to help regulate the financial system, he has said, has a negative effect on lending (this is the what).
The overall line of thinking, in part, goes this way: Banks that have scale and size, at about $50 billion or more in assets on the books, are beholden to stress testing on an annual basis. And they have to have a certain amount of capital handy to withstand the financial shocks akin to the ones that almost took down the global financial system just a few years ago. That’s just part of the regulatory framework that costs time and money banks, large and small. Conventional wisdom holds that in the absence, or partial absence, of that commitment of capital and people power, money could flow to the coffers of small businesses (the where, as in where the money might go, is right there).
It seems that the smaller, regional banks might see some lifting of those challenges, as Mnuchin has been on record as telling CNBC that lending by those firms remains “the engine of growth to small- and medium-sized businesses.” Against that backdrop, one policy change that may be in the offing involves new legislation that will bring the stress-testing threshold to $250 billion in assets versus the $50 billion level already in place.
So will all of this make it easier to get a small business loan? The loan books of banks themselves have been on the upswing since Dodd-Frank was codified six years ago and the economy has improved (and, oh yes, rates are at historic lows, even with the Fed hike earlier this year). The recent peak of lending in small commercial loan activity was $336 billion in 2008, and recent numbers show a rebound to about $328 billion. There is indeed room to grow, and the fact remains that community banks, though owning a relatively small share of total assets nationwide on their books, in fact dole out 50 percent of loans to smaller firms. And this comes even as the number of smaller banks dropped markedly, by 14 percent, between 2010 and 2014.
What will happen to Dodd-Frank is anyone’s guess, but it will most likely come up for intense debate early into the new Congress (this is the when). Executives at larger banks have said that they do not want a wholesale repeal of the legislation. And that does leave some room for compromise and perhaps even an extended rollback, bit by bit, of some of the compliance mandates. Maybe not a wholesale opening of the lending spigots … but the taps may be turning a bit.