Law Firms Dodd-Frank And Community Banks - Cost Burdens Of Compliance And Litigation Will Make It More Difficult To Speed Recov

Posted by Bill Bockwoldt on January 5, 2011

This is a great article by  Here is a snippet:

Hot Issues Alerts - Law Firms 

Dodd-Frank And Community Banks - Cost Burdens Of Compliance And Litigation Will Make It More Difficult To Speed Recovery By Meeting The Needs Of Small Business

Published: January 03, 2011

Editor: Mike, tell us about your focus on the needs of community banks.

Horn: I continue to this day to have an intense interest in community banks. My father was a merchant. I used to go with him when he did his banking at a local community bank. He would make his night deposit after the bank was closed and then go in on Saturday morning, go to his favorite teller, and together they would count what was in the bag. When I was a little older, I worked in my dad's store and deposited my wages in a local savings and loan. When I was in the New Jersey legislature for one term, I served on the Banking Committee. I also chair the Federal Home Loan Bank of New York.

My law practice has been focused on banking and bank regulatory matters. Included among my banking clients are many community banks. As we will discuss, Dodd-Frank puts tremendous burdens on community banks. Yet, the meltdown was not caused by community banks. So, community banks are paying the price for the sins of investment, mega and mortgage banks. A very small percentage of subprime mortgages were originated by community banks.

The expense and other consequences of the regulatory burdens and litigation exposures imposed on community banks by Dodd-Frank will ultimately be borne by the small businesses they serve - the very group that has in the past been looked to to create 65 percent of new jobs.

Editor: Before exploring the negatives, you might describe some of the positive features of Dodd-Frank.

Horn: Dodd-Frank is a mixed bag for community banks; there are some good things, which unfortunately are far outweighed by the negatives. One positive is that it puts community banks on a more equal footing with mortgage banks. During the heyday before the crash, consultants would tell community banks that the mortgage banks were eating their lunch because they had all kinds of advantages. They didn't have to care whether the buyer could repay the mortgage, they had lower expenses, lower overhead and no community reinvestment obligations. In addition, a lot of the consumer protection laws that applied to community banks did not apply to mortgage banks.

The consumer protection provisions of Dodd-Frank also apply to mortgage banks. That puts mortgage banks on an almost even playing field with community banks. They still don't have community reinvestment obligations, but the fact that they now have to play by many of the same rules is very positive.

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Tags: Wall Street Reform, compliance