Contrary to Republican claims that banks have been severely harmed by Washington’s response to the 2008 financial meltdown, post-crisis regulations have had only a “modest” effect on lenders, according to a government study released Wednesday.
The Government Accountability Office’s review of small-business lending at community banks found that such lending increased even as new rules were put in place and that “changes in the regulatory environment likely had a modest effect on community banks’ small business lending.” The study -- requested by a Republican lawmaker -- said local market forces and a bank’s individual characteristics were much more important.
That finding runs counter to bankers’ claims that regulations were a primary driver of changes in their lending practices, according to a GAO survey. It also contrasts with rhetoric from Republicans including President Donald Trump, who recently said that Obama-era regulation of community banks had hurt them and their customers, adding that “small businesses all over the place, they were going into oblivion” because of tough oversight.
Such arguments have driven action in Congress and at regulatory agencies to reduce burdens on banks. The bill that marked this year’s biggest legislative win for lenders and their allies was described by its author, Senate Banking Committee Chairman Mike Crapo, as a “step toward right-sizing regulation” that would let financial institutions “focus more on lending, in turn propelling economic growth and creating jobs.”
The GAO also addressed another frequent argument from Republicans -- that regulations have forced small banks to shut their doors in great numbers. The rapid decline in the number of U.S. banks is mostly due to mergers, the study found, and is driven primarily by economic factors that were also responsible for similar reductions before the crisis. The effects of post-crisis regulations and other factors were “relatively small,” the GAO said.
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