Colorado bankers say regulations killing off business loans
August 29, 2011
Two Colorado community bankers blasted federal regulators Earlier this month, saying burdensome banking regulations have made it virtually impossible to make loans to small businesses.
Jay Davidson, founder and chief executive of First American State Bank in Greenwood Village, said regulators have become so risk-averse that community banks that make loans to small businesses have almost quit making them.
As a result, said Davidson, banks are "not fulfilling their obligations to assist in the economic recovery, and therefore small-business transactions, expansions and investments are not occurring."
Davidson testified before the U.S. House Small Business Subcommittee on Investigations, Oversight and Regulations at a hearing in Greenwood Village led by Rep. Mike Coffman, R-Colo.
To show the impact, Davidson said that in Colorado, commercial-real-estate lending declined more than $2.7 billion, or 27 percent, from March 2008 to March 2011. Of that, more than $1.4 billion came from healthy Colorado banks.
Davidson placed the blame on onerous regulations and risk-averse regulators.
Recommended Stories For You
"Life does not exist without risk," Davidson said. "Bankers don't like risk. But you can't make a system totally without risk. Now we run our banks to regulatory standards. We'd like to run it to business standards."
Davidson said regulators are requiring banks to have higher levels of capital, which has reduced the ability to lend.
He said banks can increase the capital ratio in two ways, either by raising new capital by diluting existing shareholders through new stock offerings or by reducing lending.
Davidson said commercial banks can't raise new capital because the market for bank capital has been nonexistent since 2005.
So, they did the only thing they could to comply — reduced loans outstanding and made no new loans.
David Brown, president of Southeast Denver Centennial Bank in Centennial, said in the Western U.S., where most banks are dependent on real-estate lending to survive, capital levels as applied to commercial real estate are a "significant drag" on lending for small and medium-size businesses.
Brown said the Consumer Financial Protection Bureau and changes from the Dodd-Frank Reform Act have placed a regulatory burden on banks. Citing the burden, Brown said more than 9,500 banking jobs have been eliminated recently and that additional layoffs appear imminent.
He said he receives so many e-mails explaining the regulations that he could spend two hours a day trying to comprehend them.