Dallas Federal Reserve Bank President Richard Fisher has been on a bit of a speaking tour talking about the need for legislation to unpunish America’s community banks.
By that we mean rules that allow banks which are not among the top 12 “too big to fail” institutions some relief from onerous Dodd-Frank rules governing all financial institutions. We see a strong connection between relief for smaller community banks and a successful effort at immigration reform. The millions of people we’re going to be bringing into the financial system do need some basic consumer protections and a fair deal from their local bank.
But they don’t need to be shut out of the financial system by rules that make it too difficult for banks to take relatively small risks on customers who have sound plans but no credit history or extremely limited access to personal capital.
The big problem here is that potential small-business owners — whether they have a food truck, lawn service company or some other kind of business — will turn to loan sharks or payday lenders and wind up losing their shirts if they don’t have access to traditional financing.