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GAO: Dodd-Frank beginning to impact community banks and credit unions

January 1, 2016
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According to the latest report from the U.S. Government Accountability Office (GAO), community banks and credit unions are starting feel the impact of the Dodd-Frank Wall Street Reform Act. The Act, announced in 2010, requires or authorizes federal agencies to issue rules to strengthen the financial services industry. It also includes a provision for the GAO to study the regulations on an annual basis.

The GAO report, released on December 30th, examined nine Dodd-Frank rules that became effective as of October 2015 for impact on community banks and credit unions. The GAO also interviewed community banks, credit unions and industry associations to learn about Dodd-Frank’s impact so far. Those interviewed cited an increase in compliance burdens, which includes “increases in staff, training and time allocation for regulatory compliance and updates to compliance systems.” In addition, some industry officials noted a decline in “specific business activities, such as loans that are not qualified mortgages, due to fear of litigation or not being able to sell those loans to secondary markets.”

The survey results also suggested that there has been moderate to minimal initial reductions in the availability of credit. But, the report cautioned, “These results do not necessarily rule out significant effects or the possibility that effects may arise in the future.” In many cases, the full impact of Dodd-Frank on community banks and credit unions remains unknown, as several components have yet to become effective.

In an ABA Banking Journal briefing, Wayne Abernathy, ABA EVP, stated that the report adds to the growing evidence of the cost of regulation on bank customers, stating “The impact and the need for regulatory reform are becoming harder to ignore.”

Unfortunately for community banks and credit unions, additional regulatory burdens are likely to be announced in early 2016 with the FASB’s CECL model. Under CECL, institutions will be required to estimate the expected loss over the life of the loan, which is likely to increase allowance levels.

In order to better prepare for CECL, banks and credit unions can register for The CECL Workshop Series, a two-part webinar series hosted by professionals from Sageworks and CliftonLarsonAllen. Part one of the series will review how to craft your implementation plan, while part two will provide clarity on choosing a methodology to calculate the ALLL under CECL. Bankers can learn more or register for the series here.

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