Pub. 5 2015-2016 Issue 5

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S March • April 2016 5 In the nearly six years since its enactment, the Dodd- Frank Act has amassed $30 billion in final regulatory costs and 72 million hours of paperwork. What’s more, DFA im- plementation is only about 70 percent done. A year remains for them to finalize the last 123 rule-making mandates of the 390 required. Already, has resulted in a nearly 15 percent reduction in revolving credit available to consumers, in the form of credit cards and other credit renewed as loans are paid off. It has made mortgages and other commercial loans more expensive and harder to come by, via new constraints placed on traditional banks that are forcing them to merge or exit the market. The end result: Americans are turning to “shadow banking” to get their needs met. In a free market, capital always goes to where there is less regulation, lower costs and better risk reward. Surely, policymakers did not intend to marginalize bor- rowers, decrease competition and increase costs for their constituents, but the fact is, consumers are bearing those consequences. While bankers strive to meet the needs of their commu- nities while making a reasonable return for their investors amid greatly increased regulatory restraints and increased capital charges, shadow banks can continue to increase leverage; 20-to-1, 30-to-1, even 50-to-1 leverage is part of the shadow industry, the American Banker has reported. These groups do not have to adhere to or comply with the same governmental regulations and oversight that traditional banks do –and they are growing exponentially faster than banks. As the government has sought to restrict the traditional system under the banner of protecting consumers, those very consumers are being pushed into the unregulated territory of shadow banking. These lenders come in many forms, fromentities engaged in traditional lending that does not have to comply with government regulations, nontra- ditional lending, to online crowdfunding and orchestrated person-to-person transactions. Meanwhile, lawmakers are seeking for additional risk fees to be imposed on our nation’s largest banks. And in- terestingly, while the Volcker Rule tries to separate banking activities from proprietary trading, it excludes this distinc- tion for non-banking financial companies. According to the New York Fed, shadow banks have “increased the fragility of the entire financial system.” It is time to level the playing field in two ways. First a real review of the Shadow banking systemmust take place – and those participating in it should be required to comply with rules like anyone else. Second, real modifications must be made to some of the most onerous rules on banks that drive up costs and prohibit products consumers want and need.  Mark Bower CBA 2015-16 chairman Home State Bank Shadow Banking – The Other Banking System