ABA’s Keating Says Regulations Throttling Small Banks

Excessive regulation is strangling U.S. community banks, which have closed at the rate of about one per business day since the 2008 financial crisis, said Frank Keating, head of the American Bankers Association.

Community banks spend about 15 percent of revenue on compliance even though they weren’t responsible for the credit crisis that spurred new regulations including higher capital requirements, said Keating, the Washington-based trade group’s chief executive officer. There were 6,234 community banks in the U.S. as of the first quarter with total assets of $2 trillion, according to the Federal Deposit Insurance Corp.

“If you went to a restaurant, and 15 percent of the bottom line or top line was to provide whatever services the health department expected, now what kind of omelet would you get?” Keating, 70, said today in a Bloomberg Television interview.

Outstanding student debt, which just passed a record $1.2 trillion, also affects small banks by constraining the economy as some borrowers postpone starting businesses and buying homes, he said.

President Barack Obama said last week that he would issue an executive order to expand “Pay As You Earn,” a federal program that enables borrowers to lower monthly payments and earn debt forgiveness after one or two decades. The program is for borrowers with a high amount of student loan debt relative to their income.

Keating, a former Oklahoma governor and assistant U.S. treasury secretary, said students should make sure the degree they’re seeking is marketable before taking out big loans.

“There needs to be a mother and dad involved or big brother involved saying, ‘Look, this degree you’re spending all this money for isn’t going to employ you,’” he said.

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