Rob Barrett still remembers the day he had to look his town’s new doctor in the eye and tell him why he couldn’t loan him money to buy a house.
“Difficult,” Barrett says about that conversation. “Very difficult.”
Barrett is president of Heritage State Bank of Nevada, Mo., and the town of 8,200 had bent over backwards to lure the doctor to a new practice there. As Barrett recounts it, loans the man took out to pay for school made him ineligible for a mortgage based on the Dodd-Frank banking law adopted after the 2008 financial crisis.
Barrett had to turn the man down. A doctor, no less.
In more than a decade, Barrett had never suffered even a dime’s worth of losses due to a faulty mortgage. Barrett’s record was spotless. But the rules were the rules.
That’s why Barrett insisted this week that Missouri Sen. Claire McCaskill’s vote to relax parts of Dodd-Frank made so much sense. The one-size-fits-all rules had forced Heritage State Bank to play by standards that didn’t fit small banks.
McCaskill, a Democrat up for re-election this year, was one of 16 Democrats (and one independent) who banded together to advance the bill.
Seventeen is a significant number. It’s enough Democrats to suggest that McCaskill’s vote might have been about more than catering to the well-heeled banking industry.
The measure was the result of all-too-rare bipartisanship. McCaskill said in a release: “We’ve gotten across the finish line a commonsense fix for the overregulation of small banks and credit unions who’ve had their hands tied on lending to Missouri customers to buy a house or start a business. Our goal with this bill was ensuring we’re protecting these small banks serving their communities from getting gobbled up by the big guys that caused the financial crisis.”
That’s exactly right, Barrett said. Only now, nearly a decade after the financial meltdown, have his bank’s lending levels begun returning to near pre-crisis totals. In a low-interest environment, the recovery should have been far more robust, he points out.
But what happened to Barrett’s bank begins to explain why it wasn’t. He couldn’t make the loans he once had. That undermined the economy.
Barrett said a Dodd-Frank revision was promised a few years after the original law passed. Representatives knew they had overreached after the meltdown.
“It took them a lot longer than we thought it would,” he said.
Still, Sen. Elizabeth Warren, the firebrand Massachusetts Democrat, spent much of the past week denouncing Democrats like McCaskill for going soft on the banks. The bill, Warren said, could trigger another financial crisis, a position underscored by the Congressional Budget Office, which said the bill upped the prospects of another collapse.
Don’t forget: She’s running for president.
The sticky wicket in this legislation was never the community bank provisions. Even Warren wanted to loosen regulations on that part of the industry.
The problem area was the provision thinning the list of banks deemed “too big to fail.” Dodd-Frank said banks with more than $50 billion in assets fell into that category.
But even former Rep. Barney Frank of Massachusetts, the bill’s namesake, has said the level could be boosted to $125 billion.
But here’s the rub: The Senate bill jacks the total to $250 billion. It exempts all but the nation’s 12 largest institutions from the most rigorous reviews.
McCaskill, though, insists there’s still plenty of oversight. This is a different time. The wild, wild West era of financing is long gone. Sub-prime mortgages? No more.
If this legislation makes it into law, we should all be glad that Barrett can go back to doing what he does best, and that is making loans to new doctors in Nevada, Mo.