President Trump was preparing the first step in a key campaign promise ? dismantling the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act ? when he repeated a frequent criticism of the law.
?We expect to be cutting a lot out of Dodd-Frank because, frankly, I have so many people, friends of mine that had nice businesses, they can?t borrow money,? Trump told leading corporate chief executives, including Jamie Dimon of JPMorgan Chase & Co. and Larry Fink of money management giant BlackRock Inc., meeting at the White House in February.
?They just can?t get any money because the banks just won?t let them borrow it because of the rules and regulations in Dodd-Frank,? Trump said.
Shortly afterward, he ordered a wholesale review of the landmark act, which was passed in the wake of the 2008 financial crisis.
But a main reason for dismantling Dodd-Frank often cited by Trump and critics of the law ? that its slew of tougher financial regulations have significantly restricted bank lending ? isn?t borne out by the data.
Since hitting a post-crisis bottom in October 2010, commercial and industrial bank loans have increased 77 percent, according to the Federal Reserve. Few business owners say they are having trouble getting loans, surveys show. Household debt, including mortgages and auto and student loans, increased last year by the most in a decade, continuing a three-year upswing. And bank profits have been soaring.
?Nobody?s come up with really solid evidence that they can point to that bank lending over the last few years has been overly constrained,? said Fred Cannon, global director of research at investment bank KBW. ?It certainly is not growing as fast as it was pre-crisis, but I?m not sure everyone wants no-doc, low-doc, non-verifiable lending again.?
Bankers, business people and industry representatives say the numbers don?t tell the whole story.
They say Dodd-Frank regulations have caused banks to be more careful about who they lend money to, extending loans only to the most qualified customers. Dealing with an onslaught of new rules has been particularly difficult for community banks ? the first lenders small businesses turn to ? contributing to a 15 percent decline in the number of those institutions since 2010 as they?ve closed or consolidated.
?A lot of the terms that have come from Dodd-Frank do not give us as much flexibility as we have had in the past to extend credit to our customers,? said Jeffrey K. Ball, chief executive of Friendly Hills Bank in Whittier, Calif.
?Knowing my community and knowing my borrowers, I would love to be able to extend that credit,? he said. ?But from a risk standpoint, it elevates the hurdles you have to clear.?
The law imposed some key new requirements on banks, including new mortgage rules if banks want to avoid future predatory-lending lawsuits.
Larger banks must undergo annual stress tests to determine if they could handle a sharp economic downturn, and prepare so-called living wills that lay out plans for safely shutting down if they were in danger of collapse. A restriction in Dodd-Frank known as the Volcker Rule prohibits federally insured institutions from trading for their own profit, while also limiting their ownership of risky investments.
And though lending overall has increased, banks have chosen to keep about $2 trillion in excess reserves at the Fed earning a low interest rate instead of using the money for loans because they say tighter lending requirements make it difficult to find borrowers.
Larry Stottlemyer said he?s felt the effects. He and his wife, Angie, have been trying unsuccessfully for six years to borrow about $2.5 million to expand their amusement park in Monrovia, Md.
They opened Adventure Park USA with an $8 million loan in 2004. Now they want to add a water park that would lead to the hiring of 50 to 65 additional summer workers, but have been turned down by small, medium and large banks, Stottlemyer said.
?We have more collateral now, our income?s up and we can afford a loan, but if it doesn?t fit in all the different nooks and crannies that the federal government has put in place since 2008, a small business can?t get money,? he said.
Stottlemyer said he could almost make the monthly payments on an expansion loan from his existing revenue but banks have told him he cannot count on any of the anticipated revenue from the water park.
?It?s not just me, I?ve heard it from a lot of my acquaintances in the industry,? he said. ?They just cannot borrow money to expand.?
Business groups point to people such as Stottlemyer to argue that Dodd-Frank regulations need to be eased, particularly for community banks. And financial regulators, such as Fed Chair Janet Yellen, said they?re trying to reduce the regulatory burdens on small banks, which don?t pose the same risks to the financial system as large banks.
Experts said some changes to Dodd-Frank could be helpful, but that its regulations, including tighter lending standards, have made the financial system safer.