Commentary by Missouri State Senator Gary Nodler (R-32 representing the people of Newton, Jasper and Dade counties)
Urging Congress towards commonsense regulatory practices
The national economy continues to suffer and while some areas have seen signs of recovery, the banking industry continues to falter. This is especially concerning because the state of the commercial real estate credit market is directly tied to the health of local economies, especially in Missouri where our state’s economy hinges on the financial strength of small businesses and family farms. This week, I introduced Senate Concurrent Resolution 33 to discourage Congress from continuing to throw money in the form of bailouts at the failing banking industry, and to instead give community banks the right tools to start lending again.
The Federal Reserve and Congress have become increasingly focused on the future of commercial real estate and the possibility of failure in this important sector of the market. Fewer small businesses are able to get loans to continue business, causing serious problems for local economies. However, many of the over-regulatory policies proposed by the feds could very well create long-term consequences and inflation. As we have already seen, bailing out big banks is a quick fix that puts a bandage over a problem that continues to get worse.
Community banks today need better access to credit, but regulations are holding them back. A bank’s health, for regulatory purposes, is interpreted by calculating a series of ratios. Damaged ratios cause a bank to look fiscally unstable. The country’s economic dilemma has placed severe financial pressure on a number of small businesses and family farms. The result is escalating levels of loan defaults and depressed property values, and our community banks are limited in the ways that they can react to these situations. The banks may want to hold on to these loans or modify them to restructure debt, but these actions can have a negative affect on their ratios.
Up until now, the government’s solution to this problem has been to throw money at big banks, allowing them to have more cash on hand to lend. This, however, does not solve the problem of the so called “toxic assets” that continue to be passed around the market. Instead, the answer is to relax this ratio system and allow community banks to make decisions locally on their assets, allowing them to restructure or hold onto debts that they would otherwise have been forced to dump into the market.
Senate Concurrent Resolution 33 formally encourages the federal government to allow well-managed local banks to maintain lower levels of capital, restructure debts, and properly classify loans. Allowing smaller community banks this freedom will give them the ability to once again issue loans, enriching our local economies and encouraging economic recovery.
In order to tackle the economic challenges that are facing Missouri, there needs to be new solutions. If we continue to rely on the policies of the recent past, we are not truly solving the problems of today and could in fact, make the situation worse for the future. I will continue to fight for common sense regulatory practices and for progressive solutions that will move Missouri forward.