Pub. 5 2015 Issue 3

Every week, I meet with Arizona bankers from all over the state: Phoenix, Tucson, Prescott, and Yuma. They are diverse in all but mission- to serve their Arizona community. and Yuma. They are diverse in all but mission- to serve their Arizona community. Without fail, each banker tells me the same thing: Dodd-Frank is crushing them. Some have had to hire additional workers to do nothing but meet the DC centric regulatory requirements of the CFPB. Some have stopped of- fering mortgages or have ended small business lending. Many have had to completely close up shop. This is not a unique problem to Arizona. Members of Congress from every district in this country are hearing the same pleas from their community lenders. It has taken four years, but DC is finally starting to take notice. Five years later it should be obvious. The answer to ending “to small to succeed” does not lie in onerous regulatory policy, but in making the market less fragile. I propose creating an opt- out for Dodd-Frank. Any bank willing to hold 14.3% in equity capital has the option to continue operating under the current command and control regime, or they may opt for a single touch financial audit from their primary regulator prior to Dodd-Frank. By providing optionality, we can lower the burden of compliance on our community banks while strengthening the overall health of the financial sector. However, Dodd-Frank may not actually be the biggest long term threat to Arizona’s community banks. If ignored, marketplace (also known as peer-to-peer) lending may do to community banks what Priceline.com did to the travel agencies of the 1990s. If embraced, this marketplace lending could actually strengthen a bank’s tie to its community. In a world of minimal interest rate return, investors are turning to creative products for return. Peer-to-peer lending matches investors directly with borrowers through an online aggrega- tor. Similar to crowdfunding, the aggregator will take a small commission from the investors, and send the loan directly to the borrower. The aggregator has no deposits and has a mini- mal regulatory burden, creating a regulatory arbitrage. Some in DC believe marketplace lending needs to be regu- lated. Once again, DC thinks it knows best. Perhaps a better way would be to allow community banks the same ability to function as a marketplace aggregator that these online com- panies have. Imagine a community bank in Arizona, which has had to severely curtail its small business lending due to Dodd-Frank, suddenly has the ability to directly link investors up with the small businesses the bank has had to turn down. Once again, by providing optionality, we can make our com- munity banks stronger and decrease the fragility of the overall financial system. Ultimately, Washington, D.C. exists for the benefit of itself. Regulations are made not for the benefit of businesses and citizens, but simply because regulators are judged by the quantity of their regulations. My commitment to you is this: my priority will always be Arizona and I will stand against DC centric banking policy. When I see opportunities for in- novation, I will champion them. And I will always have an open door for you. If you need anything, from a tour of the Capitol to help with a federal agency, please feel welcome to call my Arizona office at (480) 946-2411 or my DC office at (202) 225-2190. w 11 SUMMER 2015