One Massachusetts congressman played a key role in enacting a new set of strict standards for banks after the Great Recession.
Now, another Massachusetts congressman is hoping to undo some of those reforms — for the right banks, at least.
Former congressman Barney Frank was obviously a key architect of the 2010 Dodd-Frank law, aimed to reduce the risks that troubled banks could pose to the broader economy.
Enter Frank's colleague, US Representative Stephen Lynch. The South Boston Democrat told business leaders on Monday at the Greater Boston Chamber of Commerce that the pendulum has swung too far in the other direction toward overregulation for community banks. Smaller banks, he says, are dealing with unfair and unnecessary burdens.
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Lynch, a member of the House Financial Services Committee, is working with fellow Democratic Representatives Ed Perlmutter of Colorado and Ruben Hinojosa of Texas to draw up new legislation that would make some changes to the Dodd-Frank world. The goal: To make sure that banks are evaluated not just on size but also on complexity and the level of risk involved with their activities.
Lynch says he was approached by about 10 bankers at a South Shore Chamber of Commerce event recently, saying that they're getting punished even though they weren't the kinds of banks responsible for the mortgage-market crash that led to the Great Recession.
Small banks often have to hire outside contractors to deal with some of the new regulations, he says, which drives up their costs.
"Basically, if you're a small bank, you're lending to people that you know, and you're not doing any of the risky activity that warranted the regulation in the first place, you should be entitled to some relief," Lynch says.
There's no official legislation yet, according to Lynch's office. Lynch is using a set of guidelines proposed by Federal Deposit Insurance Corp. vice chairman Thomas Hoenig as a starting point. Relief could include exemptions from stress-testing requirements, and less frequent examinations. To be eligible, banks would have to show they have little or no exposure to derivative trades, the kind of risky trades that weakened the financial system leading up to the Great Recession.
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The next step? Lynch will host a luncheon with local bankers next month to give them a chance to meet with Hoenig and discuss their concerns.
Jon Chesto can be reached at jon.chesto@globe.com. Follow him on Twitter @jonchesto.