Small-Cap Bank ETFs Could Win This Election Season

Small-cap and community bank exchange traded funds may find support from this election season as Democratic presidential nominee Hillary Clinton outlines a plan to cut down the red tape for smaller banks.

Clinton plans to require regulators to issue “straightforward” statements explaining how small institutions are exempt from post-financial-crisis rules that were intended for big banks and prevent regulators from enforcing those rules when they don’t apply, reports Gabriel T. Rubin for the Wall Street Journal.

Moreover, the Democratic front runner is proposing to eliminate duplicative state and federal examinations and for simplifying capital requirements, which have both bogged down smaller banks with compliance and record-keeping.

The proposal comes after she promised to improve access to capital for small businesses.

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House Financial Services Committee Chairman Jeb Hensarling has also drafted a Republican financial overhaul proposal that calls for many similar changes, such as requiring regulators to tailor rules to fit a lender’s business model and risk profile, along with small-lender regulatory relief bills that are seeing support from Democrats in the House.

Federal Reserve officials, including Chairwomen Janet Yellen, have also commented that regulations are putting undue burden on small lenders.

“While big banks have gotten even bigger since Dodd-Frank became law nearly six years ago, community financial institutions are disappearing at an average rate of one per day,” Hensarling said when he introduced his plan earlier this year. The “avalanche of Washington’s postcrisis regulations” has harmed small lenders and their customers.