Community banks due a break early in Trump term: Hensarling

WASHINGTON (Reuters) - Community banks will face less red tape and be able to lend to more small businesses once Congress erases financial rules conceived after the economic downturn of 2008, a leading Republican lawmaker said on Thursday.

The plan from Jeb Hensarling, chairman of the House Financial Services Committee, would roll back parts of the Dodd Frank reform legislation, a law that was meant to prevent a future financial meltdown by muzzling Wall Street.

Hensarling said Dodd Frank unduly crimps local lending and that replacing Dodd Frank is his top priority.

"The most urgent need we have is to throw a life preserver to community banks that capitalize our small businesses," he told Reuters in an interview.

Hundreds of small banks failed in the wake of the 2008 financial crisis after they helped bundle risky mortgages for Wall Street.

Hensarling's plan would shield local lenders from some liability if they hold home loans on the books. Other provisions would eliminate paperwork for small business loans.

President-elect Donald Trump has said he intends to "dismantle" Dodd Frank and replace the bill with legislation that promotes economic growth.

The Trump administration and fellow Republicans who control Congress will set the administration's legislative priorities, Hensarling said.

But the Texan lawmaker said his alternative to Dodd Frank, known as the Choice Act, would be the first legislation to move through his committee.

"When we get the word from the Speaker (of the House) and the administration that it's time to go, the House Financial Services Committee will be ready."

Republicans control both houses of Congress but Senate rules may give Democrats some say on the future of Dodd Frank. Party leaders have promised to defend the legislation that protects consumers from predatory lending and bans Wall Street from certain investments.

While the Hensarling plan would roll back some Dodd Frank provisions, it would also preserve checks on the largest banks.

Leading U.S. banks would either have to hold more capital to brace for financial shocks or submit to tough scrutiny from regulators under the Hensarling plan.

Individual banks may prefer to face tougher oversight rather than put their wealth aside, Hensarling said, but the financial system "would be better off with stronger balance sheets with higher levels of capital."

(Reporting by Patrick Rucker; Editing by James Dalgleish)

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