It's becoming abundantly clear by the day that overzealous financial regulatory reach is chilling bank lending, particularly by local institutions, at the precise moment we need a more reasoned approach.

And, unfortunately, the Dodd-Frank financial reforms now before the Senate would likely worsen the situation.

In a worrisome commentary last week in the Wall Street Journal ominously entitled, "The end of community banking," the chairwoman of the board of an Ohio thrift said fear of regulatory punishment is disproportionately driving local lending decisions. It wasn't that long ago community institutions made decisions based on local economic conditions and the credit worthiness of the individual borrower, she said.

But with new regulatory powers in Dodd-Frank, she said local banks "will no longer be able to evaluate loan applications based solely on the creditworthiness of the borrower. We will be making regulation compliance decisions instead of credit decisions. That is not in the best interest of the consumer."

The author, Sarah Wallace, cited specific examples of decisions made recently to deny loans because of worries the thrift would be punished financially by regulators and the Dodd-Frank bill.

In one case, a couple came to the institution to refinance their home to achieve a better rate and lower payment. The couple had good equity and a couple of performing rental properties – in other words, real assets to back up their borrowing. But because the husband's construction income had declined, the couple had some slow payments.

Community banks help citizens like this all the time. But the loan was denied because the thrift worried about the potential costly backlash of regulators.

Ms. Wallace also said checking and other costs for regular customers were likely to rise because Dodd-Frank severely restricts a bank's ability to charge credit card interchange fees.

In a column in the July 5 edition, staff reporter Jenna Loceff asked bankers around the North Bay about their views of the regulatory environment.

Said one bank executive about the overreaction to the excesses of big Wall Street banks: "David is paying for Goliath's sins.”

And so are our communities.

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Brad Bollinger is Business Journal editor in chief and associate publisher. He can be reached at 707-521-4251 or bbollinger@busjrnl.com.