The message is clear: lawmakers and regulators should tread lightly on small banks.
In recent months, the community banking industry has started an aggressive grassroots campaign, taking aim at regulation enacted in the aftermath of the financial crisis. Small banks fear new rules under the Dodd-Frank law, especially certain consumer protection provisions and debit card fee restrictions, could hurt their bottom line and even cause a few banks to fail. The Independent Community Bankers of America, an industry trade group, spent roughly $1.2 million lobbying regulators and lawmakers in the first quarter of 2011, according to the Center for Responsive Politics.
But the regulation may not be as burdensome as the advertising campaign — or the lobbying dollars — implies. Community banks and credit unions won exemptions from several of the law’s toughest provisions, and some of the rules put small banks on more equal footing with big banks.
“There is basic human anxiety about change,” said Neal S. Wolin, deputy secretary of the Treasury.
“If you sit down with 20 small banks, you’ll find there’s a lot of anxiety there,” he said. “But if you ask them to focus that criticism in concrete ways, there’s not much there.”
Mr. Wolin and other regulators are increasing their efforts to win over the community banking industry, holding private meetings with bankers and delivering public speeches across the country. Nearly every top financial regulator traveled to San Diego in March to speak at the community banking group’s annual convention. This month, at the group’s policy meeting in Washington, Mr. Wolin said that regulators will not “hurt small banks or prevent them from doing their job.”
But not everyone is persuaded.
“We got a lot good things, but it’s hard to say Dodd-Frank is a total win when you come away bloodied and bandaged,” said Salvatore Marranca, a former federal banking regulator who is now president and chief executive of Cattaraugus County Bank, a company with 65 employees in Little Valley, N.Y., about 60 miles south of Buffalo.
Despite their protestations, community bankers are quick to praise certain parts of the law. Banks that hold less than $10 billion in assets, or roughly 98 percent of the 7,000 community banks scattered across the country, are immune from new capital and liquidity requirements, for example.
The law also imposes curbs on proprietary trading and the derivatives business, restrictions that level the playing field for small lenders competing against giant competitors. But small banks perhaps benefited most from the overhaul of deposit insurance rules. The change, which forces large risk-taking banks to pay a bigger share of deposit insurance premiums, is expected to save small banks more than $4 billion over the next three years, according to Camden Fine, who leads the community bankers group.
“The legislation was a very mixed bag for community banks,” Mr. Fine said. “There were some good provisions; some provisions will have a horrendous impact if we can’t get them changed.”
Mr. Fine and his constituents are now focusing on a rule that restricts the fees banks charge grocery stores and other retailers each time a customer uses a debit card. The Federal Reserve has proposed capping the so-called swipe fee at 12 cents for each transaction, 70 percent below the average fee charged in 2009.
Although Dodd-Frank excused community banks from the rules, Mr. Fine says the exemption is “worthless” because retailers could refuse to accept cards issued by small banks that carry higher fees. It is a concern shared by Ben S. Bernanke, chairman of the Fed.
“It is possible that the exemption will not be effective in the marketplace,” Mr. Bernanke said in recent Congressional testimony, adding that the rule “could result in some smaller banks being less profitable or even failing.”
In an effort to block the rule, the industry is mobilizing lobbyists and bankers to write letters and meet with regulators. Mr. Fine’s group and other small banking and credit union lobbyists have held at least 10 meetings with top Fed officials in the last year. They also are appealing to Congress, where some lawmakers have introduced a measure to delay the debit card rule for at least 15 months.
“They have the political power to push back, and they’re taking advantage of it,” said Jaret Seiberg, a financial policy analyst at MF Global’s Washington Research Group.
The industry is also pushing the new consumer agency to shield small banks from mortgage and credit card rules. While the Consumer Financial Protection Bureau is not allowed to inspect or bring enforcement actions against small banks, the industry is subject to the bureau’s regulations.
“That is causing a lot of anxiety,” Mr. Fine said, noting that bankers are taking their concerns directly to the agency.
Community bankers from all 50 states have held discussions with Elizabeth Warren, who is setting up the new bureau. Ms. Warren, who met with more than 60 small bank and credit union executives in March alone, has assured the industry that she will keep them involved in the rule-writing process. In a show of good will, a group of community bankers was recently invited to the first public showing of the agency’s new streamlined mortgage disclosure forms.
“I want to see the business model that they have flourish,” Ms. Warren said. “I want to see it succeed big time."