What’s There to Like?

The Wall Street Journal, The New York Times, The Washington Post and just about every other newspaper in the country are calling the “Wall Street Reform Bill” a win for community banks.

So why am I receiving e-mails, calls and letters from community bankers worried that the world as we know it is coming to an end? 

Did all those newspapers get it wrong? 

Well, within the context of this bill, not really.  In addition to all the evil and terrible things we’ve all heard so much about, there are actually some good elements in the bill—if you are a community bank, that is.  If you’re a Wall Street mega-bank, not so much.

What’s there to like?

The list is longer than this blog permits, so let me touch on just three provisions; you can read about the rest online.

  • First there’s the change to the FDIC assessment base that will save community banks $4.5 billion over three years.  And these assessment savings will only compound over time now that banks are paying regular assessments.
  • Then there’s too-big-to-fail. 
    ICBA has been leading the fight to end too-big-to-fail long before the current crisis erupted.  Safely unwinding those behemoths is crucial to our nation’s economic well-being.
    This bill will go a long way toward reining in the mega-banks, leveling the playing field and focusing systemic-risk regulations and Systemic Risk Council efforts on the mega-institutions. 
    Yes.  The pre-funded dissolution fund was dropped from the final bill, but the FDIC is authorized to impose fees on the mega-firms to help fund their failures. 
  • And we won exemptions for banks under $10 billion from the examination and enforcement authority of the Consumer Financial Protection Bureau. Hey, that beats CFPB examiners marching into your banks on a fixed schedule.

But more important is the major national policy shift in how community banks are regarded in Washington. This legislation sets a precedent in recognizing that community banking is a distinct banking model from the Wall Street financial model and thus should not be treated in the same way.  That is a huge policy shift and bodes well for community banks in future financial legislation and regulatory treatment.

It means that, going forward, community banks have gained the right to be treated differently, to be held to our own measure, not Wall Street’s.  To finally be regarded as equals with Wall Street in the financial services sector – priceless!

8 thoughts on “What’s There to Like?

  1. Dear Mr. Fine,

    With all due respect, the BIG picture for us small banks is bleak. Big CEOs of JPM, GS, BAC have publicly stated that the Canadian banking system (which is 4-5 large banks) did not suffer the meltdown we had in the USA. Reading their lips, I think this is where they are going and I think they will succeed. It is clear from this bill. Also, if they can do what they they did to Fannie and Freddie pref. equity, they can DO ANYTHING.

    That’s my take. That’s all!

  2. I fail to see any good from these regulations. We have been all but told that every reg that is imposed on large institutions will eventually find its way to main street community banks – and that community bankers are naive to think otherwise.

    Reg Z – killed margins
    Reg E – killing non-interest income
    Mark to Market Acct – the final deathblow
    CFPA – it’s ours whether we we accept it or not
    Compliance costs – enormous

    As a community banker, I don’t feel like a “winner” as I woke up this morning.

  3. This is definitely a glass is half full take on the situation. I can appreciate that, but focusing on the positives does not take away from the fact that many community banks are losing an enormous source of revenue due to this reform.

    The world is such, that we must live in the present. A year from now our dissapointments in the change will be a distant memory. Change comes in many forms and I believe the community banks that adapt will actually come out even stronger. Sink or swim time!

  4. Pingback: Time to RADICALLY rethink the way compliance costs are managed. | Continuity Control

  5. Hi Cam,

    Thanks for sending your Fannie/Freddie views (especially about preferred equity) to Treasury.

    I hope you going to represent our Fannie/Freddie stake at the Aug. 17 conference at the Treasury Department.

    Thanks.

  6. Mr. Fine,

    One thing I know for sure, the CEO’s of the larger banks are NOT stupid people. They are very inteligent and very powerful people. They are not going to sit by idly and take all this financial reform laying down. They will find ways to regain their cometative positions and their profit structures. IN many cases, that will be at the peril of commuity banks. I belive that in addition to the direct and visible consequences that we are all tring to identify and quantify at this time, there are significant invisible and unquantifiable risks associated with what is happening in our industry. It very well may be that the big banks end up with even more market share and the community banks are either gobbled up or forced out of the market to allow for the big banks to make their margins and profits. In any event, while there are “the Good, the Bad, and the Ugly” in this reform package, it is the law we will have to deal with.

    Thank you for fighting for our interests and keep in mind that the unintended consequences can be more severe than the stated measures. CFBP is likely to be one of these cases. Time will tell.

  7. From ICBA news on 6-16-10:
    “Frank Releases House Reg-Reform Offer with ICBA Priorities
    House Financial Services Committee Chairman Barney Frank (D-Mass.) released the House offer for several titles of financial regulatory reform legislation with several ICBA priorities. Among its provisions, the House legislative offer to the Senate would permanently extend the Transaction Account Guarantee program and permanently increase FDIC deposit-insurance coverage to $250,000. The deposit-insurance increase would be retroactive to Jan. 1, 2008. Both of these provisions have been key ICBA priorities throughout the regulatory reform debate.”

    Was the ICBA in favor of deposit insurance being made retro-active?

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