“Community banks are a vital part of the nation’s banking industry,” was the mantra of regulators at the Independent Community Bankers of America’s national convention in San Diego last month. The fact that community banks face difficult challenges in the years ahead was also mentioned several times — and there was also a considerable amount of “warm fuzzies” being exchanged between the speakers and the ICBA members in the audience.
“For this consumer bureau to succeed, community banks must remain a major presence in the economy,” said Elizabeth Warren, assistant to the president and special advisor to the Secretary of Treasury on the Consumer Financial Protection Bureau.
Warren said she has learned three lessons as she has traveled around the country speaking to community banks regarding the CFPB. The first lesson is that community banks build long-term partnerships with the families they serve.
Lesson two is that community banks didn’t cause this financial crisis. This statement from Warren garnered a warm round of applause from the audience.
“I often make the point that the financial crisis began one lousy mortgage at a time,” said Warren. “You and I know that those mortgages were seldom originated by America’s community banks.”
And the third lesson Warren has learned is that if the government does not do a better job on regulation, it will push more community banks out of business. (Again, applause.)
“During my many visits with you, I’ve heard about the high cost of regulatory compliance. I understand the difficulty of determining what is or is not required by a particular regulation — and the costs that creates. I appreciate the widespread anxiety and frustration over the future of community banks and other small financial institutions,” said Warren.
Warren believes the new CFPB needs to work with community banks to make sure that there are a range of services and options available to consumers.
“We need you there when we think about priorities and we map out directions. Involving you early in the conversation — giving you a meaningful seat at the table and advance notice — allows all of us to better understand the consequences of what we do,” said Warren.
One of the goals of the CFPB, Warren mentioned, is ensuring that all providers — including non-bank mortgage lenders and payday lenders — must follow the rules for offering consumer financial products.
"We can’t enforce the law only against the banks that are easiest to find,” said Warren. “Instead, we will build a strong enforcement arm that will — for the first time ever — put significant federal resources behind ensuring compliance by non-bank financial companies. That is why we anticipate more than half our budget will be committed to establishing supervision and meaningful enforcement.”
Receiving lots of applause and a standing ovation, FDIC Chairman Sheila C. Bair, whose term expires in June, told ICBA members that the FDIC is committed to a future regulatory structure that will support a vibrant, competitive community banking sector, that will assure a level playing field between large and small banks, and that will put an end to the pernicious doctrine of too big to fail.
Bair also noted that while the Dodd-Frank Act is not a perfect law, it is a good law and one that she thinks will strengthen community banks. For example, if Dodd-Frank had not been enacted, deposit insurance limits would have reverted to $100,000; the transaction account guarantee would have expired; the too-big-to-fail doctrine would have remained intact; and a public still uncertain about the strength of smaller banks would have pulled their newly uninsured deposits and fled to the large, too-big-to-fail institutions, which would, in turn, have led to more small bank failures and higher costs for the deposit insurance fund.
Bair ended her speech saying, “Community banking is the foundation of our economy. The future belongs to you, and it depends on you. That is why I am asking you to support the reforms that are needed to restore financial stability and lay the foundation for a stronger U.S. economy in the years ahead.”
After receiving a standing ovation as soon as he appeared on stage (and once again as he left the stage), Federal Reserve Chairman Ben S. Bernanke told attendees, “Local communities, ranging from small towns to urban neighborhoods, are the foundation of the U.S. economy and communities need community banks to help them grow and prosper.”
Bernanke acknowledged that a key challenge for community banks in the years ahead will be to adapt to the changing regulatory environment, particularly the regulatory reforms contained in the Dodd-Frank Act, as well as the changes that will be associated with the Basel III reforms.
“I think it is worth emphasizing that the changes we will be seeing in the financial regulatory architecture are principally directed at our largest and most complex financial firms, including nonbanks. Consequently, one benefit of the reforms should be the creation of a more level playing field for financial institutions of all sizes.”
While Bernanke did not mention the Fed’s proposal for interchange fees, it was brought up in a question and answer period. Bernanke said the Fed has received 11,000 comment letters in regard to its proposal and the Fed will do everything it can to make the carve-out effective.
John Walsh, Acting Comptroller of the Currency, told ICBA members that the Office of the Comptroller of the Currency recognizes that community banks play a special role in the economy and society of cities, town and rural areas across the country.
When asked about the future of the thrifts, Walsh said he sees no reason for the diversity of the financial industry to diminish.
Kari English is senior editor of BankNews.
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