NEWS - Banking & Finance

By Ted Carter
SBJ Staff

Georgia’s community bankers say the apparent willingness of Congress to kill the “Too-Big-to-Fail” doctrine gives them hope they’ll soon be able to compete more equally with the nation’s big banks.

But they say they still have cause to worry as the banking reform legislation approved in December by the House of Representatives heads to the Senate. Putting full regulatory and rule-making power into the hands of a single entity – the proposed Consumer Financial Regulatory Agency  – is a bad idea, they say.

“Basically, they are talking about a banking czar all powerful for all banks,” said Steve Bridges, legislative affairs director for the Community Bankers Association of Georgia.

Small bankers fret that such a one-size-fits-all regulatory approach could put them under the same hammer that is about to come down on the nation’s major banks and financial services giants. That would hardly be fair considering the sins of the big institutions in causing the fall 2008 banking meltdown, Bridges said.

It’s a point House Financial Services Chairman Barney Frank emphasized during his committee’s work on the landmark banking reform legislation passed by the House in December. Frank noted there’s been a pattern of the larger institutions' failures imposing costs on the smaller institutions. He vowed to prevent that this time around.

Community bankers, through their national arm, the Independent Community Bankers Association, managed to persuade House members to make some changes favored by the small banks.

These included:

• Exempting most community banks from primary enforcement by a Consumer Financial Protection Agency.

• Exempting community banks from any Consumer Financial Protection Agency fees.

• Appointment of a special Consumer Financial Protection Agency ombudsman to advocate for community banks.

Further, the small banks persuaded lawmakers to include a change in the Federal Deposit Insurance Corporation assessment formula to assess insurance premiums based on a bank's assets, rather than on its domestic deposits, as is the case now. 

The assessment change could save most community banks between 20 percent and 40 percent on their FDIC assessments, according to Bridges.

The assessment change would ensure that big banks bear a larger financial load that community bakers say more accurately reflects the risks to the FDIC.

The Independent Community Bankers Association began pushing for this soon after President Obama’s election. "The current deposit insurance premium assessment system places a disproportionate burden on community bank liquidity," the group said last December in a memo to Obama's transition team.

The ICBA noted that some big banks have foreign deposits or other funding sources they can tap for lending in the United States – but that don't count against them in FDIC assessments.

In a notice to Community Bankers Association of Georgia member last month, Bridges noted he wants an agency created for consumer compliance regulation that would be a separate agency from safety and soundness regulation.
As the Senate begins framing its version of the legislation, community bankers will push for the consumer protection agency to be run by a  regulatory council of a dozen experts instead of an appointed czar, the Independent Community Bankers Association says.

Sidebar: Banking Groups Await Death of "too Big to Fail"

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