“If your view is from a skyscraper in Manhattan, it”™s looking good. If your view is Main Street, USA, no one”™s bailing you or your investors out,” said Camden Fine, president and CEO of the Independent Community Bankers Association in a Washington, D.C.-based conference call on July 19.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, intended to monitor and curtail the improprieties in banks and financial institutions that contributed to the Crash of 2008, may have unintended negative effects on local community banks.
One year after Dodd-Frank was signed into law, the Independent Community Bankers of America (ICBA) took a look at the effects the massive financial regulations that have already or are about to be imposed.
“We (ICBA) went into this crisis, not having caused it, but to become a vocal participant and to shape what this financial bill will do to our community banks,” said Fine.
The ICBA, working on behalf of more than 7,000 “Main Street” bank members, does not want to see the intense supervision Dodd-Frank is intended to impose on megabanks and financial services to negatively impact local community banks in the process.
“The most important thing to bear in mind is how regulators will use Dodd-Frank,” said Karen Thomas, senior executive vice president for government relations at the ICBA. “At one count, we had more than 100 rules imposed; to date, approximately 30 of them have been finalized. The interchange rule was finalized by the federal government a few weeks ago. Although significant improvements were made, including caps on fees, we have many concerns about price fixing, particularly that consumers will feel the negative effect of it. All eyes are on Oct. 1, when changes in fees will go into effect.”
On the positive side, said Thomas, “The Fed is going to monitor and publish pricing before and after the rule took place. We expect to go back to Congress if it does not work.”
Another positive for community banks was a change in FDIC (Federal Deposit Insurance Corp.) assessment, which will have more stringent oversight over  the “too big to fail” banks and include nonbanking financial firms under consumer compliance regulation and supervision, although those firms have not, as yet, been identified.
By ICBA”™s calculation, the changes made for domestic deposits will save community banks $4.5 billion over the next three years, said Thomas. “The higher deposit coverage, $250,000, is also a positive.”
On the negative side, the federal interchange rule kicking into effect shortly will have an impact on community bank earnings, continued Thomas. “It is forcing community bankers to be much more cautious about how they deploy capital ”“ a community banker with limited means of raising capital cannot afford the risk until the water is less muddy.”
A growing concern among bankers is the QRM (qualified residential mortgages) provision, which would require a minimum down payment of 20 percent. “It is going to be very difficult to make this kind of down payment for a first-time or lower-income buyer and is going to hurt an already fragile housing market and hamper our economic recovery,” said Fine.
Approximately 60 percent of lending done by the community banks in their markets create half of the new jobs, said Paul Mursky, ICBA”™s chief economics. “Banking is a risky business, and extending credit always involves risk,” he said. “What we need to do with the regulations in the Dodd-Frank Act is not to squeeze all the risk out that will keep credit flowing. The result may be that credit will trickle, and that can have serious consequences.”
“The mortgage market will contract sharply if QRM is not tweaked,” added Fine. “Most likely, only large institutions are going to have nonqualified residential mortgages, in addition to less credit available. That can lead to pandering in the economic recovery.”
The ICBA has been disappointed in the lack of aggressiveness on the federal level and the Treasury Department in enforcing regulations on “systematically important financial institutions,” who have garnered the nickname SISSYs.
“We will continue to urge both to push forward and impose these new statutes and to use their authority against the very firms that caused this train wreck to begin with,” said Fine.
The ICBA is also hoping several bills introduced in Congress will eventually make it to the President”™s desk: Communities First Act, HR 1697; Common Sense Recovery Act of 2011, HR 1723; and HR2056, which would require the FDIC inspector general to study the impact of insured depository institution failures. A divided Washington, D.C., could make passage problematic, the ICBA said.
For more information, visit icba.org
