The economic pain inflicted on millions of citizens and businesses by the collapse and eventual bailouts of some of Wall Street’s largest financial firms reveals why community banks should continue to distinguish themselves from systemically risky financial firms.
Community banks are low-risk financial institutions. Their well-earned reputations for service to their communities should not be confused with the handful of Wall Street mega-institutions that brought our financial system and economy to the brink of collapse and gave the financial services industry a black eye in the minds of the American public.
So I find it puzzling, but not surprising, that representatives of these large institutions would argue that community banks should not receive proportional regulatory treatment that recognizes their size and distinct business models ("A Modern, Developed Economy Needs Banks of All Sizes," Oct. 3). Some renounce a "two-sizes-fits-all approach to bank regulation," but it is obvious to community bankers that a one-size-fits-all approach has not worked and will not work in the future. Community banks are not systemically important financial institutions. They should not be regulated as if they were. To argue that a bank in Horton, Kan., should have the same regulations as the nation's largest financial institutions is ludicrous.
Statutorily distinguishing community banks ensures that they receive appropriate regulatory oversight compared to the too-big-to-fail institutions that pose systemic risks to our nation's economy. Regulation that acknowledges differences in size and risk allows community banks to continue to serve their customers, lend to small businesses and help their communities recover from an economic collapse triggered by Wall Street overreach. And unlike the Wall Street mega-firms, community banks are small businesses themselves. They don't survive unless their customers and communities prosper. Community banks represent an entirely different business model compared to the largest, internationally active, "money center" banks.
As the gulf between the community bank model and the mega-bank business model has widened in recent years, community banks have increasingly struggled under the same regulatory scheme meant to oversee the very largest financial institutions. Large financial institutions can devote teams of lawyers to handle regulatory compliance. At community banks these burdens mean double- and triple-duty for the limited staff available.
Now that Washington has finally taken steps to rationalize regulation based on size and risk to our economic system, we hear that reduced regulatory burdens for community banks don't make sense. Community bank exemptions from new regulatory burdens, as well as new capital and resolution requirements for systemically risky firms, have been long-sought by community banks. The savings realized from the ICBA-advocated assessment base change will be put to work where it belongs—in the community to help local residents and small businesses.
Camden R. Fine is president and CEO of the Independent Community Bankers of America and a former community banker.