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Wells' Stumpf: Community Banks Are Vital to Our Way of Life

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There's a lot of talk these days about big banks. Getting lost in the discussion is what needs to be done to ensure smaller community banks will continue to have a vital role in supporting the U.S. economy and our way of life.

To some, this might seem an odd priority for me to discuss as CEO of a large U.S. bank. But I grew up on a family farm in a small town in central Minnesota. I learned early in life how essential community banks are to the people they serve. They cashed our checks, kept our deposits safe, made loans that kept local commerce flowing and kept our community together. My family is still in the farming business where I grew up, and on the luckiest day of my life, I married my high school sweetheart, the local banker's daughter.

We need well-managed, well-regulated banks of all sizes—large and small—to meet our nation's diverse financial needs, and we need public policies that don't unintentionally damage the very financial ecosystem they should keep healthy. Personally, I'm concerned we're reaching that tipping point, especially when it comes to community banks. I shared some of those concerns with leaders of the American Bankers Association when they met in San Francisco a few weeks ago.

Almost 95% of all U.S. banks are community banks. They provide nearly half of all small loans to U.S. businesses and farms. In one out of five U.S. counties, community banks are the only banking option for local residents and businesses. Many small towns, like the one I grew up in, would have little access to banks, and the services they provide, without our system of community banks.

Unfortunately, many community banks are struggling to keep their doors open. Some community bank closures have been due to the economic conditions affecting banks of all sizes—legacy loan problems, tepid economic growth, soft loan demand, and historically low interest rates that have crimped profit margins.

Compounding these challenges are the burdens of changing public policies and regulations that for a smaller community bank can literally mean life or death.

We all can agree there is no such thing as free regulation even if it's done well and poorly thought-out regulation has a direct cost to banks, customers and the economy overall. To comply with regulations, banks of all sizes have to build compliance costs into their operations. The multiple provisions of recent banking regulations—along with the new international capital requirements known as Basel III—have dramatically increased those costs and make credit less available at higher prices to fewer people.  These costs are burdensome even for large banks like Wells Fargo that have scope and scale—but are particularly punitive for small community banks.

And, it's not just the "headline issues" like increased capital requirements that are increasingly onerous and often not germane to their business model. The accumulated costs of complying with specific regulations can also mount in a hurry. For example, community banks must now report information on every new small-business loan application and are required to mail customers annual notices about bank privacy policies, even when they haven't made any changes to those policies. For a small bank that may have only a few dozen full-time employees, those requirements are costly and divert resources away from serving customers.   

I have a profound respect for our elected officials and regulators. We share a desire for a stronger economy, and a financial system that operates on a fair, level playing field, where consumers and taxpayers are well protected. My concern is that well-intended regulations, written immediately following the worst financial crisis in recent history, could have the unintended consequence of leading to more failures of smaller financial institutions. The impacts could be particularly severe for community banks that serve local communities across the country, particularly in small towns like my hometown of Pierz, Minn. 

A common-sense approach for policymakers would be to review the impact of the Dodd-Frank Act on our nation's smaller banks and assess the benefits of a scaled-down Basel III framework that better fits their operational realities. At the same time, a review should take place to simplify and rationalize the pending regulations on large banks to make sure unnecessary costs and needless complexity are not being introduced into the system that would slow down economic recovery in unexpected ways.

The strength of America's financial system is a result of the diversity of its players. As an industry, we need to pull together and support a common cause. We need banks of all sizes, but that diversity won't survive if our nation continues down the path of a one-size-fits-all philosophy of regulatory reform.

John Stumpf is chairman and chief executive of Wells Fargo.

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Comments (20)
Too-big-too-fail banking is the consequence of the inherent political and regulatory favoritism of crony capitalism. The community banks made a mistake in not opposing the CFBP thinking that they could escape the regulatory noose.
Posted by kvillani | Wednesday, August 28 2013 at 1:15PM ET
Thank you John Stumpf. Someone is finally carrying the message of the community banks with a strong voice. The problem is serious and must be dealt with. Perhaps Washington really wants fewer banks and the exploding burden of one size fits all regulations is their weapon of choice
Posted by Rhsmith999 | Wednesday, August 28 2013 at 1:24PM ET
Mr. Stumpf just made a better argument for Community Banking than has been made in years by the leadership of the ICBA. Cam Fine's naive miscalculation has saddled us with a mess.
Posted by Watchdog1 | Wednesday, August 28 2013 at 2:26PM ET
Ha-Ha I cannot believe that Stumph has the audacity to plead a case for the small banks because of the harm that he and the other big banks have caused. If this is his idea of a "Mea culpa", he needs to hire a new PR writer. This is like John Reed saying that he thinks that eliminating Glass-Steagall was not a good idea and do not blame the little banks for big bank actions. Remember, this is a CEO that thinks that ripping his customers off with 200% interest is Good. And he personally had to persuade his own board of directors to back him against his investors on the topic of payday lending. Then the OCC says Stump - you are putting your customers in a debt trap!!! So who do you trust? Yes, the small bankers have to wear this "regulatory hair shirt" because of their silence. They acquiesced to a whole range of bad banking that many knew was bad. While Stumph's comments have a lot of thought in them and so many community banks are being shackled, no intelligent regulators will pay these comments much heed. Sadly, no one can TRUST anything that Stumph says or writes because actions speak louder than words. Just read the list of actions against Wells Fargo for bad banking behavior. If he disagrees, let him state his reasons why he can be trusted this time. Before he replies, he should review his TV comments on his MSNBC interview about re-establishing TRUST and then view his actions since them.

I hope that the 6000+ community bankers can find a spokesperson for them that has credibility. They need all the regulatory relief they can get.
Posted by frankarauscher | Wednesday, August 28 2013 at 2:32PM ET
What a slap in the face to the thousands of community banks across the country. This is an absolute insult.

Is he the only Wall Streeter that they could find from a fly-over state? How a mega bank CEo, and a board member of the Financial Services Rountable thinks he can be a voice for community banking is beyond all comprehension, but then again there is clearly no shame on Wall Street.

Main street has a voice, ICBA, and a strong leader in Camden Fine and his staff. Watchdog1 has it wrong, and for frankarauscher check out www.icba.org for the voice of community banking.

Whatever the motivation for Mr. Stumpf to write this piece, there is no question that Dodd/Frank was going to happen. The ABA outright opposed it and chose not to engage in any dialogue, ICBA stayed in the fight. The result: a bright line, a clear differentiation between the big, systemically risky and bailed out TBTF/TBTJ and the common sense, responsible relationship based community banks that remain the cornerstone of our nations economy.

Every shred of the discussion on tiered regulation is because ICBA and community bankers are fighting every day to make this happen. Mr. Stumph can crawl back in whatever hole he came from; we know exactly who he speaks for and it isn't me or any other community banker in the United States.
Posted by grsb | Wednesday, August 28 2013 at 3:14PM ET
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