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

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.


(20) Comments



Comments (20)
Mr. Stumpf is a source of the vitriol. He is not representing the industry well. No one is defending him (except you)for all of the actions in which he has been a player that have resulted in a loss of industry trust and severe penalties and fines for his bank. Perhaps a shareholder will file a proposal that his incentive comp be clawed back when Wells Fargo is fined or settles with regulators on future misdeeds. If he is running an "honorable, trustworthy banking enterprise", it would be a good test to see if he would agree to it. Why not? Anyone want to bet on the response?

He has never responded to my earlier comments (August 28 above):
"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."

Would you like to defend him/Wells Fargo on this? He certainly chose to not do so - probably under the advise of his communications firm.

These comments serve a great purpose- they are a wake-up call for action for bank leadership instead of back room leadership via lobbyists. It is a call for transparency instead of under the table manipulation of our financial markets.
Posted by frankarauscher | Tuesday, September 17 2013 at 1:59PM ET
Wow, no good deed goes unpunished. If an article this supportive and positive can provoke so much vitriol, what is the point of publishing it? Or better, why allow so many reflexive bank haters a forum? I recommend eliminating the comments because so many are just vicious and serve no good purpose.

Whatever someone thinks of Stumpf, his point is accurate. One size fits all is a poor regulatory principle. The current political and regulatory environment is schizophrenic because it wails about TBTF while concentrating on imposing regulatory burdens that make is difficult for a small bank to survive, driving much of the industry either out of business or to grow big enough to cope.

The market has shown that it is best to have an array of banks matched to the size and scope of the customers they serve. Large banks concerned with efficiency often force small customers into generic products that may not serve the businesses' needs well, if the bank decides to serve them at all. Small banks are too small to serve big customers.

Regulators regulate the market, they do not replace it. The biggest risk in a system such as ours is a regulator or legislator who does not understand the market. Mr. Stumpf is merely calling our attention to that.
Posted by gsutton | Tuesday, September 17 2013 at 11:27AM ET
Of course, it is always easier and less risky to bully the smaller ones.

Community banks should request the withdrawal of those hormones that grow the too big to fail banks, namely the minimal capital requirements applied to much of the too big to fail assets. That would begin to level the field.

If bank regulations were medicines, FDA would have long ago established the extreme close link between these minimal capital requirements and all the current bank problems... including obvious undercapitalization... and prohibited their use.

And instead of suing banks we would be suing bank regulators.

If Mark Twain was alive now he would write "A bank regulator is one who likes the bank to lend out the umbrella when the sun shines, even more than what a banker likes to do that, amazing, and one who wants the banker to take back that umbrella when it seems it could rain, even faster than what the banker would like to do, equally amazing.
Posted by Per Kurowski | Wednesday, September 04 2013 at 8:38AM ET
Wow, I almost thought Jamie Dimon wrote that article since it appears right out of Dimon's playbook. I am a 23 year veteran of the FDIC and can tell you that community banks are dealt with a much stricter hand than the large banks. Much of this is the OCC's fault from its former Director, but the FDIC is to blame as well. I ought to know since I headed up the FDIC's large bank program for a number of years.

The OCC refused to share much of the information they gather on banks. In turn, the FDIC does not share much with the OCC.

I have done analysis showing that average examination ratings for the large banks have improved to a much greater degree than that shown for the community banks. This brings up questions as to whether the same standards are being applied to both groups. I can tell you they are not. Regulators are afraid of CEOs of the large banks because they usually have friends in high places, including politicians and lobby groups (Promontory, etc.) that will got to bat for them.

I am not into conspiracy theories but one can see there have been a secret but organized attempt through regulatory policy driven by the Federal Reserve and Treasury, to shrink the size of the banking industry. A smaller industry is much easier to regulate and monitor so that the government can more easily manage the economy.

You can see more at
Posted by Dwihas3 | Wednesday, September 04 2013 at 7:40AM ET
Who cares what Stumpf says or about the ABA and ICBA As bankers we all just need to spend more time working to serve our customers and rebuild the trust we lost as an industry. DF is here because the public demanded it after the outrageous acts of bankers - they don't care if they were on Main street or Wall Street. Now we all must deal with it and in time, only through hard work in our communities, will we regain the public trust and respect.
Posted by kcostello | Sunday, September 01 2013 at 11:26AM ET
With 'friends' like John Stumpf, community bankers don't need any more enemies. Kind words about smaller financial institutions from the CEO of Wells Fargo sound as disingenuous as those that emanate periodically from the OCC and Fed.
Posted by jim_wells | Friday, August 30 2013 at 5:02PM ET
grsh --I was engaged in the Congressional regulatory fight and am confident the House could not have gotten the votes had the ICBA not capitulated. Having been a member of both the ICBA and ABA, I will agree that the ABA represents a broader group, however I have found that our bank's interest are better served by the resources of the ABA. We are better as an industry when we all push from one organization that aligns the overall best interest of the whole banking system. I hear your arguments but my experience gives me a different result. I appreciate the fact you are a fellow community banker and hope your bank does well - we will just have to disagree on these issues.
Posted by Watchdog1 | Thursday, August 29 2013 at 3:46PM ET
Mr. Stumpf, with all due respect, Little Red Riding Hood's interaction with the wolf in the woods caused less head scratching than this media ploy. Wells Fargo standing up for community banks? Oh please.
Posted by LetsGetReal | Thursday, August 29 2013 at 6:34AM ET
Mjacmoses: one voice? Unity? ICBA knows who they represent as does the Rountablwnand every other trade group Washington with the exception of ABA. Who do they represent? They cannot simultaneously represent TBTF/TBTJ and community banking simultaneously. It is not hostility or divisiveness it is simply a clearly defined two tiered banking environment. The facts are simple.
Posted by grsb | Wednesday, August 28 2013 at 7:34PM ET
How is this article anything but good for community banking? I don't doubt that Stumbf's statements are for the benefit of TBTF, but that doesn't mean they can't also be to the benefit of the community banking industry.

As for ABA & ICBA, the hostility between bank trade organizations impedes progress and must stop. We should care about advocacy on current issues not the mistakes and missteps of years past. We need leadership that will unify our industry.
Posted by mjacmoses | Wednesday, August 28 2013 at 6:54PM ET
Watchdog1: I am a fourth generation community banker and bank owner. The votes were there for DF, at least ICBA had a seat at the table, ABA's strategy sidelined them, and they are still damaged goods on the Hill; as in not welcome or trusted in most Senate or house offices. Perhaps more damning, ABA is not at all well liked by the regulatory agencies, which translates to them having little to no ability to help shape policy in a meaningful way. Which, since they don't know who they actually represent, isn't all that surprising. The bright line between community banks and Wall Street Mega-banks has been there for a decade or better, DF codified it and exposed ABA's inability to serve two masters.
Posted by grsb | Wednesday, August 28 2013 at 5:45PM ET
Thank you grsh - You are exactly right the ABA opposed it and if the ICBA had not capitulated to an ill advised strategy ( How is that working for all of us now?) the votes were not there to pass the resulting legislation. I would guess you are an ICBA staffer based on your response.
I am a Community Banker and have been a member of both the ABA and the ICBA. I dropped my membership in ICBA and truly believe as an industry we are much better with a single voice - THE ABA.
Posted by Watchdog1 | Wednesday, August 28 2013 at 5:11PM ET
Absolutely! The more homogenous bank regulations are, the greater is the systemic risk.

But I would not argue only for the community banks, but also for their clients, which are normally those most discriminated against by capital requirements based on perceived risk.

In fact was the Equal Credit Opportunity Act correctly applied, those discriminatory capital requirements would not even be allowed.
Posted by Per Kurowski | Wednesday, August 28 2013 at 4:27PM ET
To gsrb: Perhaps the ICBA is awake now. But where was ICBA in 1999 when the Gramm-Leach-Bliley Act (killing Glass-Steagall) was being debated? Leach was from Iowa the heart of community banks. We do agree that this article is a slap in the face to anyone concerned about rebuilding American communities.
Posted by frankarauscher | Wednesday, August 28 2013 at 3:44PM ET
Thank you John Stumpf. I admire top leaders of Big Banks who are not afraid to show up online and engaging in public dialogue on important issues. The article is very balanced and merits consideration by legislators and regulators. At the same time the financial crisis has impacted everyone, everywhere in the world so badly. To quote John C. Maxwell, "everything boils down to leadership". The financial crisis, therefore, was a crisis of leadership and that aspect of the crisis has not yet been resolved. As a decades-long observer of banking ups and downs, I always wondered what can be done to improve the quality of leadership in banking. Can the big banks influence the creation of conditions for quality banking leadership and management? This would keep regulators away - they always show up and will always show up when there is crisis. How can the banking industry create a culture that nurtures thriving financial service institutions for thriving economies, including community economies?
Posted by Jean-Baptiste Sawadogo | Wednesday, August 28 2013 at 3:28PM 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 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
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
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
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
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
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