CEOs Oppose Inefficient Regulatory Reform

Community bankers are a varied lot, and their opinions usually run the gamut.

Case in point, seven chief executives of community banks described differing fallouts from the recession and diverged on how much pain still lies ahead in a recent roundtable interview with U.S. Banker in Washington.

But the CEOs — members of the Community Bankers Council of the American Bankers Association — in unison blasted legislative plans to toughen regulation of banks and offered alternative fixes to overdraft programs. Perhaps more surprisingly, they also argued that small banks' antipathy toward big banks is overblown and that the perception undermines both sides' interests.

On economic matters, the bankers' comments reflected the reality that some regions have been hurt worse than others.

The Pacific Northwest, for instance, fell into recession later and has been feeling its effects more in the past year. "The Northwest came into recession later than the rest of the country, and we actually thought we might escape it because we were so delayed," said Laurie Stewart, the president and chief executive officer of Sound Community Bank in Seattle. "But we're just coming out of the cycle later. It's all about jobs. We're seeing reductions we've never seen before. Even Microsoft has had layoffs, and they've never had layoffs."

Charles G. Brown 3rd, the chairman and CEO of Insignia Bank in Sarasota, Fla., said that housing in his region had finally stabilized but "we think it's going to be another year or two before that really bleeds upward into the higher-price ranges."

Bankers in regions that escaped big economic swings, such as communities in the Farm Belt, perceive business as having been more stable.

"Agriculture has fared better than most sectors, though if you're feeding livestock it's not a good thing right now. But [Iowa] has not had extreme highs, so it didn't hit big lows. Things are pretty stable where we are," said Stephen J. Goodenow, the president and CEO of Bank Midwest in Spirit Lake, Iowa.

When asked about their biggest challenges, the bankers nearly all mentioned regulation and said they wish lawmakers in Washington would pay more attention to the needs of community banks and their customers. They said they have to worry about a host of regulators, including the Federal Deposit Insurance Corp.

"We're in an environment now where we are all struggling to make money, but between regulatory issues and FDIC assessments [for deposit insurance] it's become a managing game," said Carolyn Mroz, the president of Bay-Vanguard Federal Savings Bank in Baltimore. "Every new regulation piles on more expense."

Stewart, the Seattle banker, agreed and said she thinks the cost of regulations is often ignored. "There's a cost to our clients, too. I think sometimes our lawmakers don't recognize there's a cost for compliance and a cost for insurance premiums, and those costs are ultimately borne by our clients," she said. "Pending regulations will add more costs to consumers that I'm not sure they are getting fair value for."

And the community bankers said they feel as though sometimes they are targeted for regulation because of consumer outrage directed not at them but at the big banks and the financial crisis that dragged the economy into recession. This frustrates them.

"Banks are being targeted because we are easy fodder," said Robert T. Braswell, the president and chief executive officer of Carolina Bank in Greensboro, N.C. "We already have a regulatory framework in place with which to execute rules and regulations. The subprime crisis was caused mostly by nonregulated entities — not banks and especially not community banks."

On the issue of whether Congress should legislate fixes for overdraft programs — such as more disclosure of fees and rules — the bankers said they respect those rules but do not want Congress to go too far in restricting their ability to provide overdraft protection.

"There's a small number of [institutions] that mishandle it, and if [Congress] thinks there's a need to change how checks are cleared in the check order, or for regulations that let consumers opt in or opt out — I don't think the vast majority of bankers have a big issue with that," said Myron D. Rozell, the president of First State Bank of Mapleton in Mapleton, Iowa. "But to do away with the great benefit that overdraft protection provides — I'm not sure the public would want that. It's a great service, and the majority of people appreciate it."

The community bankers said they are concerned that the public perceives a division between big and small banks. They said they just don't see it that way.

H. McCall Wilson, the president and chief executive officer of the Bank of Fayette County in Moscow, Tenn., said he has "a huge issue with certain organizations trying to divide our industry between large banks and small banks. They are trying to create a true divide, and it's going to weaken our industry."

Braswell, the North Carolina banker, said there is a place for both big banks and community banks. "We need the big banks, and to a degree they need us," he said.

Wilson had a slightly different take, saying competition among smaller banks is often fiercer than between large and small banks. "I'd rather compete against Citibank than another community bank. A large bank cannot beat a community bank in our market. We're tied into the fabric of the community," he said.

And finally, the bankers said they worry about the reputation that the entire industry — including community banks — have obtained. "I didn't expect in my career for 'bank' to become a four-letter word," Stewart said. "The level that we overly focus on consumer protection-type regulation — that hurts us too because it gives the impression that banks did something bad, and we spend a huge amount of time in our communities trying to prove just the opposite. We're making a difference in our communities every day."